Co-owning a cabin: Should I buy a property with family or friends?

Key Insights

• Co-owning a cabin requires extra communication. Be ready and comfortable to discuss details regarding finances and the use of the property.
• Clearly put the terms of joint ownership in writing now, so you can rest easy and enjoy the cabin for years to come.
• Hire professionals, like an attorney and REALTOR®, to guide you as you buy or inherit a cabin with friends or family.

Whether you grew up in the area or visited for summer vacation, you’ve likely experienced the joys and peacefulness of lake life in Minnesota and Wisconsin. While you may be dreaming of your perfect lakeside abode to host summer bonfires and family game nights, purchasing a second property on your own may be out of the question.

Luckily, you don’t have to do this solo! Keep the following cabin co-ownership tips in mind if you’re ready to purchase a cabin with friends or family, or if you’ve jointly inherited a lakeshore property.

How to purchase a cabin with friends or family

If you’ve just made the decision to co-own a cabin, it’s easy to skip past the process and begin envisioning weekends on the lake. However, it’s extra important to consider the details of property ownership at this stage. Here are some steps to set you and your co-owners up for success with a shared property.

Choose your partners wisely

First, it’s necessary to establish who might be a good fit for this partnership — and who wouldn’t. Even though you may love hosting certain friends as weekend guests, you’ll also need your co-owners to be seriously reliable and communicative. Most importantly, everyone involved should be open to creating strong rules for the arrangement, even if your relationship is typically more casual.

Here are some standout traits to seek out in a potential co-owner:

• Strong communication skills
• Financially responsible
• Similar views and values on space-sharing

Understand co-owned mortgages

While a co-owned mortgage or joint mortgage may make cabin ownership more accessible to those who aren’t ready or able to buy a property alone, a mortgage is a long-term financial obligation. So, it’s important to thoroughly think through what a shared mortgage would mean for you and your potential co-owners.

When you apply for a co-owned mortgage, lenders will consider the income and credit information of all borrowers involved in the purchase. If you’re planning to co-own a cabin moving forward, get in touch with a home mortgage consultant early on. They can guide you through the process, make sure you are pre-approved and help you make smart decisions as you prepare to buy.

Draft a detailed contract

Now that you and your partners are on board, it’s time to lay out all the technicalities of a co-owned cabin in a contract. You’ll want to go even more in-depth than you think may be necessary within your contract.

By spending the time now to iron out the details, your arrangement is more likely to run smoothly in the future. And that’s crucial, as it will allow you to spend even more time enjoying the cabin, rather than navigating the logistics of ownership. In your official contract, consider:

Legal and financial details

• Cabin ownership percentages
• Division of mortgage, down payment and additional costs
• What happens if someone dies or divorces?
• What happens if someone can’t pay?
• What happens if someone wants to sell or terminate their side of ownership?
• What happens if one owner wants to buy the other out?
• Who are the beneficiaries of the property, if applicable
• How do you resolve disputes over whether to make a major repair or upgrade and who should be responsible for the costs?
• Lake home insurance plans

Expectations for co-owners

• Division of labor and upkeep, or payments toward upkeep
• Any rules on conduct on the property (e.g., no smoking)
• Shared lake equipment, including recreational vehicles and boats
• Schedule for use, including agreements around guests

Rules for guests and rentals

• When guest accommodations can be made
• Whether the property may be rented when not in use by the owners
• Are pets allowed in the cabin?

Decide on an ownership structure

As part of the contract, co-owners should determine which type of ownership structure they’d like. Some common options include:

• Joint tenancy
• Tenancy in common
• Limited liability companies (LLC)

But, what exactly does all of that mean? To start, when spouses or partners purchase a home, they often take ownership in joint tenancy. This means that if one owner dies, their interest automatically passes to the other owner. But, this structure might not make sense for a co-owned cabin.

In the cabin circumstance, co-owners may want their portion of the property to go to their own heirs, rather than their co-owners. To do this, you can take ownership of real estate as a tenancy in common, which means that each person owns an interest in the property, but if they die, their interest can pass to their heirs.

Another option worth considering is creating an entity, like a limited liability company (LLC), to own the property. Then, the individuals involved would each have a percentage of ownership interest in the LLC. When creating an LLC, the parties can develop all of the necessary agreements and rules to govern the cabin and the parties’ rights. Another benefit of creating an LLC is that it can help reduce everyone’s personal liability in the event that there is an injury on the property.

Hire an attorney

It’s strongly recommended that you hire an attorney to address co-ownership concerns that keep the best interest of all parties in mind. Even if you don’t foresee any issues, it will benefit everyone involved to have peace of mind knowing that a plan exists should anything out of the ordinary happen.

You inherited a cabin with your siblings. Now what?

If you have inherited property with others, you’ll want to carefully consider joint ownership and hire an attorney to assist with a co-ownership.

Oftentimes, inheriting a property is accompanied by the emotional fallout from losing a loved one. If possible, plan a transfer of ownership well in advance. Not only will this help to minimize any confusion associated with the property transfer, but it will also allow for heirs to draw up their own co-owned contract should they want to continue ownership together.

If you or someone in your family is planning to pass down a property in the future, you may want to explore the various methods of passing down property to your loved ones, including setting up a transfer upon death deed.

Daily details of lakeshore co-ownership

After the bigger details have been settled, it’s time to get on the same page regarding the day-to-day aspects of sharing a cabin. Schedule a time to come together with your co-owners regarding general cabin guidelines not outlined in the contract, including:

• A cabin calendar, especially if families will visit on alternating weeks or weekends.
• A plan or rules for hosting guests.
• A schedule for property management, maintenance and improvement, including off-season prep and winter upkeep.
• The use of boats, jet skis, life vests and other shared equipment.
• A plan for how and when you’ll communicate changes, issues or concerns (you may want to schedule an annual meeting).

This is where it can start to get really fun and exciting. While sharing a cabin, you’ll likely end up with even more cabin toys to play with — such as kayaks, bikes and more — depending on how you plan to divide everything up. And, you’ll have double the hands to complete exciting cabin projects like building a bonfire pit or a landscaped path from your property to the lake.

Pro tip: Consider keeping a shared notebook or binder in the cabin to communicate things like when water filters or HVAC filters were last changed, what cabin quirks you’re noticing that might need to be addressed or even memories you want to share with each other. This would also be a good place to keep owner’s manuals or instructions.

Moving forward with a co-owned cabin

For folks who can’t afford their own cabin, co-ownership can be a great option. But the bottom line remains that compromise, planning, and good communication will be necessary to a successful and long-lasting lakeside partnership.

Are you moving forward with the purchase of a co-owned property, or are you ready to buy your own lakeshore home? Reach out to Edina Realty or your agent for assistance. With years of market experience, we can help guide you through the process of homeownership, all details included.