Summer Home

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How to Own a Vacation House—
With Somebody Else
Lucy Bixby Photographs
Joining forces may be the only way to afford a
second home. The trick is in the sharing.
Descendants of industrialist William Keeney Bixby
gathered in July 2010 for the annual family meeting
at the summer home they share on Lake George, N.Y.
BY PETER S. GREEN
FIGURING OUT HOW TO SHARE A VACATION
home is no day at the beach. But it may be the
only way to have a day at the beach at all.
That’s because the price of second homes is rising, and few people have enough cash to buy one
on their own, let alone enough vacation time to
justify the purchase. So increasingly they’re teaming up with friends or family to buy—or, in the
case of inherited property, to keep—that muchcoveted retreat from the hassles of daily life.
And, too often, straight into the hassles of
shared ownership. What could go wrong when
sharing a vacation home with your dearest friends
and family? Plenty, it turns out. The potential issues run the gamut—from how do you buy to how
do you share time to how do you split costs to how
do you sell.
“It’s like a marriage,” says Craig Gibson, a realestate attorney in Bridgehampton, N.Y. “There’s a
50% chance it’s not going to work.” (In case there’s
any doubt how Mr. Gibson feels, he calls joint ownership in general “a recipe for disaster.”)
The Ground Rules
So, how can buyers reduce the likelihood of a
disaster?
First off, experts say, consider the type of property carefully.
Kirk Booth, a broker in Asheville, N.C., counsels
people looking to jointly buy a vacation place for
the first time to start small. Try a planned community, where maintenance and the pool are part of
the common charges, he urges, leaving fewer issues to complicate a relationship.
Also decide how the property will be used. Will
it be primarily a vacation spot for the owners to
use, a place they can rent to others or some combination? It’s all too easy for people to approach
a purchase with very different assumptions and
figure everyone else is on board.
Ryan and Michele DeShazer, of Columbus, Ohio,
had long talks with their co-buyers before purchasing vacation properties in Surfside Beach, S.C.
The verdict: rentals, at least for now.
“We all agreed that we are not going to personally make a profit or use the houses as a vacation
home for a while,” says Ms. DeShazer, who adds
that she’s hopeful the two families can afford to
begin vacationing in one of the homes some time
soon.
Discussing, researching and agreeing in advance
seems to have worked, she says. “We are all still
happy and friends—so we are doing something
right.”
Experts also say that it’s crucial that joint buyers spell everything out ahead of time. “You have
to put together a checklist of all the things you
need to agree on and all the things that could go
wrong,” says Jeff Lichtenstein, a real-estate broker
INSIDE
Abundance of Riches
The private­equity industry
has raised more money
than it can spend.
R2
Nontraded REITs Are Hot,
but They Have Plenty of
Critics
As investors pour money
into funds, skeptics see
better alternatives.
R4
Think Twice Before
Helping Your Children
Buy a Home
An Investment That’s
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Single­malt Scotch whisky has
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Alternative Investing
What’s a CFP Worth for
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Parents want to do what
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The risks of betting on gold
and the heady growth of so­
cial­media companies.
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Some wealth managers
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Auction Rooms Seem
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The View on Currencies
in Emerging Markets
It isn’t because there are
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From left: Heritage Auctions; Bloomberg News; Mehesh Patel
The Game Plan
Financial advice for a 20­
something who acts, writes
and sticks to her budget in
New York City.
R8
Leisure Sale
Vacation-home sales rose nearly 30% in 2013 from the previous
year, with 41% of purchases taking place in the South.
717,000
Number of vacation
homes sold in 2013
$85,600 53%
Median household
income of vacation
home buyers
Percentage of
buyers who paid
cash
87%
To use as future principal residence
Percentage of
buyers who plan to
own property more
than six years
$168,700 55%
Median sales price
52%
Percentage of
buyers under age 45 Percentage of
66%
buyers who are
likely to purchase
Percentage of
another property in
vacation homes sold 38%
that were detached
single-family
properties
Reasons for Buying
To use for vacations or as a family retreat
the next two years
31%
Diversification/good investment opportunity
28%
To rent to others
23%
For a family member, friend or relative
22%
Had extra money to spend
13%
For the tax benefits
13%
Source: National Association of Realtors Investment and Vacation Home Buyers Survey 2014; HomeAway.com
in Palm Beach Gardens, Fla. “Basically, you need a
real-estate prenuptial.”
When it’s time to make the purchase, buyers
also should think about how the deal will be made.
Mr. Gibson recommends setting up a limited-liability corporation to make the purchase. This setup
keeps the buyers’ personal finances separate from
the property, he says, and the partners can set out
The Wall Street Journal
their rights and obligations in the company’s
founding document.
Dropping Out
For one thing, what happens if a buyer can’t
keep up with obligations? Anyone can suddenly
become unable to meet joint payments on a home,
Please turn to the next page
THE WALL STREET JOURNAL.
R2 | Monday, June 16, 2014
JOURNAL REPORT | WEALTH MANAGEMENT
How to Own a Vacation Home With Others
Continued from the prior page
says broker D. Patrick Lewis, in
Scottsdale, Ariz. So, an exit plan
should be a key part of any arrangement.
“It is necessary to have both
blunt, exhaustive and sometimes
uncomfortable discussions with
all parties,” says Ms. DeShazer.
Chuck Bennett, a broker in
Rancho Mirage, Calif., says partners should agree at the start
how long to hold the property or
how often to evaluate whether to
keep or sell. “One person almost
have been sharing a Martha’s
Vineyard summer home they inherited from their mother. The
sisters initially divided the responsibilities for the home into
three buckets—financial, rental
and operations—and rotate the
responsibilities each year.
That makes it more palatable
to deal with repairs and contractors from a distance, such as last
year when they had to raise the
house and dig a foundation.
“Doing construction on an island
far from where you live can be
Home Sweet (Vacation) Home
Top 10 U.S. counties with the greatest share of vacation dwellings
County
Main Vacation Area
Median
List Price
Vilas, Wis.
Land O'Lakes, Manitowish Waters
$239,000
Summit, Colo.
Breckenridge, Copper Mountain
435,000
Cape May, N.J.
Cape May
389,000
Worcester, Md. Ocean City
275,000
Dare, N.C.
Kill Devil Hills, Nags Head, Cape Hatteras
359,000
Camden, Mo.
Osage Beach, Lake of the Ozarks
187,000
Summit, Utah
Park City
799,000
Carroll, N.H.
Ossipee, White Mountain Natl Forest (part)
246,400
Oneida, Wis.
Three Lakes, Minocqua
169,900
Pike, Pa.
Lackawaxen, Greentown
179,900
Source: Trulia
always wants to back out, gets a
divorce or loses money, so you
just have to keep your agreement
as ironclad as possible and set
reasonable expectations about
everything,” he says.
Mr. Booth, the broker in Asheville, suggests giving the remaining partners the right of first refusal if one wants to sell. “It’s
very important that everything
be agreed up front,” he says. “I
may not like who you are going
to sell it to, and don’t want to be
in a business with that person.”
Another big consideration
that often gets overlooked—but
should be settled in advance—is
maintenance. Who’s responsible
for keeping the place clean and
in good repair? That can be especially tricky if the property is
hundreds of miles away or more.
One solution is to rotate the
job so nobody has to do it full
time. For the past 12 years, Sabrena Tufts and her two sisters
The Wall Street Journal
aggravating,” says Ms. Tufts.
“But we were able to do it because we shared the chores.”
Another important financial
step to take early on: setting up
a shared bank account to cover
maintenance and other expenses
(and agreeing every partner will
make regular payments).
A separate account for the
property draws a sharp line between personal and investment
funds, and makes clear what’s
going in and what’s going out,
says Ms. DeShazer. “We discuss
all [deposits and withdrawals],
no matter how large or small.
You also have to determine what
profits will be reinvested versus
withdrawn for personal use. In
addition, how you will pay for
any large debt, if the money is
not in the account?”
Setting Up a Schedule
Then, of course, there’s the
matter of who gets to use the
house when. This is an area that
can be tough to set in stone
ahead of time, because people’s
needs change so often. One solution: a spreadsheet with time
slots that rotate on a schedule or
are assigned at random.
Rod Smith, a broker in Myrtle
Beach, S.C., says a group of 13
couples came to him with what
he thought was a near-perfect
plan to share a beachfront condo.
Each couple was assigned by lot
four weeks a year, which could
then be traded or sold to the
other members as they wished.
Mr. Smith had them add to their
operating agreement one week a
year during which the apartment
was shut for cleaning and repairs
by a professional maintenance
firm.
Some owners, like Ms. Tufts
and her sisters, meet when necessary to hash out schedules.
Now that her siblings have children of their own, the three-bedroom house is too small for everyone to be there at once. Last
year, the three sat down to replan how they share the house.
“We’re adapting the schedule
to our lifestyles,” says Ms. Tufts.
“It’s about having a system and
mapping things out.”
The sisters with children have
priority during school vacations,
and if there isn’t enough space
for everyone on a holiday weekend, the sisters are now in a position to rent a nearby cottage.
Barbara Reale, who shares a
vacation home in Wall, N.J., near
the Atlantic Ocean, with her sister and brother, says the siblings
have worked out rules on when
their children can be left alone in
the house, and when they can use
it with friends and without parents. “That’s a source of potential
friction,” she says, so it’s good to
have an agreement in place.
Other parts of their dealings
haven’t been working out quite
so well, she says. Ms. Reale says
she has set up a shared online
calendar that all the owners can
view and update, as many pros
recommend. “Nobody uses it but
me,” she says. That has led to a
few weekends where her siblings
have shown up with extra people, making for a tight fit in the
six-bedroom house they inherited from their mother, she says.
Her brother, Aldo Reale, says
he never uses the spreadsheet,
and just picks up the phone
when he needs to coordinate.
Her sister, Nancy Gifford Humphreys, says she never uses it either. “I forgot about it,” she says
with a laugh. “I never use it. I
like to text or use more personal
forms of communication.”
Houses held by the same family for generations can also present complex challenges, says
Nancy Golden. Her great-grandfather, William Keeney Bixby, an
early 20th-century industrialist,
built the “Big House” on Lake
George, N.Y., in 1902.
Today, about 250 heirs share
the mansion and a smaller house
on the grounds. Because of the
number of relatives involved, the
family formed a corporation to
oversee sharing the place. A
treasurer tracks expenses and
proposes an assessment each
year. Each family branch appoints a booking agent to assign
time slots, which are rotated annually. Slots can be sold or
traded to other relatives.
The corporation spends over
$100,000 a year to maintain the
houses, grounds, tennis courts, a
boathouse and an 1890 electric
launch. Ms. Golden, who has
worked as a professional fundraiser, has been holding auctions
each summer to raise an endow-
ment for the property—selling
everything from maple syrup
made by a Bixby to time at a
Bixby vacation home in Belize.
She has raised more than
$500,000 over the past 10 years,
she says, with interest from the
endowment spent on capital improvements. “It’s endless,” Ms.
Golden says. “They painted the
north side last year, they’ll do
the east side next year,” then the
boathouse, the smaller house
and start over again.
Mr. Green is a writer in New
York. He can be reached at [email protected].
Abundance of Riches
Private equity has raised more than it can spend
BY ANDREW BLACKMAN
HOW DOES IT feel to have a trillion dollars burning a hole in
your pocket?
Ask the private-equity industry. It has been so successful in
raising money from investors recently that it can’t spend it fast
enough.
The amount of money raised
by private-equity firms but not
yet invested—known as dry powder—hit a record high of $1.073
trillion globally at the end of
2013, according to data provider
Preqin, an increase of $130 billion from 2012. The total has
continued to grow this year,
reaching $1.141 trillion globally
as of the start of June.
“Private equity has been the
best-performing asset class for
many institutional investors
over the long term,” says Hugh
MacArthur, head of global private equity at consulting firm
Bain & Co. “In a world where
many other investments, like
credit-based investments, offer a
very low yield, they’re saying
they need to continue to pursue
those returns, so they’re putting
more money into private equity.”
The influx of capital is good
news for the private-equity industry, but it may not be such good
news for investors. Some analysts
fear that private-equity firms will
struggle to invest such a large
amount, resulting either in money
remaining uninvested for years or
in fund managers overpaying for
deals, both of which could affect
investor returns.
Reinvesting Profits
For now, that’s not deterring
investors. They committed $431
billion to private-equity funds in
2013, the highest amount since
the financial crisis that started
in 2007, according to Preqin.
And that is set to continue, as
90% of investors surveyed by
Preqin in December said they intend to invest either the same
amount or more in private equity this year compared with last
year, and 92% said they would
maintain or increase their private-equity allocation over the
longer term.
One factor in those plans,
says Bain’s Mr. MacArthur, is
The total amount of
‘dry powder’ hit a
record $1.141 trillion
globally at the start of
June.
that investors are reaping substantial profits from older private-equity funds.
“Many investors are getting
much more money back” from
expiring private-equity investments than they put in, says Mr.
MacArthur. “We fully expect this
to continue in 2014.”
Frustrated Shoppers
The problem for private-equity firms is that the same
strong stock market that has allowed them to collect big profits
in the past couple of years on
their earlier investments is making it harder to find good investments now.
“A lot of the private-equity
sponsors I speak with are really
frustrated at finding opportunities at a price they’re interested
in,” says Lee Duran, partner and
private-equity practice leader at
consulting firm BDO USA LLP.
Sectors like software as a service and health care are particu-
larly popular among investors
right now, says BDO’s Mr. Duran,
meaning valuations for companies with strong profits and
good growth prospects can be
very high.
In December, BDO asked more
than 100 U.S. private-equity executives what their most significant challenge would be in the
coming year, and the most common response was pricing, cited
by 39% of respondents, up from
15% in a similar survey a year
earlier. Second on the list was
identification of quality targets,
cited by 34% of respondents, up
from 28% in the previous survey.
Despite these challenges, deal
activity has remained strong,
with $171 billion in private-equity-backed buyout deals in
North America in 2013, up 10%
from 2012, according to Preqin.
Money Is Still Welcome
The bottom line for investors:
Private-equity firms may struggle to find compelling investment opportunities in such a
strong market, and this could
make it harder for them to
achieve the level of returns that
investors have come to expect.
It appears unlikely, though,
that the private-equity industry
will start turning away investors.
It would be very unusual for
funds not to be able to find any
suitable opportunities and to return money to investors, Mr.
MacArthur says. It’s more likely
that they’ll simply take longer
than usual to invest.
“I don’t think we’re massively
out of balance right now, but it’s
something that bears watching
over time,” says Mr. MacArthur.
Mr. Blackman is a writer in
Crete. He can be reached at
[email protected].
Cash Pile-Up
The amount of money raised by private-equity firms but not yet invested, known as ‘dry powder,’ reached a record
high last year. In billions.
FUND TYPE
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Buyout
$176.6
$258.5
$379.9
$439.3
$482.9
$482.0
$424.0
$389.4
$354.4
$397.2
Distressed
18.5
20.4
36.7
61.0
55.5
55.9
68.1
72.1
64.5
74.3
Growth
10.7
16.4
25.5
36.7
45.9
47.5
55.2
69.7
69.8
75.9
Mezzanine
18.2
21.5
33.6
34.2
42.3
40.5
38.6
45.8
38.6
42.6
Real Estate
55.1
98.1
132.6
166.9
171.4
180.5
154.3
166.9
156.4
185.4
Venture
Capital
91.4
93.0
103.0
123.6
121.3
114.8
109.5
114.5
110.9
114.4
Other
34.7
51.1
86.9
139.3
148.1
139.9
137.8
148.0
148.6
183.8
Total
405.3
559.0
798.1
1000.9
1067.4
1061.1
987.5
1006.3
943.2
1073.5
Source: Preqin
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