WHEN it comes to being able to afford a vacation home, sometimes you just need a little help from your friends.
In a real estate market of high prices, it was only a matter of time before the idea took hold that multiple families could chip in and make buying a second home more affordable, said Andy Sirkin, a San Francisco lawyer credited with popularizing the tenancy-in-common agreement -- the backbone for group buying. And just recently, the mortgage industry has jumped aboard the trend by offering fractional funding -- loans expressly for group ownership situations.
Although no one is keeping track of how many group purchases are being made, Sirkin said home sharing is growing among many segments of the population -- led by those who think it would simply be fun to own a vacation home with a bunch of friends. There is also an increase in group ownership among people who already own second homes but find they aren't using them much and wouldn't mind getting their hands on some cash, he said.
But perhaps the biggest push is coming from the mortgage industry, which has taken steps to simplify the process of buying together. Under one model, everyone in the group shares one loan; in another program of fractional loans, each share owner arranges his or her own financing.
Traditionally, second-home buyers have tapped into the equity in their primary houses to pay for their purchases. But First Fractional Funding of Kansas City found that not everyone wanted to do that.
"There was a void in the buying process," agreed Stephen Gordon, vice president of the Colorado-based Carteret Mortgage Co.'s fractional funding division. Carteret offers loans on one-quarter to one-twelfth shares at market rates.
To qualify, Gordon said, applicants need a FICO, or Fair Isaac Corp., score of 700 or better and may borrow up to 75% of their share's value. The loans being written are three-, five-, seven- and 10-year adjustables at 7% to 8%.
Why the limited terms? Because lenders have no history or statistics about foreclosures among group owners, Gordon said.
Although attorney Sirkin acknowledged the perception that lending to a group raises the risk factor, he said his experience has proved otherwise. In the almost 10,000 deals he has helped put together, he said he has never seen a loan default.
Which is not to say that other problems don't rear their ugly heads.
The hot-button issues of owning a second home as part of a group, Sirkin said, are usage, furnishings and exit strategy. All those points should be covered in minute detail in a co-ownership agreement before the deal is sealed.
"You don't want brief," Sirkin said of the agreement, "you want excruciating detail."
Usage is defined as either unit-based (co-owners will cohabitate all or some of the time) or time-based (co-owners are allotted different times).
Think about the smallest detail, no matter how silly it seems, Sirkin said. What hour does an owner's "occupancy day" begin -- 9 a.m. or 5 p.m.? If everyone is there together, who sleeps in the master bedroom with the Jacuzzi tub?
About 2% of the groups in unit-based properties have problems, Sirkin said, although he hasn't encountered a group with difficulties in time-based units. Why?
"They aren't there at the same time," he said. "It's all about cohabitation."
When working with clients, Sirkin insists they think about things like: Will the home be smoker-free? Pet-free? Child-free? Who cleans it? Can it be lent to friends and family members? Can an owner rent out his or her time? Who fixes things that get broken?
Curiously enough, many groups quarrel over furnishings.
"Second homes can't become the repository for everyone's old furniture after they've remodeled their primary residence," Sirkin said. "You need to determine -- in advance -- what can be brought in."
In one case, an investor-owner who wasn't going to use the unit didn't want to spend the extra money on a high-end TV, while his partner, who was planning to vacation there, wanted a state-of-the-art plasma big screen. They compromised: a small TV in the bedroom and a better-quality one in the den.
Exit strategies also should be spelled out. Some groups want control over whom a partner sells to. Some groups don't care.
A tenancy-in-common agreement -- an arrangement under which two or more people co-own a property without a right of survivorship -- allows each co-owner to choose who will inherit his or her ownership interest upon death. By contrast, "joint tenancy" requires that each co-owner's interest pass to the other co-owners upon death.
Most states also weigh in. In California, regulatory approval is required if there are more than 10 co-ownership shares. Florida intervenes at more than seven shares, and in Hawaii, state approval is required if any owner is allotted fewer than 60 days a year of usage.
Local government approvals of sharing arrangements are rarer but increasing, especially in resort areas.