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How to co-buy a vacation home with friends - Part 1
The Story of Duck Cloud
This is the in-depth story of Duck Cloud: A co-bought vacation home on the California coast. I’m lucky to be a participant in this one. In fact, I’m writing these very words from a comfy chair looking over the Pacific Ocean while my friend cooks me eggs in the kitchen.
I now have access to a spectacular retreat home that I could not possibly afford on my own. And the best part: I get to share it with some of my best friends.
In the immortal words of all co-buyers: It wasn't easy. But it was worth it.
You too could have this if you read on …
This 3-part case study is meant to be a complete template for people who want to buy a shared vacation home.
We'll share the lessons learned in the process, financial structures, and the actual legal docs we used to make it happen.
Part 1: Origin story, search, and purchase process (this episode)
Part 2: Legal + financial structure
Part 3: Post-purchase operations
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Part 1: The Buying Process
This particular group of friends was not afraid of big projects.
They had started an 80-person Burning Man camp together. Starting a Burning Man camp is not dissimilar from buying a home together. It’s a complex exercise in logistics, group interpersonal dynamics, and consensus-building.
And we had that extra special kind of trust that gets forged by 8 years of hard, hungover days laboring in the dusty desert. We had seen each other at our worst. We had stared conflict, setbacks and sour moods in the face and said “we can do this.”
[Phil’s take: Every Burning Man camp should buy a vacation/retreat home together]
It's not clear exactly who proposed it first, but it was fairly obvious that we were going to create a home for ourselves off-playa at some point together.
And so the search began for a shared home... sometime in 2019.
== The search ==
The search started casual and scattershot … like many ventures, as a WhatsApp thread.
If you want to get started, the smallest easiest step you can take it starting that WhatsApp thread and inviting a few folks.
It only got serious once we got a formal search committee in place.
== Lesson #1: Form a 1-2 person search committee. Everyone else hangs tight. ==
If Person A sees house A and Person B sees House B, it's really hard to compare across the houses. There's no shared understanding. Multiple search groups means project constipation.
Be clear who's on the hunt at any given time and have it be one (or two) people. Have them go hard at it for a couple months and then swap out.
With one person seeing all the houses, they can credibly say "GUYS, THIS IS THE ONE."
And you'll need the "GUYS, THIS IS THE ONE" confidence for this thing to actually happen.
== Lesson #2: Slow burn is okay ==
We would search intensely for 2 months, go dormant for 4 months, and then someone would get energy to search again.
Not putting immense pressure to find something on a specific timeline was helpful. It allowed us to take advantage of moments of space and energy from group members
Search committee is a LOT of work. An urban search is easy. You can go see a dozen places in a weekend. A rural search is harder: Hours of driving between places. And harder to get a sense of a property from a listing alone. We found that people could really only give it the time and attention for a month or two at a time.
== Lesson #3: Multiple agents, multiple places ==
Limiting your search radius will help you get the project done. We were searching in max 2-3 places at any given time.
Put together a written brief and send it out to multiple agents - one per location (e.g county or region). Agents specialize in geographic regions. They will not be helpful in a multi-region search. You should be dealing with multiple agents for multiple locations.
== The purchase ==
Then we found it. It was the one.
It was abundantly obvious to the searcher and the two people that followed on to confirm. So we moved on it and made an offer.
== Lesson #4: You don’t need to be 100% certain to make an offer. ==
This one can be nerve-wracking for first-time homebuyers but is totally normal for the pros.
You want to make offers when you are fairly certain you’d buy the property at the offer price. But you don’t have to have everything 100% buttoned up at offer time.
Part of the reason for this is that you don’t know whether the owner will accept your offer. So you don’t want to put too much strain on the group before you know it’s a real possibility. An offer is how you find this out.
How to do this? If you are buying as a group, your offer should come with an inspection contingency. This is a clause of the offer that gives you a certain number of days to inspect the property. And if there's anything that you don't like (or the group gets cold feet), you can back out of the offer with no penalty.
We wrote a 30-day inspection contingency into our offer.
Think of the inspection contingency period as the "are we 100% sure we want this?" period. And for a larger group, this buffer period is important.
During the inspection period, you can rush people over to see the property for the first time, really think through what it would take to renovate/maintain it, knock out the financial model specifics, get everyone to make hard commitments etc.
Our inspection period was intense. At the end, there were daily calls at one point and lots of "are you in or out?" ultimatums to get the group solidified.
The inspection deadline forced hard decisions.
== Lesson #5: Have the basics in place, deal with the specifics post-offer. ==
Here is what I’d recommend having broad agreement with in the group before making an offer:
Overall capital budget: Including renovations or fixes needed post-purchase. This includes actual dollar commitments from each member.
Yearly operating budget: The maximum people are willing to spend to upkeep the property. This could be bigger than you think for a rural property (our fire insurance is $20k per year in California!)
Must haves and deal breakers: This list should be short, but it’s important to get out. Ours included a minimum number of bedrooms and a big emphasis on physical beauty.
Some basic principles on usage: For us, the principle was that everyone gets equal usage no matter investment amount. And that we wouldn’t do reservations … we are all friends and having other people drop in at the property was seen as a feature, not a bug.
Governance basics: We’ll talk about this more in the next episode, but you should have a sense of whether you expect the setup to be more egalitarian versus someone having more decision-making power (usually because they put in more money).
Who’s on the loan?": Make sure you know who is applying for a loan upfront. We wrote about some options here.
You don’t need complete legal docs. You don’t need the world’s most detailed financial model. You don’t need to have worked out every nuance of how you are going to operate the place. You don’t even need 100% of the group 100% committed (though it shouldn’t be far off…). You can work those out during the purchase period.
== Lesson #6: Not everyone will be able to see it before you buy it. ==
Here's where the trust comes into place. A good practice is making people elect into one of three categories before you start:
Category 1: "I absolutely need to see the property and won't join without it"
Category 2: "I would prefer to see it, but will not block the process if I can't"
Category 3: "I don't need to see it in-person, I trust the group"
Good properties don’t sit on market for a while. You may only have weeks to commit.
Our group was spread throughout the US and Europe, so we couldn't afford that many Category 1 folks. Less than half of the folks involved had seen the property before we made the offer and that was okay!
== Lesson #7: Consider leads and followers ==
A structure that helped us with purchase decisions was having a group of "leads" and "followers."
The "leads" were expected to put in more resources and get more decision-making power. The "followers" were mostly along for the ride. In our group, leads put in a 6-digit investment and followers a 5-digit investment.
The small group of leads were nimble enough to deal with the cascade of purchase decisions - whether to offer, how much to offer, which contingencies, how do we react to the new inspection report etc. If the leads agreed, we moved forward.
The followers understood that they could give input but should try not to gunk up the process given their smaller investment.
Without a lead and follower structure, we could not have achieved full group consensus and context on every fast-moving decision along the way.
== Lesson learned #8: The costs will creep ==
Whatever you think the operating cost is, it will be higher.
Whatever you think the renovation cost is, it will be more.
Whatever you think the timeline is, it will be longer.
You should be sandbagging your financial model. Buffers and contingencies everywhere.
Raise more money than you need. If you barely have enough money, you don't have enough money.
== Lesson #9: Get on the loan EARLY and HARD ==
In the "co-buying property with friends" we talk about the importance of doing a dry run with a bank to understand what you can borrow and get your loan application in place.
The thing that is most likely to sink your project is financing. You are not buying a single family home in the suburbs for your family. Don't assume the financing is there for the taking. Don't assume your pre-approval letter means you are set.
You want to be pressing hard on the banks the minute you make the offer. And making sure they are solidly committed to making your timeline.
In our case, our seemingly solid loan became less solid in the weeks leading up to close. The lender was "busy" and didn't provide key documents by due dates. Terms changed last minute. We had to move back close multiple times. It almost scuttled the deal. Even though we started the process with the bank more than a month before close, we wished we had done it sooner.
== Final Lesson: Done is better than perfect==
No property is going to meet the exacting and differing standards of a group of people.
There are no unicorns.
You want something that excites and animates a large portion of the group .. in a way that overcomes the inevitable warts.
The patience and solidarity of the group likely has a breaking point. If the stars align and there's a moment of "let's do it," then get it done.
The longer you wait, the more likely it is that people make their own (sub-optimal) individual plans.
Whatever property you get, it will be special because of the people you share it with. Find something that excites you, shed notions of perfection, saddle up with your buds, and make it happen.
Next Episode: The nitty gritty of finances and legal structures for a co-bought vacation home. We'll also share template legal docs to save you some $$$.
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