It’s not uncommon for friends to jointly own homes either as investment properties or secondary, vacation residences. However, the benefits of home ownership also come with some headaches and responsibilities. Before you enter into a business relationship to purchase a home, you need to ensure your legal ownership structure protects the interests of all parties. Sometimes several friends will jointly own a vacation home in a fractional ownership structure. Documenting the arrangement ahead of time will go a long way to eliminate potential future disputes and disagreements.
Once you actually own the home, insurance is an important consideration. To protect your mutual asset, you should make sure the home is properly insured for both property damage and liability risks. If you took out a mortgage together to buy the home, you will likely be required by the bank to maintain proper insurance should the home be damaged or destroyed. The bank will want to protect its asset as much as you do. In addition, when buying home insurance, consider the deductible since you will be splitting it in the event of a claim. What might seem like a high deductible on your primary residence may not be as high when splitting it with others. You can potentially absorb a higher deductible and save some premium dollars in the process.
One area to not skimp on is the liability insurance. Many jointly owned homes are rented out to third parties and not used as the primary residence for one or more of the owners. In these situations, you need to make sure that your home insurance policy has sufficient liability insurance to cover the use of the home as a rental. You also need to verify with your insurance company that all the owners of the property are properly named on the insurance policy as insureds. Do not simply assign this task to one of the partners ó require a copy of the policy for your own records. Confirm that you are properly insured on the policy.
In addition to the home insurance policy that is specific to the jointly owned home, you will still have your own separate home insurance policy for your primary residence. In addition to that policy, you should have your own umbrella liability policy to provide additional liability insurance protection in the event your home insurance policy’s limits of liability are exhausted. Once you have purchased the secondary home with your partner, you can contact your umbrella liability insurer to have them add the secondary home to your policy for added liability coverage. This will allow your umbrella policy to function as an umbrella over both your regular home insurance policy as well as the secondary home’s policy.
Investing in real estate can be both exciting and rewarding. By having the proper insurance in place, you can protect both your investment as well as your real estate partnership.