Resale Homes
Resale Homes
Clarity crucial to joint cottage ownership
With summer (apparently) now finally here, the idea of buying a place in the coun--try becomes tempting.
If you don't want to commit to 100 per cent of the purchase price, one option is to purchase a cottage with friends or family.
"The benefit of shared ownership is you are not taking on the full financial responsibility," said Kelly Wilson, a mortgage broker with Invis. "But at the same time, it is important to make sure everyone has a common vision going forward, and are coming to the table with equal funds. Put together a long-term budget with principal, interest, taxes, regular costs to run the property and unexpected costs."
A clearly written agreement is crucial.
"The value of some vacation properties has escalated. It makes sense from the financial standpoint to co-own with people you trust," said Carol Bezaire, vice-president, tax and estate planning, at MacKenzie Financial.
"From a planning perspective, you have to make sure that you've got the title sorted," she said. "Have a written agreement as to how this is all going to flow. Who gets to use the vacation property and when? Who is going to be responsible for maintenance? If it doesn't work out for one of the parties, how do they get out of it?"
The way you set up the ownership agreement will result in very different outcomes if one of the parties dies, Bezaire said.
"If you have joint tenancy with survivorship rights, you and I are partners on this vacation property and I pass away, you get the whole thing," Bezaire said. "Many people will have joint ownership but as tenants in common, which means that if you and I are joint owners and I die, then my right of ownership goes to my heirs."
To avoid financial hardship for whoever inherits the property, Wilson recommends all partners in the venture take out enough life insurance to pay off the mortgage. Make sure the written agreement covers what happens if one party is involved in divorce or separation, Bezaire said.
"For tax, planning and inheritance purposes, any time you have renovations done, each party has to keep track of exactly how much they invested in the vacation property."
Unlike the mortgage on your principal residence, it may not be in your best interest to pay off your share of this mortgage faster than your fellow cottage owners, or to put cash towards the place when they are raising a mortgage on the property.
"I would never recommend putting cash for my half and the other person obtaining a $200,000 mortgage for their half," Wilson says. "If I put down cash, they have a mortgage and my name is on the title, I am going to be responsible for that loan. If something happens to that person, the bank can easily take the property if I don't come up with the money to pay that loan off."
-- Postmedia News
