Your Money: Sharing Family Getaways Without Any Cottage Conflicts

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Picture it: 40 picturesque acres nestled in Wisconsin lake country.

That is the ideal getaway the grandfather of Chicago financial planner Tim Obendorf’s wife built around 50 years ago. Then the property passed to the next generation, with ownership shared by four people.

Now they are thinking about the next generation: 11 potential owners.

Without the right planning, that paradise could turn into hell.

As brothers, sisters, parents, aunts, uncles, cousins and grandparents gather this summer at family homes to go hiking, canoeing or swimming, there will also be arguments over schedules, property taxes or mortgage costs, and upkeep duties, along with the thousand other matters that come with shared homeownership.

“Whenever a number of families are under the same roof, conflicts are going to arise,” said Jill Shipley, managing director of family dynamics for Abbot Downing, a division of Wells Fargo that handles high-net-worth families and foundations.

That is why Obendorf’s family has already logged a couple of family meetings. “It’s never going to be perfect, but you have to decide you value the place, more than the hassles of working through family issues,” said Obendorf.

It is not surprising that vacation homes have become a point of contention. Many vacation homeowners are baby boomers: They possess the bulk of the nation’s assets and are projected to hold over 50 percent by 2020, according to a study by the Deloitte Center for Financial Services. They are now beginning to retire as they hit their 60s and 70s.

The potential problems are plentiful: Is the place big enough for everybody? Who gets it on July 4th weekend? Do they split costs equally? Who cleans up, handles repairs, or stocks the fridge?

And the big one: When the owners eventually pass on – who gets the place?

How can families get the most out of shared vacation properties this summer, without either going broke or killing each other? Some tips from the experts:

Draw Up a Calendar

Just like season tickets for a sports team, some dates will be in high demand. So if the property is not big enough to handle multiple families at once – or, let’s face it, you just do not get along – pick your spots. “Establish a rotating lottery each year, and allow each family member to pick their respective dates,” suggests Kevin Reardon, a financial planner in Pewaukee, Wisconsin.

Write Down a Policy

Everyone has different opinions of what a getaway should be, so hash it out and put it all down on paper. One key item: Whether ongoing costs like property taxes, homeowner’s association dues and repairs are split equally, or allocated based on usage.

Create an Opt-out

A sure way to guarantee family resentment: One member being forced into an arrangement they do not want. If a family cottage is being passed to the next generation, allow an escape hatch that permits one member’s share to be bought out by their siblings. After all, not everyone might be able to use the property to the same extent, especially if they have moved far away.

Bring in a Pro

Siblings, of course, do not always get along. In fact, 15 percent of adult siblings report arguing over money, according to a new survey from Ameriprise Financial. To make sure everyone is heard, bringing in a trained facilitator is probably your best bet, advises Shipley.

Have the Discussion Now

“I have been in many family meetings where the kids ask, ‘I wonder what mom and dad would have wanted?'” says Shipley. So if you are fortunate enough that the family matriarch and patriarch are still around, arrange a family meeting and find out what they envision for the property in the decades to come.

Maybe they want it to stay in the family, as a legacy for the grandkids. Or maybe, because of family circumstances like far-flung siblings, it would be wiser to just sell the property and split the proceeds.

Set up a Trust

One way to take future financial squabbles out of the equation altogether: If families have the resources, they should create a trust to “fund the maintenance and ongoing use of the property in perpetuity,” says Shipley. “That is one solution to reduce conflict, and keep the property in the family for generations.”

 

 

 

Written By: Chris Taylor
Source: Reuters

Wealthier Boomers are Shunning Homeownership

© Victor J. Blue/Bloomberg
© Victor J. Blue/Bloomberg

The U.S. home ownership rate is at the lowest level in 25 years and is widely expected to go even lower. That’s not just the result of younger Americans struggling to make ends meet to save for a down payment on a home. It is increasingly the result of middle-aged, higher income Americans choosing to rent.

Renter growth is now at the highest level in 30 years, and families or married couples ages 45–64 accounted for about twice the share of renter growth as households under age 35, according to a new study by the Joint Center for Housing Studies at Harvard University. In addition, households in the top half of the income distribution, although generally more likely to own, contributed 43 percent of the growth in renters.

“We do think we’re in the later stages of a rebalancing between owning and renting,” Fannie Mae chief economist Doug Duncan said in an interview Wednesday on CNBC.

Duncan pointed to demographics. Baby boomers are now moving out of their homeownership years, while Generation X, a smaller group by 6 million to 7 million, also has a growing preference to rent after being hit hard during the recession, losing income, credit and even their homes.

The homeownership rate is now 63.7 percent, according to the U.S. Census, down from the over 69 percent peak in 2004.

Because of that, rental apartment occupancy is now at an all-time high, and rents are rising at twice the pace of inflation. In turn, that is putting pressure on renters young and old, but not necessarily pushing them to homeownership. Higher rents mean it is more difficult to save for a down payment. More than half of U.S. residents report having had to make at least one sacrifice or tradeoff in the past three years to cover their rent or mortgage, and the highest segment of those sacrificing is renters (73 percent), according to a report by the MacArthur Foundation.

Majorities of Americans continue to believe that it is challenging to find affordable rental housing in their own communities (58 percent in 2014 and 2015), and housing to purchase (60 percent in 2015, 59 percent in 2014), and even more challenging for families at the median income level (65 percent), young adults (80 percent), or families at the poverty level (89 percent), according to the MacArthur Foundation.

Apartment construction is booming, but much of it is in urban centers, catering to wealthier renters.

“It’s an older renter, looking to downsize that doesn’t want to own anymore,” said Douglas Firstenberg, principal of StonebridgeCarras, a real estate development and investment firm, standing outside one of its brand new rental buildings in downtown Bethesda, Maryland. Studios in the building start at $2,500 per month, and the most expensive unit is $6,000.

Rents are surging in the double digits for apartments and single-family rental homes. New apartment construction, now at the highest level since 1989, should ease the burden in coming years, adding supply to the demand, but it is not enough.

“While affordability for moderate income renters is hitting some cities and regions harder than others, an acute shortage of affordable housing for lowest-income renters is being felt everywhere,” said Chris Herbert, managing director of Harvard’s Joint Center for Housing Studies. “Between the record level of rent burdens and the plunging homeownership rate, there is a pressing need to prioritize the nation’s housing challenges in policy debates over the coming year if the country is to make progress toward the national goal of secure, decent and affordable housing for all.”

Written by Diana Olick of CNBC

(Source: CNBC)