Creating your own timeshare

[caribbeansun]

We've had none of the friendship issues talked about here, we've been doing this for 5 years now. What is at issue is the fact that the property is cash flow negative and we are all tired of paying into the kitty.

Has anyone gone together with other families and purchased vacation property? I've had the discussion of doing just this with some friends and work colleagues numerous times, but we've never gone beyond that. Now that condo prices are down considerably in the resort town that's a couple hours from home, we've talked a bit more seriously. Anyone done such a thing, and if so, how is it working out?

 

[glypnirsgirl]

Elaine, thanks for the detailed and helpful response.

Were there ever issues that arose where the partners could not agree on a solution? If so, how were they handled?

There were times when things were pretty contentious. When we could not have unanimous agreement, we would have a very civilized round table discussion. Each of us was allowed a specific period of time which we agreed to ahead of the discussion - and it varied based on the complexity of the issue. And we would set a timer and agree not to interrupt each other and each person would state their own view point. We would do that for a maximum of three rounds. And would not vote at that meeting, but adjourn to do additional research on each other's as well as our own view point. Then we would do the same thing at the next meeting and decide by a majority at the second meeting whether to vote at that meeting or to adjourn to a third meeting. By agreeing to not interrupt one another, it kept our meetings from getting too contentious. None of us were hotheads or blowhards - so that helped alot. We always abided by the "no interruption" rule as well as stopping speaking as soon as the timer went off.



Our major areas of disagreement were involving the amount to be spent on major repairs. The roof issue for the second purchase was the most controversial. Some of the investors wanted to just patch the roof. Most of us wanted to replace the roof. It was one of those flat roofs where there was supposed to be an impermeable barrier. The roof was really old. Most of us did not think that patching it would be a good solution.

Our corporate documents allowed for 8 units of 12 to make final decisions. To preserve the congeniality, we chose to attempt on unanimity. When the two members who wanted to only repair the roofs did not want to continue to make additional investments, each of us understood that their main concern was the money to tally up. One of the wealthier members bought out one unit. One of the members was a sister to one of the other "dissenters" and she bought her sister's units. If no one had had the money to buy out those units, we would have just dissolved rather than requiring people to make additional out of pocket investments that although anticipated as a possibility were not considered to be likely.

The second thing was that there was sometimes contention about whether some of the members were not doing their duties. The core group of professionals, me, the CPA, the most experienced property rehabber did much more work than anyone else. I spent more time up-front getting all of the legal documents together than anyone else did, but then I only had to do occasional work from then on. I did the annual meeting minutes and the special meeting minutes. Someone else, I don't remember who, sent out the notices for the meetings. The CPA spent time for more than 20 years doing the tax documents for the corporation, probably overall, she spent more hours than anyone else because she balanced the checking accounts. Still someone else did the monthly billing and made sure that everyone was paying their obligations. As far as I know, everyone was perfect about paying their obligations. I think that is probably the most likely area for contention.

Anyway, it was one of the other people who was asked to show the property to prospective renters that believed that she was being put upon. Because her office was close to the buildings, she had signed up for that duty. She did not anticipate that it would take as long to rent as it did and that she would have to show it as many times as she did. She got mad because she was expected to be interrupted while everyone else could plan for their obligations. When Lois (the CPA) and I told her how much billable time our services were worth that were being "donated" she calmed down some, but always resentful whenever one of the properties became vacant.

I would not do the specific assigned tasks that we did. Instead, I would hire professionals and pay them. That will insure that things are equal. That would include having a housekeeper to come in and clean after departure. Probably have an agreement that everyone will strip beds, put dishes in the dishwasher and run it, etc. But still have the housekeeper come in. Or agree that each person will take before and after pictures of the unit to minimize those types of disagreement.

I think that it is important that major expenditures require at least a 2/3 vote of the members.

Also that ahead of time you will agree to pay not just enough to cover the PITI (principal, interest, taxes and insurance) but also to have ample reserves to cover the maintenance fees, housekeeping fees, and property management fees. You will need to agree on whether to pay additional towards the principal on the loan if there becomes a surplus in the reserves (this was something that the CPA and I always wanted to do, but were always outvoted --- and that was when interest was really high!).

I believe that having a corporation with well thought out rules was the secret of our success. The second, was having such a congenial group of people.

elaine

 

[T_R_Oglodyte]

If you decide to proceed, you should approach it as you would a business partnership and set up a specific legal entity to hold title. Most likely that would be a LLC.

Then you should prepare a good set of partnership documents that lays out responsibilities, obligations, buyouts, forced terminations, procedures for determining market valuations when that is necessary (buyouts, forced terminations, etc.)

You need to decide what happens if someone dies. Will you accept as new partners anyone to whom the deceased wills the interest? What if someone gets divorced? A spouse dies and the partner remarries? What is someone simply fails to keep up their obligations?

You should then have your documents reviewed by an attorney experienced in partnership law. He or she will probably identify some other issues that need to be considered.

******

The time to work out all of those difficulties is in the beginning, when everyone is getting along and motivated to find workable and fair solutions. And a good set of documents will likely save some friendships.

******

I uesed to work in S Corporation (which is very similar legally to a partnership) that had excellent partnership agreements. We were able to deal with a lot of issues, including forceouts of some founders, with a minimum of fuss and bad blood. In some conversations with some people also involved with similar companies, I came to realize how good our documents were as they told tales about the kinds of disputes that erupted in their organizations.

 

[caribbeansun]

Would strongly recommend including a termination date in the agreement with the option to renew. Not everyone will feel as good about it 5 or 10 years from now and they will want a way out. If the others want to continue on then they can but at least there's an out for those not as happy.

 

[Elan]

Thanks to all of those who replied, especially at the latter part of the thread. Definitely some good input. I need to talk this over some more with the interested parties.