If I would like buy the cottage next door with the neighbor on the other side of the cottage, what legal arrangement should we make to protect our joint investment?

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If I would like buy the cottage next door with the neighbor on the other side of the cottage, what legal arrangement should we make to protect our joint investment?

This is regarding a vacation home. A small lakefront cottage is coming on the market and my neighbor and I are afraid that it could be converted to weekend rentals which could impact the privacy and security of our 2 homes. We have a interest in buying the cottage together and either owning it together or tearing it down and it could be a money pit. I live in another state and my neighbor lives at the lake all year. What kind of contract or joint ownership would be advisable so that both of our investments would be protected and

expenses shared equitably? Should we each have our own attorney or could

one attorney manage the paperwork? The neighbor is trustworthy and

thoughtful but we are not best friends or anything. We are just both afraid

of what might happen if the property sells to someone who wants to rent it. The 3 houses share a driveway and a boat ramp and property lines cannot be delineated by fencing or anything.

Asked on May 31, 2018 under Real Estate Law, Ohio

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 3 years ago | Contributor

A good idea would be to form an LLC for this purpose, which will be 50% owned and 50% funded by each of you. The LLC will protect this property from debts or obligations of each of you (e.g. if your neighbor is sued by someone) and also protect you personally from any debts or liabiltiy resulting from the property (e.g. if someone is injured on it). If you elect to  try to make a profit on the property (e.g. if you should choose to rent it out, or renovate and "flip" it), the LLC structure will facilitate taking tax advantage. The LLC should have an operating agreement which spells out how certain decisions will be made and what will happen if certain contingencies arise: e.g. if one of you decides later to sell, does the other one have the right of first refusal to buy it? if so, at what price? how much must each contribute annually to upkeep? etc. By having an LLC with an operating agreement setting forth rules for how certain situations are handled, you can head off or short-circuit many future disputes. A real estate lawyer should be able to help you with both setting up the LLC and with buying the property. Good luck.


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