Just got back from my annual winter snowboarding vacation. As usual, even when I’m out of the office, I can’t seem to stop thinking and talking about condo investing.

This year I visited Sun Peaks Resort here in British Columbia with some good friends from California and Dubai. It wasn’t long before talk of joining forces for a real estate company became part of the post-slope dinner conversation.

Most resort towns, of course, are already well known for “impersonal” fractional ownership plans: timeshares, shared ownership in the form of 1/4 shares, pool rentals, or other plans that involve sharing with people who you don’t know That is a topic for another newsletter.

Today’s newsletter focuses on buying a condo with friends and family. There are many more, but there are also a few things to keep in mind.

On the plus side…

I have friends who not long ago bought a lakeside condo cabin along with two other (related) families. They share it three ways, with 17 weeks each to use or rent to others. So far they love it, and if I had been in on the deal, they would have included me in this year’s Three Family Crab Feast on New Year’s Eve.

Overall, the big draw to this idea is the low barrier to entry, the risk-reward trading with people you know, and the benefit of “overlay” for times like New Year’s Eve.

Things to keep in mind…

The downside to doing business with people you like, and yes, investing in a condo is “doing business,” is that you don’t want to jeopardize good relationships if something goes wrong. And with that in mind, I offer three suggestions for making a profitable (and fun) real estate investment without losing friends and family along the way:

Establish a clear set of written rules.
It is likely, for example, that the owners do not use this second property all the time. This creates opportunities to rent out a portion or to trade time with other owners. In the case of resort-managed properties, unused time is placed in a rental pool and the profits are divided among the owners.

So sit down together and establish a policy for how time is counted. Is each owner responsible for certain days/weeks and the associated cleaning and rental costs for their portion? Or should you set a daily rental rate that everyone pays, and at the end of the year split the profits among the owners? (Personally, I prefer the latter approach: running the association like a business, thus sharing the risks and rewards.) There is no correct answer here. But if you don’t discuss the possibilities up front, and put them in writing, you’re leaving the door open for confusion and hurt feelings.

Establish a contingency fund.
Nothing causes more association problems than trying to manage real estate on a shoestring budget. Agree to set aside a fund for six to 12 months of expenses. This should give you enough funds to anticipate any maintenance surprises and general wear and tear that may occur.

It’s also smart to have partnership or life insurance that protects the other owners in case one of the partners dies. This cost can be shared and the terms can be set out in a legal agreement to protect the remaining partners from possible future property problems.

Agree on an exit strategy.
The odds of all of you wanting to stay forever or sell at the same time are extremely low. So consider—and agree—what happens when Cousin Dave needs cash to pay for his daughter’s college expenses. Do the other partners have the right of first refusal? How will the sale price be determined?

In most cases, the remaining partners want to buy out the share or find someone they feel comfortable taking over. Therefore, there should be some terms in the partnership agreement that allow reasonable time for the remaining partners to organize the funds or find a suitable person to step in.

Also note that you may also want to plan for “trigger” events, such as the sale of the property when its value reaches a certain level (this is an investment, after all). This must also be agreed before the purchase is completed. In general, fractional ownership with people you know and love can be an excellent arrangement, both from an investment and recreational standpoint. That being said, and as with most things involving friends and family, a little planning and discussion early on goes a long way.

As for me, I’m on the hunt for these kinds of arrangements for next year. I don’t want to miss any more New Year’s Eve crab feasts!