Buying the other half of my duplex?

March 1, 2017 9:35 AM

How do I buy the other half of my duplex in the smartest possible way?

I currently live in a 2 family building (side by side units), and it is a condo. We are part of an HOA and it all operates smoothly - we are very happy with the setup.

I have an inkling that my neighbor is thinking about selling her unit. I've been bouncing around the idea of buying her unit for rental income. This is fun to think about but I know there are a million things I'm not even considering.

Here are my questions and some context:

1. Would I have to dissolve the HOA? Could I keep the HOA and just own both sides?
2. I'd like to buy it from her directly, without an agent if possible. Has any one ever done this, or been on the other side (sold a duplex without an agent?) Are there pitfalls from either ours or our neighbors perspective you wish you'd avoided?
2. My down payment is tied up in my current unit, so...how would the mortgage side of this work? Would I just be turned down immediately since I do not have even 10% for down payment?

She hasn't even told me she's selling yet, I'm just at the very early planning stages here. Would love any feedback!

posted by PuddleWonderful to Home & Garden (11 answers total)

I know even LESS than you do, but my first thought was would she be willing to hold the mortgage for you? This way, you would make payments to her, it precludes a real estate agent, and the HOA would be the same as it ever was.
posted by Major Matt Mason Dixon at 11:02 AM on March 1, 2017

I also know nothing but I would think that the HOA would still exist. Just because the two condos have one owner does not make them a single property, you could still resell either half separately, they're separate legal properties. Repeat, I know nothing.
posted by aimedwander at 11:29 AM on March 1, 2017

How is ownership of the common property setup? If the HOA entity owns everything from the studs-out then you'd have to buy out the HOA property and give the other owner their share of the sale. Check your incorporation documents; there's probably a clause on dissolution.

It might be a good idea to talk to a real estate attorney.
posted by nathan_teske at 11:39 AM on March 1, 2017

1: It's not clear if you are part of an HOA that covers other properties than just this duplex. If that's the case, you won't be able to dissolve the HOA. Otherwise, you'd need to look at the HOA documents and your deeds to determine how to do this. You should also think about what would happen later if you wanted to sell only one of the units, or to sell the units to different buyers -- would it be a problem if the HOA was dissolved? IANL.

2: Depending on what state you are in, you can do this through a title company. Don't buy it without a title company being involved. You might also want to get some inspections done, you can hire inspectors yourself, without going through an agent. However, a good agent can be very helpful -- before you rule out the possibility, contact a good buyer's agent and see what their fee would be to handle this. If you handle it yourself, get a good book on the process, and be prepared to research your state and local laws that the book won't cover.

Some states require an attorney be involved in the process. I don't know anything about how things work in those states.

other 2: Talk to a mortgage broker.

I've been bouncing around the idea of buying her unit for rental income. This is fun to think about but I know there are a million things I'm not even considering.

It seems like you've been thinking about the fun side of this... though, having been a landlord, I've yet to figure out what the fun part is. You should also think about the unfun side, like when your tenants come bang on your door at 2 am because they locked themselves out. You might also want to look over the laws in your state that apply to rental property, particularly in regards to evictions, rent increases, and notice periods.
posted by yohko at 11:40 AM on March 1, 2017 [1 favorite]

You should definitely have a preliminary discussion with a mortgage company. When I was in this situation on the other side (prospectively being bought out), the other owner found that he needed a considerably larger down payment for buying an investment property as opposed to a property that he intended to live in, even though it was the attached condo. In the end we sold to someone in the traditional way because he couldn't make the finances work.
posted by marginaliana at 12:02 PM on March 1, 2017

Generally in the US, for investment properties, you will need to come up with a down payment of 20% of the sales price because lenders require a minimum of 80% LTV ratio. Perhaps if you have equity in your house now you could get a home loan / LoC to finance the purchase. I believe you can borrow against 401Ks as well.

This plan would make you highly leveraged though. Run the numbers and look at the prevailing rent in your area to make sure this is feasible.

Also, don't forget to factor in closing costs, which will be less a private party sale, but still multiple thousands.
posted by TomFoolery at 1:21 PM on March 1, 2017

1) In my state, you need 25% down if you are buying a rental.

2) You may want to look into rent-to-own or lease-option contract where you make rental payments to the current owner with an option to buy down the line (if you so choose). The owner may be willing to rent to you for less than a full market price if you take on all utilities and maintenance and essentially never bother them like a real renter would, so you pocket the difference and have the option to buy if/when you have saved enough.
posted by rada at 2:23 PM on March 1, 2017

You will want to talk to an attorney and some mortgage bankers. It may not be to your advantage to preserve the HOA, even if you want to rent the other half, both in terms of financing and future operations. I suppose it's even conceivable you might not be permitted to maintain the HOA, depending on its form and the law in the jurisdiction. (Assuming here it's just the two residences and the shared lot they're sitting on.)
posted by snuffleupagus at 2:58 PM on March 1, 2017

Best answer: You can possibly work around some of the taxes and down payment costs to buy the second unit as your primary residence and move into it. This is a classic way of growing a rental portfolio for single family homes. Of course, YMMV, look into the legalities in your state and the HOA documents closely.

If your HOA is FHA-approved you can get an FHA loan for as little as 3.5% down.

When I sold a condo in the mid-90s, I sent letters to all the other owners in my complex - one made an offer and there was no reason to involve a broker. However, one of the main advantages of working with a broker is their negotiation skills, so if you think it may be helpful, there's no reason not to discuss your transaction with a broker - it doesn't cost anything and they can give you a good idea of fair market value for the property.
posted by bendy at 4:43 PM on March 1, 2017

(I'm a broker but I'm not your broker. I've also bought and sold condos of my own. Feel free to MeMail with other questions.)
posted by bendy at 4:45 PM on March 1, 2017

In my limited experience, right of first refusal was written into the agreement. Are you sure that's not buried in the legalese of your agreement?
posted by she's not there at 6:09 PM on March 1, 2017