How to buy a house/houses - polyamory edition
July 18, 2020 4:46 AM   Subscribe

My husband and I are exhausted dealing with our current living situation: we've been living with my best friend from childhood who purchased a house ~7 years ago but is kind of a terrible roommate/landlord. Additional complexity: I have another long-term partner of 6 years who's in a similar living situation and is also feeling the chafe of living in COVID times with someone who he no longer gets along with as well as he used to. The goal: find and buy somewhere for me, my husband, and my partner to live. I've done a little bit of research but feel like I've barely scraped the surface and mostly have uncovered more questions than answers. Can you help me out?

In the most ideal 'unicorn' of situations this would be a side-by-side duplex or a property set up with a 'carriage house' type situation over the garage, backyard bungalow, "accessory dwelling unit," that sort of thing. We'd be open to finding a single house large enough for the three of us if the layout allowed for a floor of space separating bedrooms but that's more of a compromise route. We've started eyeballing properties mostly on a theoretical basis to get a feel for what we want and like but that's about it so far as we've been waiting for savings to add up for a down payment. We don't have a buyers agent (yet) but are starting to ask friends for recommendations.

My problem is that I don't know what I don't know about potential snags in what comes next. I've been socking money into a dedicated savings account and have about 43k saved up currently (adding 1k/month), and houses/properties in our market that outwardly appear like they might meet our needs generally hover around the 200k mark so while we might not quite be there yet, we're getting close and I want to start thinking about next steps. My credit is good (~800; husband's is also in the 700s last I saw it) and the only outstanding debt we have is less than one year (~$2400) left on a single car loan; our monthly expenses are fairly minimal. I make about 85k/year and my husband makes around 20k. My other partner will not be a factor in the mortgage angle unless absolutely necessary, that's by his preference and also mine, but will contribute financially to bills, groceries, etc. in the new arrangement.

The two main complexities I'm hoping MeFi may have more knowledge/advice about (or maybe the answer is 'get a lawyer/accountant/other professional(s)' but any specifics are still appreciated):

- We've seen a few properties where two adjacent houses are owned by the same person and they're selling them separately, cheap enough that we could plausibly make it work from a basic numbers perspective. Getting two mortgages isn't typically a thing for someone who hasn't owned a home before, right? I've heard some poly units have created an LLC - what benefit is this, and should we think about that? What options might I have from a financing perspective and what's the best first step? If we found two adjacent properties and could figure out financing, then what do I focus on next (insurance, bills, taxes, other risks I'm not thinking of, and so on)?

- Buying currently-occupied properties being rented by someone who isn't the owner - this is a real mire for me from an ethical standpoint as much as anything. We're currently in an eviction moratorium due to COVID that I'm assuming would still apply? I don't want to formally be a landlord so I definitely don't want to purchase a property I can't move in to. Even if I did & could then use whatever owner-occupied laws exist to evict someone, I'm not sure I would want to do that (it feels like an enormous exercise in privilege and icky even in non-pandemic times). But I'm trying to be informed. If I were to buy a duplex or another two-unit property currently being rented but I want to put me & my husband in one unit and me & my partner in the other (effectively), can I really "owner occupy" both? If no, then what - wait out a lease and then don't renew it?

Beyond this I'm sure there are more things I'm not even thinking of yet. All 3 of us are in agreement on the current plan and general approach and have ongoing conversations about finances, housework, and so on, but of course things could go wrong or differently from plans as we get down the road. What else might we want to consider? I'm more focused on practical issues and solutions here - please assume that should more emotional/relationship concerns come up that we have a lot more practice dealing with that than we do with real estate!

Also - my best friend/landlord knows we're looking and we don't have a current formal lease or anything so I don't think there's much concern there, but any additional thoughts about moving out/paying for repairs of stuff cats scratched up (doorframes, etc.) despite my best efforts, and so on, also appreciated. We're on good terms and I don't anticipate that changing so would like to keep it that way.
posted by miratime to Work & Money (12 answers total) 2 users marked this as a favorite

For your second question we'd need to know your state. Eviction laws are very local, and on top of that many places have different laws for duplexes on two lots vs. split single family homes vs. duplexes. It may be worthwhile to talk to a lawyer once you make an offer on a house. Or to wait and only put offers on unoccupied houses (which is going to be more difficult).

That being said, if you go through with this plan where you and your husband get a mortgage and your partner is presumably not on the deed, depending on local law you will likely be considered a landlord to your partner with or without a formal lease. That is one benefit to the LLC - you and your husband and your partner can agree on the outset how to handle disagreements about future residency (whether that's due to divorce, breakup, or just a desire to live somewhere else).
posted by muddgirl at 6:33 AM on July 18, 2020

Sorry you do list your state in your profile. D'oh!
posted by muddgirl at 6:37 AM on July 18, 2020

Go talk to a mortgage broker. Let them know that your ideal is to find a duplex. You have 3 buyers wanting to invest in this project together (2 dwelling units is what you want) and let them take you through the steps. Ask whether it makes sense to form a business entity to do this project and see if they have a recommendation there. Forming an LLC is very easy but understanding when and how that LLC can be considered financially solvent in order to buy property together is beyond me. But a good broker will have a clue.

Another option to consider is to find a place and either divide it or add on to it. If you are considering this, one of you should become the knowledge holder for how this is handled in your city. A visit to permits and planning with the question of adding a “mother-in-law” unit or dividing it into apartments should be on the list of whoever wants to take this on. As a residential designer, I’ve come in on a few projects where the homeowner wanted to create a second apartment can be so much more complicated than you think. However! If you are up for the project, it may open up more potential for you in the housing market.

But first, see a broker. They are motivated to help you spend money in real estate. Try to interview more than one and then also compare with your bank or a local credit union.
posted by amanda at 8:04 AM on July 18, 2020 [4 favorites]


Generally speaking, using the LLC to purchase the property will result in different requirements than if you purchase it as people. Transferring the property to the LLC may be a problem as well, as most mortgage have an escalation cause upon transfer. (Usually the mortgage company doesn't care unless the mortgage isn't being paid, but the terms of the agreement say so, and if the mortgage company learns of the transfer, that will be a very stressful time as the mortgage company starts foreclosure proceedings.)

You indicate that your partner will not participate in the mortgage, but will they pay rent? Will they have ownership in the property? Any agreement you have concerning the "operations" of the house should explicitly state ownership of the property, and the procedure upon dissolution (either of the marriage, or the partnership). Hopefully, you will not have a problem if you all decide to part ways, and it will go amicably, but since everyone is agreeable now, now is the best time to get everyone on the same page as far as what should happen if someone wants to leave the relationship. See a lawyer to discuss and draft the agreement, and to execute the agreement you should probably have at least two (one for you and your husband, and one for your partner -- though maybe one for each may best).
posted by China Grover at 8:38 AM on July 18, 2020 [2 favorites]

A visit to permits and planning with the question of adding a “mother-in-law” unit or dividing it into apartments should be on the list of whoever wants to take this on.

A number of cities have made the process of adding a legal "accessory dwelling unit" much simpler and easier -- if you are in one of those places, this path may turn out to be quite straightforward.
posted by Dip Flash at 8:39 AM on July 18, 2020 [1 favorite]

After you have your financial assessment and overview from one of more brokers then you can start a more informed search of properties. You will then want a realtor who has a background in multi-tenant properties. You can also ask for a recommendation from the brokers you talk with for this kind of person. They will want to know what your entity is, how much you are interested in spending and your criteria. Just know that a duplex is easier to search for than a property that can flexibly do what you want. Realtors almost always can breezily gesture at a home and say, “you could turn this into an apartment!” However, looking at homes with ADUs, apartments, “granny flats” or “mother-in-law” suits may be easier to search for as well. But know that there are far fewer of these properties and competition may be high. Know your timeline.

We were briefly looking to buy two homes a few years back. One for us and one for my FIL and ideally they would be near each other. Our realtor showed us listings that would work for the different criteria we had for each home but there was no entertaining the notion that it would be possible to buy two homes on exactly the same timeline so consider that if you are desperate to move, you may find your criteria is too narrow for what you want to do. But just get started with the money first and then see where it takes you.
posted by amanda at 8:42 AM on July 18, 2020 [1 favorite]

You have enough for a 20% down payment on a 200k house. You might also look into FHA loans which require a much smaller down payment, which could qualify you for more house, I think.

Be patient, the right place will come up.
posted by mareli at 8:57 AM on July 18, 2020 [1 favorite]

It sounds like you (you alone, or you and your husband) should be able to easily qualify for a mortgage on the type of property you're interested in. So that's great!

Buying two houses would almost definitely be more difficult because the lending rules and rates are much more favorable to owner-occupied properties than non-owner occupied properties. You, the owner, can only live in one of the properties, so the other one would be considered an "investment" property. So I would definitely focus your search on duplexes and homes with an ADU, especially since it sounds like that's what you really want anyway. If they're available, you could also consider homes with non-conforming ADUs, since you don't intend to have a formal landlord-tenant relationship with your partner.

On the question of renter-occupied properties - remember that your options towards the tenants are not just "let them stay forever" or "evict them and kick them out on the street with nothing." You could offer the current renters a buyout, for example. (This may be restricted by your local tenants' rights laws but I'm guessing from the numbers that you don't live in that kind of an area.) Or oftentimes a duplex is sold half-vacant (like the owner-occupant died or moved to a nursing home) - you could move into the vacant unit and your partner could wait for a bit until the tenants were ready to move on from the other unit. Or you can keep looking until you find an unoccupied duplex.

On the question of your partner not being on the mortgage and not paying rent but paying "expenses"... I would think about that really carefully. My mother and her (sole) partner have lived this way for 20+ years and it's been a constant source of tension for them. They basically both feel taken advantage of - she sees it as him getting free rent, he sees it as her getting all the equity in the home, even though he has helped pay for renovations, etc. Hopefully the three of you are on the same page about this! Also you should find out what your legal obligation to your partner would be, as a landlord (because even if he's not paying formal rent, you will likely be his landlord for legal purposes).

I also think you need to think about how it will end, because of course it will end at some point. One case in particular that I think you should consider, even though it probably seems very unlikely and far off, is what happens if *you* die? Your husband might have trouble making the payments on his own (this can be largely solved with life insurance). Will your husband want to live with your non-rent-paying partner? Who inherits the house (marital property laws might prevent you from willing half the house to your partner, even if that's what you want)? Would you want your partner to have a life tenancy in the property, even if that makes it difficult or impossible for your husband to sell the house? Would you want your husband to be able to evict your partner and sell the house against your partner's will?

Probably the arrangement will not end in your death - it's much more likely that one or all of you will want to move somewhere else for any number of reasons (and you should consider those possibilities too - like what if you and your husband want to move, but your partner-tenant doesn't?). But the extreme case can force you to think about some of the hard stuff, and death has a hard-to-ignore inevitability to it.
posted by mskyle at 10:04 AM on July 18, 2020 [9 favorites]

This is relatively easy. Find a realtor. Tell them you want a duplex, preferably two homes on one lot. (That's the search term in my part of California.) Get a referral to a mortgage broker. Prequalify on the basis of you and your husband's income and credit. You should be able to easily qualify even without 20 percent down. Properties of 4 units or less qualify for single family financing, so the two-homes thing isn't going to make this hard, unless they are two different properties. Then ... rent to your partner?

That last bit is the only tricky part. Do they want to be on the mortgage? Do they want to accrue equity in the property? How will they feel ten years from now if you sell for twice what you paid and they didn't get any of that profit? How will you feel if you have to pay $10k for a new sewer line and they keep on paying you the same $650 every month?

If they do want to earn equity and share responsibility for repairs, you could look into Tenants in Common as an ownership structure or even do a condo conversion where they end up owning their unit independently. For those options, you'll need to talk to a real estate lawyer. If they do want to rent, you might want to talk to an accountant so that you're reporting the income and depreciating the property appropriately. (Doing it under the table leaves you vulnerable in the event of a breakup.)

I suspect that buying as an LLC would put you into a different class of loan with higher down payment requirements and higher interest rates. But I might be wrong; ask the mortgage broker.

On vacancy, just tell the realtor you want a property that's vacant. Properties of the sort you describe -- a main unit with a "granny flat" or whatever -- I generally see them vacant.

Good luck. Again, to move forward, start by finding a realtor and getting a referral to a mortgage broker, and deciding what ownership structure you want with your partner.
posted by slidell at 12:16 PM on July 18, 2020 [1 favorite]

Not a lawyer.
As mentioned before, what you do with your legal spouse is covered under laws in each state. Know your rights with regard to inheritance and obligations of debt so you don't wind up house-poor by no fault of your own.
What you do with an informal partnership gets dicey.
Keep it business, not personal, so that you are not under obligation in the event of long-term health issues and death, bankruptcy and debts, lawsuits, etc. that can effect the partner's solvency and the possible liquidation of their personal assets -- including selling your house.

Many people are one medical crisis away from bankruptcy. Consider that (and what the executor of the person's will may say) before getting into a partnership that includes real estate.
The fewer signatures on a legal document, the better.
posted by TrishaU at 8:33 PM on July 18, 2020

Not a lawyer. Has owned a Poly house.

Anecdata seconding some of what of what slidell says above. Tenancy in common is a real estate specific way of handling this, so you don’t have to form an LLC. Relatives and friends buy houses together often.

Good luck!
posted by gregglind at 9:02 PM on July 18, 2020 [2 favorites]

As far as if you want to do an LLC, a tenancy in common, or are looking for a way to treat your non-spouse partner equitably in this in some other way -- I think a little money on seeing a lawyer would be well spent.

The sort of lawyer who has worked with gay couples trying to join their lives financially without marriage will probably be very familiar with these sorts of structures, ideally they would have worked with groups of three or more in the past. You can often find lawyers with this type of experience by checking with your local GLBTQ chamber. By local here, I mean in your state. If there aren't any in your state, try calling the one in the closest large city to you and ask if they have any recommendations for your state.

If you stay narrowly focused on what you want to do for the piece of property you're seeking, one visit with a lawyer should be sufficient to help narrow down what you want to do for ownership. You don't need a lawyer to form an LLC, necessarily, though it is certainly possible to hire a lawyer for that.

Also, who is on the mortgage is not necessarily the same as how the deed is worded. it's going to be easiest to purchase a property with multiple units on one lot -- duplex, triplex, 4plex, ADU, guest house, these are some of the options. Note that a 4plex made of one bedroom apartments might initially seem small, but it might be really easy to put doors in between the units. None of these are at all uncommon. There are ways the loans could be handled for purchasing two separate properties, but it's going to be so much more rare for you to find two next to each other that fit what you are looking for, there's not much point in worrying about that.
posted by yohko at 3:19 AM on July 28, 2020

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