Is a duplex an affordable solution for two households?
May 27, 2022 8:02 AM   Subscribe

Is buying a duplex in Portland, Oregon with in-laws a brilliant idea, or a big mistake? Seeking information about co-ownership finances, methods, best practices, and also maybe some real stories.

Me and my husband have been dreaming about getting out of our home state and moving to Portland. He wants to live close to his sister so he can help with childcare and so he can have family. I want to move to portland so I can live a walkable lifestyle and be in PNW nature. My husband's sister has a couple kids, a couple dogs, and a husband. They want to get a bigger place themselves, or even build an addition onto their current house.

We've both got about 100k equity in our current homes. We had the idea of buying a duplex because:
1. Duplex units cost a little more than a single-family home but not significantly, bringing PDX housing costs into the reach of our incomes (fingers crossed).
2. It would solve the issue of children safety traveling between the houses - Even a little distance between them and us would mean the kids would be significantly prevented from moving about - e.g. the difficulty of getting into car seats vs. walking down the street.
3. 4 incomes supporting the property would ease the expenses of repairs and renovations

However, there are also some barriers:
1. Traditional co-ownership would prevent either couple from taking equity out of the house unless the other did, too. We'd all have to sell the house at the same time, if one couple wanted to move.
2. Not sure how financing would work - Do traditional mortgage lenders work with multiple parties like this, or would we need to find someone specific?
3. Not sure about the quality of multi-family units - would it be better to buy a SFH and convert it into two units, or to buy an existing duplex?
4. If we're moving to portland, we likely will need to find jobs once we get there. Would the fact that we didn't have jobs currently affect our ability to get a mortgage?

What would be a *reasonable* timeline for us to plan for?
What is a reasonable housing cost we could get a mortgage for with 200k equity and maybe 150-200k income total?
Is co-owning a house a great idea? or a big mistake?
What's the best way to do this while maintaining and growing our equity?
posted by rebent to Work & Money (22 answers total) 2 users marked this as a favorite
Would you consider one family buying the whole house and renting it out to the other family? That would solve the equity issue, and if your in-laws are the owners, it would mitigate the fact that you don't have jobs, which yeah, might be a red flag for some lenders.
posted by kevinbelt at 8:11 AM on May 27 [5 favorites]

I think this is a great idea! You might work with a realtor to think creatively about different approaches (perhaps you could buy a triplex, for example?). Some neighbors of mine have a house right next door to an in-law and they redid the backyard to make it one big shared yard. It’s pretty fantastic for the kids.

You could also look at both buying into a co-housing community.

I do think getting a mortgage without a job will be tricky. Maybe better to move and rent and then look for a place?
posted by bluedaisy at 8:16 AM on May 27

I have friends (a young family) who just bought a duplex with a friend of theirs (an older single woman), so this is definitely a thing people do (this was in Massachusetts, though) and a great idea for some people (if you have potential co-owner with whom you get along, obviously!).

It is possible to get a mortgage for this kind of thing but you may not qualify for cookie-cutter, "off-the-rack" mortgages, which can mean it takes longer to close, which in turn can make your offer less attractive.

Another way you could handle the equity concerns is to condo-convert the property - i.e. you all buy it together, then you convert the duplex to a two-unit condo association (this is a legal conversion, nothing to do with renovations or adding walls or anything). Then one of you can sell your half of the house without the other having to do anything. These tiny 2-5 unit associations are super-common where I am but I get the sense they are unusual elsewhere. Of course, once one family sells, the other family is stuck with the new neighbors who may or may not be cooperative.
posted by mskyle at 8:22 AM on May 27 [3 favorites]

Response by poster: One party owning and another party renting from them might work something like this, right?
1. we give a cash gift of $100k to our in-laws
2. they use the cash and the equity in their house to buy the new house
3. each month both families pay the same rent - we write them a check and they write 2x check to the bank
4. When we sell, we split the equity down the middle

It's that big cash transfer at the front end that makes me scratch my head - I'm sure it would cause some issues with taxes, or mortgage approval, right?
posted by rebent at 8:24 AM on May 27

I doubt it would cause problems with mortgage approval. The lender doesn't care how you got the down payment.

I feel like there's probably a way to structure it so that it doesn't affect taxes too much. You'd probably want to get a lawyer involved.

Just to be clear, in case my earlier comment sounded critical, I do think this is a really good idea. It's just hard to implement.
posted by kevinbelt at 8:30 AM on May 27

Think about what happens if you or they want to pay down equity early. That will decrease the overall interest both of you will pay for the house -- work out the formula in a spreadsheet.
posted by amtho at 8:36 AM on May 27

Are you sure you're going to want to split the equity down the middle when you sell? What if one family makes an optional but equity-increasing upgrade (e.g. new kitchen, HVAC, etc.) and the other doesn't?

In my experience lenders DO care where the down payment is coming from and if you're giving your in-laws a "gift" of $100,000 in exchange for informally owning half the house that is potentially dangerous for both you and the lender (not too scary for your inlaws, though).
posted by mskyle at 8:36 AM on May 27

Response by poster: I'm not sure of anything! Just finding simple examples. Thanks for that suggestion!
posted by rebent at 8:39 AM on May 27

May be a great way to get what you want. But you really, really need a lawyer to help you set this up in a way that will protect you all. This should cover: upkeep of shared outside space, roof, plumbing etc, valuation on disposal and how you’ll split any gains, divorce, illness, death, unemployment of one or both couples/inability to pay mortgage, modalities for refinancing, equity release, early repayment or overpayment of the mortgage and what happens if one couple wants to move and sell their share etc.
posted by koahiatamadl at 8:46 AM on May 27 [8 favorites]

You need to talk to a real estate lawyer.

The lender doesn't care how you got the down payment.

The lender ABSOLUTELY cares where you go the downpayment. When I got my mortgage I had to show that the money for my downpayment had been in my account for X months before the purchase and they looked at the history of how the money was deposited in (i.e. not all at once, and if it was all at once, explain yourself). The reason is that they don't want someone using loaned money (which this kind of sort of is, but not the kind they're worried about) to make a downpayment because if you're secretly (to the bank) repaying your parents/siblings/loanshark for the downpayment that affects your ability to pay the mortgage.

The law, as well as general practice, on this will vary from place to place, obviously, so this is why you need to talk to a real estate lawyer in portland.
posted by If only I had a penguin... at 9:09 AM on May 27 [9 favorites]

Talk about and think about the ways it could go sideways. Somebody wants a divorce, somebody gets fundamental religion and you want to limit time with them, somebody has menopause, depression/ mental health issues, dementia, and their behavior changes a lot. especially parenting issues, because you're the parents of little kids, and you have final say, but they will have ideas and feelings. Covid has been a great trial for htis; if you worked well together on covid issues, that's a great sign. Think abut anyone you know who's had a difficult roommate situation or a breakup. That said, I think it's a terrific idea. Search roommate housemate agreement rules to get some ideas. Talk about how you will resolve problems. I have friends who bought a 2 family together and are quite happy.
posted by theora55 at 9:23 AM on May 27

I have a pretty good relationship with my parents and overall I consider them to be reasonable people. I make an effort to spend time with them and I intentionally moved closer to be with them. They have more money than I ever will and bought our house cash for us which will later be my inheritance and I pay them below market rent in the meantime. Even with knowing the “big” parts in advance, holy hell I was not prepared for the weird about of control they wanted to exert in my life with the decision.

The duplex could be an awesome choice for you all. However, I think a most realistic approach is for one couple to buy and wholly own the property while the other is truly a renter.

Who takes care of home repairs? Who covers the cost of major appliance malfunction? What if you need to repair the roof and your parents don’t like the new color of shingles that you picked? What if someone has a gambling habit and is no longer paying the rent or mortgage? What if you don’t know that they weren’t paying the mortgage? What if they’ve leveraged equity in the house on a bad business deal?
posted by raccoon409 at 9:35 AM on May 27 [1 favorite]

The duplex could be an awesome choice for you all. However, I think a most realistic approach is for one couple to buy and wholly own the property while the other is truly a renter.

Honestly, I think this is the best solution. You'd want advice from a local real estate lawyer, but there's no reason the lease would have to be for only one year. The main thing is to clearly allocate risks and gains, as well as provide a final decisionmaker for decisions that have to be made, and the cleanest way to do that is by having one owner.
posted by praemunire at 10:12 AM on May 27

Is there some advantage i'm missing to just having each family buy half the duplex? That's kind of the whole point of semi detached housing. Even if the home is legally a single unit it is usually straight forward to split it if it was designed as a duplex.

You could have an additional side agreement covering anything you might consider important. And if things go sideways seperation is as simple as one or both parties selling.
posted by Mitheral at 10:23 AM on May 27 [4 favorites]

You might also be able to find a property with a decent-sized ADU cottage in the back (or room to build one/convert a garage).
posted by pinochiette at 10:38 AM on May 27

I had friends who did this, but what they did is find a two-family that was for sale and convert it into condos with each of them buying one condo. So they each ended up owning a condo independently. The key was that the whole transaction--legally turning one property into two properties and buying each of them--was one big transaction that a lawyer helped them with. (This was in Massachusetts; I'm told by PNW friends that having a lawyer involved in real estate is less common there.)

Whichever way you do it, talk about EVERYTHING first. Lay it out like you know one of you will want to move eventually--will you both have to move, or will the other couple be living with renters? In my friends' situation, there were a lot of principles of maintaining property that they didn't think about their views on till they were in the situation--do you want to make ongoing improvements or keep it mostly as you find it and only fix what's broken? If there is work that needs doing, would you rather DIY or spend money on a professional? If you want to DIY some things, how expert to you need to be to trust your work? If you want professionals, will you go with cheapest bids or who you like best? What if you disagree on something?

Basically, imagine you were doing this with a stranger and think of ALL the rules you'd want to set, and then talk through as many as you can with the other family.

It is my dream to do this with our best friends. We are both pretty committed to our own towns (next door to each other, not three miles away), so I don't know if it will ever work out, but I very much would love to do it.
posted by gideonfrog at 10:39 AM on May 27 [3 favorites]

Have everything in writing. Don't assume that everybody is on the same page as everybody else because you're all family and care about each other. Having everybody's responsibilities in black and white from the beginning prevents misunderstandings later.
posted by The Underpants Monster at 10:51 AM on May 27 [3 favorites]

I haven't seen the term "tenancy in common" pop up yet in this thread. I live in Washington but it looks like Oregon has something similar, Google it and also make sure your real estate lawyer knows about this approach too.
posted by matildaben at 11:31 AM on May 27 [2 favorites]

If it's an existing duplex, there may already be paperwork that details the separate and shared responsibilities.

Don't assume you can take a shared house and call it a duplex in the eyes of the local building inspections department because there are differences in fire separation requirements if the places are owner occupied or rental or condos.

Definitely check out all of the legalities with a good lawyer.
posted by mightshould at 11:31 AM on May 27 [1 favorite]

I worked with a real estate lawyer on a Tenancy In Common agreement for a condo owned by two non-married individuals, and he gave me a big list of questions we need to answer, I drafted layperson answers to them, shared them with the other person, and then sent them to him for translation into legalese. I highly recommend doing the same if you go this route; a good lawyer will help you anticipate questions you forgot to ask. (If someone doesn't pay for X months, does that constitute a default? Does the person owe interest if they make the payment later? Do all parties have to agree to sell the property or can part-interests in the property be sold?)

Another creative solution might be for your in-laws to purchase a property that legally permits the construction of an ADU on the property, then you could finance the construction of the ADU. I think it has most of the same legal pitfalls as buying a duplex, but if you have substantially different needs in terms of the size of the property and duplexes on the market aren't meeting your needs, it might work.
posted by A Blue Moon at 1:40 PM on May 27

1. we give a cash gift of $100k to our in-laws
4. When we sell, we split the equity down the middle

Gah! No! If you're going to put $100k into this, then buy it together. You can absolutely buy a house with someone else, whether you are married or friends or business partners. Don't buy it with them by giving them cash and then expecting it will all go smoothly if you ever want to sell.

The reason folks are suggesting that one family buy and the other rent is to make it so that your finances aren't tied together. But, it sounds like the in-laws need your cash to buy, so that probably won't work.

I'm not convinced duplexes aren't much more than single family homes in Portland. I did a quick look on Zillow for multifamily homes in Portland, and mostly I'm seeing houses with ADUs (ADUs in Portland are generally 800 sq feet or smaller). A house with an ADU is going to be to more expensive than a similar house without an ADU, and it will be sold as a package. But a duplex isn't necessarily going to be sold as a whole unit; rather each side might sold separately. Would an ADU be big enough for you all? That might make this all easier. If not, I'd say to go ahead and cruise your favorite real estate site to see if you can find many examples of what you are proposing.

And you'll definitely want to work with a real estate lawyer of some kind. A lot of these questions (like how long it would take) can't really be answered.
posted by bluedaisy at 5:00 PM on May 27

The lawyer you discuss this with can go over the option of setting up an LLC and having each couple own close to half the membership interests. One couple should own 51%, though, to avoid an impasse in the event of a disagreement.
posted by yclipse at 10:34 AM on May 28

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