Realtors® in Northern Virginia probably don’t need to be told that low inventory and high costs are the biggest challenges facing today’s prospective homebuyers.

Multigenerational households, buying a home with friends, and co-investing in property are some solutions to those issues and others, such as the need to accommodate aging parents, boomerang adult children and the desire for companionship. While all three trends are present in Northern Virginia, each requires Realtors® to search for compatible properties and advise their clients to work with an attorney and lender who understand the implications of these buying scenarios.

“People are finding more creative ways to live,” says Debbie Miller, an associate broker with McEnearney Associates in Arlington, and a podcaster and author of “Move or Improve: The Baby Boomer’s Guide to Housing Options,” who lives in a multigenerational household herself. “People are pooling resources to care for their aging parents, millennials just starting their careers, or friends or family who are suddenly single due to divorce or death and need help.”

MULTIGENERATIONAL LIVING

“Approximately 20 percent of Americans – 64 million of us – live in a multigenerational household, according to Pew Research Center. Pew defines multigenerational as two or more adult generations living together. Multigenerational households, which have been growing from a low of 12 percent of households in 1980, spiked during and after the great recession and have continued to increase at rates higher than before the recession, according to Pew.

"Sharing ownership of a house may create a somewhat more complicated scenario for both the financing and legal arrangements."

“I live on the lower level and have a private entrance, and my daughter, son- in-law and grandkids live upstairs,” says Miller. “Some of my clients live with the parents upstairs and the kids downstairs, but many of those homes are not conducive to aging-in-place.”

Miller’s home is a split-level without the need for stairs to reach the lower level, but it can be hard to find a floor plan that works for everyone, she says.

“Traditional colonial homes with all the bedrooms upstairs can be a problem,” says Miller. “But one client of mine bought a colonial and put on an addition, which is a suite of rooms with a private entrance.”

Realtors® working with multigenerational buyers can search for homes with first-floor master suites or other configurations that can accommodate everyone or be remodeled. However, warns Mary Krueger, branch manager of Movement Mortgage in Purcellville, buyers need to be certain that their remodeling plans match zoning and permitting regulations.

“If you have two fully separate entrances or a second full kitchen in the basement, you may have designed a two- unit dwelling in an area zoned for one- unit dwellings,” Krueger says.

Newly built homes designed specifically for multigenerational households are ideal, such as Lennar’s NextGen homes, but they are not always readily available or affordable to families.

“One of my clients is selling her duplex and selling her mother’s house to bring her [mother] to live with her family in Northern Virginia,” says Michelle Zelsman, a Realtor® with Coldwell Banker Residential Brokerage in Alexandria. “They’re still looking for a place that will work for each family member. They will each own half the property and Mom will be the financier as well as the primary caretaker for the kids. Eventually, the parents will be the primary caretaker for the mother when she ages.”

An active adult community can work for adults over age 55 who want to bring their parents to live with them, says Zelsman, because then the house will work for the buyers when they get older, too. The downside is that this doesn’t work for households with children under the age of 18. Also, the pool of buyers when the homeowners want to sell is limited to those over age 55, she says.

Some MLS listings include the term “multigen” but another way to find potential properties is to search for an in-law or au-pair suite or “income” since that can indicate a rental unit that might be appropriate, says Loretta Gray, a Realtor® with Long & Foster Real Estate in Alexandria.

While finding the right property for everyone is essential, Miller also says multigenerational households must establish guidelines upfront.

“You need to know what to do if someone plays the stereo too loud and who pays for utilities and the internet,” says Miller. “If you’re sharing the kitchen, you need to figure out how to do that, especially if you have three generations that don’t all eat the same way.”

Privacy issues can be even more important.

“You have to set boundaries and live within them because otherwise you’ll feel like you’re 10 years old forever,” says Zelsman.

In addition, expectations for babysitting and other responsibilities must be established, says Miller.

CO-OWNERSHIP AND CO-HOUSING

Friends buying together can require similar property search challenges and written agreements as multigenerational housing.

Two buyers Gray worked with recently wanted to share property for financial reasons and needed two separated master suites.

“It can be harder to find that in an older home,” says Gray. “Bigger houses that were built in 2000 or later can sometimes work for buyers who need several bedrooms and bathrooms.”

Properties that function easily as rentals also need to have a layout that maximizes privacy.

“I recently sold a house to a client who wanted a bi-level home so that he could rent part of the home while his family lived upstairs,” says Zelsman. “He wanted to do this as an investment. There was a separate entrance at the back of the house to the lower level and he added a door inside to completely shut off that part of the house from his section.”

One couple Gray worked with purchased a townhouse in Kingstowne specifically for the home’s lower level, which include a kitchen, living room, sitting room, bedroom and bathroom. “The money they collect from the renters in the lower level covers half of the mortgage payment every month,” says Gray.

First-time buyers who qualify for a loan but feel they may be stretching their budget a little often look for homes that they can rent on Airbnb for extra income, says Zelsman.

“I always recommend that the buyers check local jurisdictions and homeowner association rules before they count on that income,” says Zelsman. “Fairfax County changed its rules last year, for example, and you can only use your property as a hotel for a maximum of 60 days per calendar year.”

COINVESTING IN HOUSING

In high-cost housing areas such as the Washington, D.C. region, shared equity arrangements have been around for decades. Essentially, a nonowner provides funds for a buyer’s down payment and then, when the home is sold, shares in the profits.

“We prefer to call it ‘co-investing’ because we are investing alongside buyers, not sharing in the home equity they build by paying down their loan,” says Ayesha Dillon, director and head of partnership channels at Unison, a shared investment platform for residential real estate. “We help buyers get to a 20 percent down payment, which means they need less cash and have a lower monthly payment because they don’t need to pay mortgage insurance and because the balance is lower. The ability to make a larger down payment can strengthen their offer and give buyers the flexibility to buy a more expensive house that’s larger, in a school district they want, or with an easier commute.”

In exchange, the buyers must make a down payment of at least 10 percent, work with one of Unison’s preferred lenders and agree to share in the profit or loss when the property sells. Buyers can make a larger down payment than 10 percent if they wish; the total down payment just needs to be at least 20 percent.

For example, Dillon says, buyers who purchase a $1 million home with $100,000 of their own money and $100,000 of Unison’s money and then sell for $1.1 million in 10 years, will need to share the change in value with Unison. In this case, Unison would get its $100,000 back and a share of the $100,000 change in value, typically 33 percent, says Dillon.

“We’re just getting repaid for our investment and sharing in the new value of the home,” says Dillon. “If the property drops in value, such as to $900,000, we would typically take 33 percent less than the change in the value. In this case, that would be 33 percent less than our initial investment.”

Buyers are vetted by the preferred lenders and Unison uses a proprietary automated valuation system to determine whether the property meets their investment standards.

“For real estate agents, letting their buyers know about the option of a shared investment may help get the buyers off the fence now rather than wait to save more money,” says Dillon. “In addition, this can open access to more properties that might have been out of reach.”

FINANCIAL AND LEGAL CONSIDERATIONS FOR FLEXIBLE HOUSEHOLDS

Sharing ownership of a house may create a somewhat more complicated scenario for both the financing and legal arrangements.

“Sometimes you have one set of people on the loan and everyone who lives there on the deed and sometimes it’s the opposite,” says Scott Davis, producing branch manager of Crosscountry Mortgage in Sterling. “The deed refers to who owns the property, not who has responsibility for the mortgage.”

Davis recommends talking to an attorney about the agreements to address the percentage of ownership of each person, what will happen when one person wants to sell, and who has a deciding vote – all issues that are not covered in the loan or deed.

While married couples typically hold properties as tenants by entirety, unmarried people buying property together can own as joint tenants with right of survivorship or as tenants in common.

Most often they choose to own as tenants in common, especially if the buyers own different percentages of the property, says Helen Krause, marketing director of New World Title.

“It’s important to discuss this with a real estate attorney because this will affect what happens to the property if one of the owners passes away,” says Krause. “There’s also the potential danger of having a judgement or lien against one of the owners that attaches itself to the property and can have an impact if you want to refinance or sell in the future.”

For multigenerational households, the parents need to consider the impact on their estate, particularly if there are multiple heirs.

“One couple I worked with bought a house with one of their mothers in part to save on property taxes,” says Gray. “[The mother] paid the deposit and some of the down payment but isn’t on the title. They just signed a letter stating how much [the mother] contributed to the purchase.”

Financing for multigenerational homes depends on the income and credit scores of everyone who intends to be on the mortgage, says Krueger.

“If you have a couple and their parents but you don’t need all four incomes to qualify, you may want to qualify based on one couple or remove one person from the application who has a lower credit score or not much income,” she says. “It’s important to look at the short- and long-term goals for each person and talk to a CPA or financial advisor about the implications of the loan.”

Similarly, if friends plan to buy together, the income, debt and credit of each applicant will be combined to determine eligibility for a loan, says Krueger.

“If you’re splitting the down payment and expenses, you need language in the deed to spell out ownership rights and the percentage each person owns, so it can be divided appropriately when you’re ready to sell,” says Krueger.

Whether your clients are buying a home with friends or relatives or renting part of their home, Gray says, they need to get every detail in place before moving in together.

“They also need a mutually agreed- upon exit clause,” says Gray.

Buyers who plan to rent their property have numerous financing options, says Davis, some of which allow projected rent payments to be part of the buyers’ income.

“It’s so important to get a completely documented preapproval for a loan based on the borrowers’ plans because the loan options could change depending on the type of property and the rental agreement,” says Davis.

Co-owning a home with friends also requires a legal agreement about what happens if one of the owners dies or wants to sell, says Krause. For example, if three people purchase together and the heirs of one owner inherit one-third of the house, it’s typical for the house to be sold with the proceeds split three ways or for the two remaining owners to buy out the heir, says Krause.

“The more people involved in any transaction, the greater the possibility of complications,” says Krause.

Solid advice from a Realtor®, lender and attorney can help.



Michele Lerner, a freelance writer based in the Washington, D.C. area, has been writing about real estate and personal finance for more than 20 years.