Rising home prices prompt creative living arrangements

Aside from the logistical headache of having four cars and only a three-car garage, college buddies David Van Horne and Sean Arnold are pleased with their solution to San Francisco’s soaring real estate prices.

Van Horne and his fiancee pooled their money with Arnold and his wife to jointly buy a two-family house in a pricier part of town than either couple could have afforded on their own.

At about the same time last winter, brothers Gregg and Chris Mitchell arrived at a similar conclusion as home prices climbed ever higher in New York City. They and their wives teamed up to split a two-family brownstone in Brooklyn.

“It was a little inspired by the old world experience of living around nephews and uncles, and it also obviously came from the idea that real estate was so bloody expensive,” said Gregg, who along with his brother and their wives moved into their new home last fall.

Many prospective homebuyers respond to sticker shock by compromising on location and size. Others swallow hard and take on a bigger mortgage, while some just walk away frustrated.

But brokers in several hot markets say a growing number of would-be homeowners are inquiring about joint purchases with friends, family and co-workers as a more constructive way to deal with the weekly torment of the real estate section.

Despite predictions of a downturn or at least a pause in rising prices, a record 62 metropolitan areas saw double-digit increases in the final three months of 2004 compared with a year earlier, according to the National Association of Realtors.

“Is this a trend? In the last several months it seems that more and more that when I’m representing a property, brokers will call and explain that they have two couples coming together,” said Paul Zumoff, a broker for The Corcoran Group in New York City.

Zumoff is now representing two co-workers who have submitted a joint bid to purchase a Brooklyn townhouse with plans to take one apartment each and rent out the third apartment to offset the mortgage.

Though enticing, the partnership solution also invites the usual perils of doing business with friends or family. Notably, the discussions often go nowhere as prospective partners begin to realize just how complex, and potentially ruinous to a relationship such a venture can be.

“Buying together is a difficult thing,” said Sophia Tzeng, who briefly pursued a partnership with a college friend, but is now bidding solo on a three-bedroom apartment for herself, her husband and their three children.

The two friends began looking for a building in Manhattan to renovate, hopeful that such a property would fit their price range, but backed off when they realized how much work was involved.

“Saving the friendship was one of the reasons we decided not to do it,” said Tzeng, a former lawyer who also needs more space for the ice-sculpture business she and her husband operate out of their home.

That’s why experts strongly recommend that prospective partners lay the ground work for their joint purchase with a legal contract.

The agreement should spell out financial terms and basic understandings about upkeep — as well as answers to the uncomfortable questions which arise if a relationship sours or one side encounters troubles such as loss of a job, divorce or health problems.

“One thing we try to do in these agreements is design an exit strategy,” said Frederick Hertz, an attorney in Oakland, Calif., who specializes in what he calls “real estate marriages.”

Due to a limited supply of properties in markets such as San Francisco, Boston and New York, some real estate marriages don’t spring from stable long-term relationships — sometimes they follow a whirlwind courtship, said Hertz, author of “Living Together: A Legal Guide for Unmarried Couples.”

“Rising real estate prices are forcing people into these types of arrangements all over the country. These are people who may be friends, but the Bay area is full of people who meet on the steps of an open house.”

As a result, said Hertz, “I do a lot of real estate divorces.”

Key issues to iron out in advance include determining when and how the partners can sell their apartment, whether one has the first right to buy the other out, and whether either owner can rent out their apartments. Partners also may want to spell out processes for paying the mortgage and covering expenses, or how they’ll share common areas such as a garden or garage.

That said, as with romantic couples who move in together, unexpected issues are bound to arise between real estate partners living under the same roof for the first time.

“You’re sharing the space, essentially opting to live and spend a majority of time with another couple,” said Tammy Shaw, a real estate broker who bought her own Brooklyn home in partnership with her sister-in-law, Ruthanne Pigotte.

The two women, co-founders of Brenton Realty Inc., purchased a four-unit building about three years ago, taking one apartment each for their families, and renting out the other two.

“Some of the challenges can be as simple as what temperature the thermostat is set on. The difference between 68 and 72 degrees can be huge,” said Shaw. “Longer term, life happens: One couple has two kids over the course of a few years while the other couple remains without children. Along with children comes more noise, more storage needs for car seats and strollers.

“These life changes can cause stresses in an otherwise perfect partnership.”