Long story short, we've been passively looking to upgrade our house in Houston (heights specifically) to one with a garage apartment. My in-laws primary residence is near College Station, but they visit us at least a couple times a month.

The goal was to find the right place, one that was bigger and nicer than what we currently have with a separate living area for them - they would gift us a little money for the down payment and pay a decent rent to somewhat offset the increase of mortgage.

Well, our next door neighbors put their house up for sale and we started brainstorming - the cost of their house plus ours is in the price range we were looking. My wife and I would "take over" 3-4 rooms in the new house which allow us to create some rooms that we want but don't need. Home gym, theater room, sewing room, wine storage room, etc. The in-laws would use the master bedroom, kitchen and living room. We would take down the fence between the two and create a big backyard that we would share for the dogs, etc. We would also build a little covered walkway between the two for easy movement between. All that is neither here nor there to the point of my thread, it's a unique scenario, but one that could really work for us.

The point of my thread is this : Part of this deal is that my wife and I own all this property outright so that it's in our name for the financials. They just want to pay rent enough to offset their part of the cost. Assuming we do this, I don't want to buy it as an investment property as that adds significant interest, but we also couldn't purchase it as a second home because it is too close.

Just trying to figure out what my options are.

Delete the second to last sentence of your post and contact a lender asap. Several good Aggie lenders on this board, and you need to move quickly assuming this home is priced anywhere close to reality. I own some homes in the Heights and broker lots of deals there so if you want help on the brokerage side I'd be happy to help you. Contact info in my profile.

You can absolutely buy it but it would be considered a investment property (not a second home as in vacation home) which carries a higher interest rate and a bit more down the an owner occupied property. But, as Jaime points out moving fast is a requirement in this market.

I just did this exact thing in the Heights. Bought house next door to rent out and took over most of the backyard and incorporated it into ours. Amegy had a great program/rate - but this was back in October when I believe rates were much lower. Reach out to jja79 - their deal beat every one else's by a long shot. And feel free to contact me with any questions.

The pricing adjustments on investment properties mandated by Freddie and Fannie are pretty steep. We do have a portfolio product as MAS444 said. Rates are higher on everything obviously but it can be an option for 2nd homes and investment properties.

We bought the house next door and it was a lot of trouble to get a mortgage. Our intent was to renovate and move and we would use the old house as a rental.

So be prepared for a PITA.

Thank you all for your input - trying to do as much research as I can.

We sent the neighbor a text over the weekend to let them know we were going to be interested. She meets with the realtor today. I also conveniently will be helping her move her grill from the backyard tonight so I'll be able to get more information. There's a best case scenario where she says something along the lines of "if you'll buy it for this much, we don't even have to list it" or she could want to list it to see if she gets any crazy offers. Who knows - we have a little bit of a relationship, but not close enough to feel confident with anything. I think there's a good chance I will be getting aggressive about this tomorrow.

Dumb question - I'm assuming its a horrible idea to look into "combining" the two properties to one, correct? I get the feeling its a bad idea, but I don't know enough to explain why exactly it would be.

Basic financial details :
- The two house are almost exactly the same, just mirror images of each other.

- Our existing mortgage has 68% equity (based on current value) on a 3.6% 30-year loan.

- We have enough down payment for around 33% of what I assume the listing price will be.

- So we have enough money to either pay off one (which would be dumb) or to cover 50% of the combined value

- We both have excellent credit scores. (820-830?)

When you say "combine the two properties", do you mean a replat? Or cross collateralizing debt on the two for loan purposes? I don't think there is an advantage to you for either unless you just want to knock down one or both houses to have a much bigger house and/or yard. But there is a lot that could go wrong like you mentioned.

Also, when she said she is "meeting with the realtor", in my mind, that means they are discussing offers or are about to sign an offer if she's older and prefers wet signatures. I'd try to make sure she doesn't sell it out from under you.

I chose not to replat them together because I want to have more flexibility to sell one or the other by itself later if we want to. I also wanted to keep them seperate for tax/accounting purposes.

Sea Speed said:

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Wow. Pretty wild there are several folks here who have bought their neighboring house. That is kind of a wild coincidence. I wouldn't have thought it to be a common occurrence.

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In our case it is the street that I grew up on and we know all the neighbors. Living in a neighborhood where you can borrow a cup of sugar or an egg in the middle of cooking a meal is priceless. We also loan out tools all the time and share our lawn tractor with our neighbor and he loans us his weed eater.

Why did we buy? To gain an extra bedroom and a 1/2 bath.

Red Pear Realty said:

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When you say "combine the two properties", do you mean a replat? Or cross collateralizing debt on the two for loan purposes? I don't think there is an advantage to you for either unless you just want to knock down one or both houses to have a much bigger house and/or yard. But there is a lot that could go wrong like you mentioned.

Also, when she said she is "meeting with the realtor", in my mind, that means they are discussing offers or are about to sign an offer if she's older and prefers wet signatures. I'd try to make sure she doesn't sell it out from under you.

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Mostly the replat and if there was anyway that financially benefited us. I like the flexibility of being able to sell one if needed, so I likely won't go that way anyway.

Combining the loan doesn't make sense to me because of the higher rates at the moment. I'm open to whatever though, I'm pretty green when it comes to real estate financials, but I know a lot of you are well versed and might think of something I don't.

On the "meeting with the realtor" - she said it was to come up with a plan for the listing price, when it would go on market, open houses, closing date, etc. I'll be seeing the neighbor in a couple hours, so we'll see.

Second homes now have the same pricing as investment properties. Freddie and Fannie closed that loophole this year. Don't try and cross collaterize.....will cost you in the long run as Agencies not supportive. I can help with non owner occupied borrowers or gifts. I will be happy to help. 35 years experience so no gimmicks, just transparency and on time Closings.

Bbazar@rpm-mtg.com or apply online at rpm-mtg.com/bbazar

I know five families who have purchased a second home on the street or adjoining street they currently live on. All purchased with the idea of tearing down the new purchase to rebuild and sell their current home. Only one family made that transition successfully. The others are currently renting the new purchase because the cost to build skyrocketed on them. Three of those family are on our neighbors.

It is very common in certain neighborhoods were it's hard to get in. Lots of pocket listings of teardowns.

Once those new builds are complete that frees up the inventory, but that takes a while to come to fruition.

That's one of the things we've discussed doing down the road (possibly when kids are out of the house) - tearing down the older/smaller home and building a new one. Lots are around $100/ft now - can't imagie what they'll be in 10 - 15 years.

You can still do this without the Freddie/Fannie Loan Level Price Adjustments and get in the 3's. More than one Texags poster has used our portfolio program for both 2nd home and investment properties.

Wrec86 Ag said:

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Just an update - we got our offer signed earlier today.

Now time to start planning the fun stuff.

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Nice work!

Congrats man. That is no small feat in this market.

Congrats!

Good deal. I would keep each property separate and not combine them, if in the future you would like to sell one of the houses.

Sea Speed said:

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Wow. Pretty wild there are several folks here who have bought their neighboring house. That is kind of a wild coincidence. I wouldn't have thought it to be a common occurrence.

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I bought the house next door because of the pool and extra room. I even hired a moving company to help. Needless to say, I received some ribbing from my drinking buddy neighbors. Lol

Divorce.

Bought the house next door earlier this year. Currently getting it fixed it to rent (short-term to folks fixing up their houses most likely) until we can get my folks to move up here. Looking forward to moving the fence; both our house and the next door sit 1.5 lots....so we'll have a 2x lot soon.

Sea Speed said:

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Wow. Pretty wild there are several folks here who have bought their neighboring house. That is kind of a wild coincidence. I wouldn't have thought it to be a common occurrence.

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A rich girl at my high school lived alone in the house adjacent to her Dad's house. Her mom wasn't in the picture, and as you can guess by giving her a house to live in, her dad was an inattentive neglectful parent, so she was a bit of a wild party girl.