Millennials, especially, are exploring multi-family developments to cope with high home prices

By Mark Huffman of ConsumerAffairs

Probably the first time Americans were introduced to the concept of a family compound was in 1960, when Sen. John F. Kennedy ran for president and spent time at his fathers family compound on the shores of Hyannisport, Mass.

But you dont necessarily need to be rich to develop a family compound. Increasingly, extended families and friends are pooling their money to buy several acres of land and build a few houses. Or, purchasing a smaller parcel to build a large home that could accommodate more than one family.

The San Francisco Chronicle recently reported that some people working in the technology industry applied to build a compound on a square mile of the city to build houses the employees and their families could afford.

Popular with millennials

Millennials, especially, are embracing the idea. KIRO-TV reports the multi-family housing trend is picking up speed in the Seattle housing market, where the average home price is nearly $900,000.

Google Trends reports the term family compound is being searched in 2024 at the highest rate in at least 10 years. Brian Durham, vice president of Risk Management and managing broker at Realty Group LLC and Realty Group Premier, says compounds are springing up all over the U.S.

The trend I have seen is multiple people buying properties with large land parcels and then building multiple homes on that land, Durham told ConsumerAffairs. The largest advantages of this are, that you can choose your neighbors and you can pool resources.

Interest has risen along with home prices

Kate Terrigno, a Realtor with Corcoran HM Properties in Charlotte, N.C., says the increase in interest in multi-family homes or duet-style homes has risen along with existing home prices. Buyers, she says, like the idea of living close to family and friends.

Additionally another advantage for buyers is they are able to get newer construction in regards to finishes, ceiling height and overall style of property, she told us.

There are absolutely benefits to pooling money together to buy family compounds,Seamus Nally, CEO, TurboTenant, told ConsumerAffairs. It is a way for people to access homeownership in a unique way through a combined effort. These types of properties can also often be easily turned into rental units, with one or more of the homes becoming a short or long-term rental in order to make money off the property.

In fact, investors have already picked up on this trend, building compounds or other multi-family housing, not to live in but to generate income.

I think it is a good starting point to get exposure to the investment class for new investors, said Nicholas Ritacco, portfolio manager and director of Finance at IB Global Real Estate Funds. It is similar to investing in stocks. You would pick an index fund before picking an individual stock if you are new to the game. Overall you want to participate in the market just with limited risk at the beginning.

Things to consider

But Ritacco, as well as the rest of the real estate experts we consulted, said there are risks inherent in building a compound and pitfalls to be avoided. Tanya Lechner, the founder of the Sunshine Real Estate Team in San Antonio, says a compound might be so easy to sell.

If it isnt a popular scenario when they decide to sell in a few years then they may not get as big as a profit as a single-family home, Lechner said.

She says a compound in which each home has a separate deed to the land on which the house sits is much less of an issue.

Nally says when going in on a property like this with other buyers, its critical to create and sign a document that outlines all of the specifics, including division of costs, who lives where, division of responsibilities and expectations regarding selling.

Failing to do so can put buyers in sticky situations, he said.

Durham says the two biggest issues he sees are zoning and financing. He points out that many localities have zoning restrictions that limit the number of dwellings on a single piece of property.

These properties are also challenging because they are not underwritten like a typical mortgage, Durham told us. You will need a lender that provides these niche types of loans. You also have to think about the marketability of the property when it comes time to sell. With unique properties comes a much smaller buyer pool.