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To do local co-op, you first need to build another house on your farm. You can have up to 3 extra houses. To get a house, go to Robin's Shop and get her to build the additional farm house. There are 3 different designs to choose from, each costs 100g and different materials depending on which design is chosen. 10 stone for a stone cabin, 5 wood and 10 fiber for a plank cabin, and 10 wood for a log cabin.
After you've chosen a spot and the house was built, to do multiplayer;
Load the save file (If you're doing it from a single player file, otherwise on the Main Menu create a new file from the Co-op Section. Doing it that way allows for both split-screen as well as remote/online)
Connect Controllers to your PC
Open the In-Game Menu and go to Options
Scroll down to Multiplayer and select Start Local Co-op
Press the Start button on the extra controllers
Before the game is launched, connect the first controller and use it to set up the Local Co-op from the menu.
Once you've done that and Co-op is enabled, connect the second controller and press start.
If it still doesn't work and the controllers are connected using Bluetooth, try using USB cables instead if possible.
I had to do an extra step:
Right click on the game --> properties --> controller tab --> and set to "enable steam input", now we can play together. :)
Connecting in from two different devices (in this case one Link, one tablet) works around it. But that isn't really ideal...
Thank you!!