#AskFarnoosh: Couples & Real Estate
This week, Dan, a Facebook fan, asks me:
How do two, mid/late 30s adults combine a household? We both are very established and have worked hard for what we have obtained. My house is bigger with a bigger yard and in a slightly nicer area. I can’t imagine asking her to move after all the work she put into her home. I can’t sell my home because it is so far underwater. Besides, we would put one of them into the rental market and earn additional income. Our rental market is pretty flat, so I do not believe either home will bring in a significant amount of rent other the other. The “plan” is to remodel my home and move in there once complete, subsequently renting out hers. I’m not only asking for your professional advice, but also your advice as a woman.
As you know money can be a contentious issue in many relationships. Doing ‘what’s right’ is a calculation that includes both numbers and emotions. You want to do what’s financially sound and offers you both the least amount of stress. What’s the most peace-of-mind thing to do and the most economical? Somewhere in the middle lies your answer.
My advice is to follow through on the plan you’ve chosen. Seems like and your significant other have given this quite a bit of thought. You’ve probably analyzed things like neighborhood, space, functionality, schools (if you choose to raise a family there), all in addition to the costs. If it makes the both of you happiest to live in your home and rent out hers, then trust your instincts. Just don’t go crazy with the remodeling, unless the upgrades will add significant value to the home.
Why rent instead of sell your partner’s home? Well, it could be a great long-term investment, especially since she’s put major sweat equity into it. If could offer you both a nice little bit of cash flow every month and down the road a nest egg to fall back on. But if you plan to reap the benefits of this home, I’d suggest she add you to the mortgage or that you split the costs somehow. (That’s my womanly advice). After all, the proceeds of renting out the home – or selling it – may end up in both your pockets. You should be equally invested. Otherwise, I’d suggest that she keep paying the mortgage on her own, pocket the rental income and keep it as her own personal savings.
Just make sure that whatever you’re both contributing to keep these two houses afloat – after any rental income – is no more than 25% of your take-home pay. And as for rental income, money and couples expert Matt Bell says it should cover mortgage, taxes, insurance and monthly maintenance costs. “Also factor in the assumption that the property could go unrented for two months out of the year,” he says. Finally, try renting the place for a year and see if you even enjoy it. The stress of being landlords may outweigh any financial benefits. In that case, you should revisit selling it and use the savings for your future.