Lifestyle | Cohabitation Project: What to do with each other’s houses

If a couple wants to live together, they have to make several decisions. When he buys a new house to settle down, he has to decide what to do with everyone’s homes. Should we sell them or keep them if living together is not as harmonious as we hope?

Posted at 7:00 am

Martine Letarte

Martine Letarte
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The situation

Pascal*, 40, and Brigitte*, 52, are a couple who currently see each other mainly on weekends. But they want to live together. Brigitte has a daughter (19) with joint custody and Pascal has two daughters (12 and 14) also with joint custody. By living with his spouse, he would lose about $400 a month in welfare and family allowances until his daughters are 18.

Pascal and Brigitte each have their own house, but want to buy one together. They also have pre-approval on a $600,000 mortgage.

They consider various scenarios such as each keeping their house, renting it out and thus having the option to return if they ever break up. They estimate they could get about $1,800 a month for Brigitte’s and $2,200 a month for Pascal’s, which would more than cover the mortgage and other expenses. In addition, they could deduct various costs of those properties, including mortgage interest, from the rental income. If they eventually need cash, they could sell one or both properties.

Another option being considered is for Pascal to sell his house straight away – in the event of a split he could keep the news and Brigitte would come back to live in her house.

One thing is certain, the couple now wants to let their money grow. Brigitte and Pascal are not saving at the moment, but they have the capacity to invest about $300 a month each. They also want to leave a legacy for their children, but the most important thing is that Pascal can retire quickly in 10 or 15 years.

“I want to enjoy life with my girlfriend while we’re both fit and not too burnt out from work,” he says.

Counting

Pascal, 40 years old

Annual salary: $106,000
House: Valued at approximately $450,000, with a $150,000 mortgage balance
Pension system: Eligible for early retirement with reduced pension in 2037 (at age 55)
Travel budget: between $7,000 and $10,000 per year
No Savings
Opportunity to receive a long-term inheritance

Bridget, 52 years old

Annual salary: $118,000
House: Value approximately $325,000, with a $170,000 mortgage balance
Retirement plan: Eligible for full pension in 2026 (at age 55)
Travel budget: between $7,000 and $10,000 per year
No Savings
Opportunity to receive a long-term inheritance

Keep both houses

There are many possible scenarios for this couple. Simon Préfontaine, financial planner at Lafond Financial Services, has doubts about the option he prefers, which is to keep the two houses to rent them out and to be able to return if living together isn’t as harmonious as expected.

“When the houses are rented, they have 12-month leases, so they can’t go back there quickly,” he says. In such a situation, most of them sell everything, live together, if that doesn’t work, they buy something back. It is easier. »

Still, he’s made retirement planning, considering the couple are buying a new house and each keeping their own and renting it out. Also, since Pascal and Brigitte earn similar incomes, he split the expenses for the new house half and half.


PHOTO HUGO-SÉBASTIEN AUBERT, LA PRESSE ARCHIVE

Simon Préfontaine, financial planner at Lafond Financial Services

Simon Préfontaine based his forecast on the scenario that Pascal would retire early in 2037, i.e. at the age of 55. Brigitte is expected to take it even at the age of 55 in 2026 with a balanced portfolio. He also reflected on the legacy the two could have in the long run. Results ? They will have the equivalent of $92,000 in today’s dollars after taxes each year if they follow the life expectancy recommendations of the Institut Québécois de planification financière (96 years for Brigitte and 94 for Pascal).

“To make their decision, the couple can take that base case and change different variables like retirement age and selling a house and then look at the impact,” says Simon Préfontaine.

The price of Pascal

However, the financial planner stresses that if Pascal is lucky enough to retire 10 years before his normal retirement age, there will be a price. If he continued to work until age 60, he would retire early with an uncut pension. The couple would then have about $17,000 more per year after tax, or $109,000.

“Typically, you make the most money between the ages of 55 and 65, so the couple would sacrifice those years by taking early retirement,” says the financial planner. If things don’t work out with the couple and Pascal wants to return to the job market, he runs the risk of not finding the same conditions at that age as if he had stayed in the job. But it’s 15 years from now so he has time to see how things develop in his relationship. »

Then you have to factor in the $400 a month in welfare and family allowances that he would lose if he lives with his spouse. “Pascal could ask his accountant to calculate each year what more he would get from the government if he lived alone,” says Simon Préfontaine. This will fluctuate when her eldest daughter turns 18. The idea is that the pair are aware of this price for Pascal. This way, Brigitte and Pascal can talk about it and, if necessary, make the necessary adjustments to the distribution of their expenses. The goal is to have as little irritation as possible, because money is the number one reason for a breakup for couples. »

Sell ​​a house or both

Deciding whether or not to sell their homes remains a big question for Pascal and Brigitte to think about. If the couple is financially attached to an annual lifestyle of $92,000 in today’s dollars, they wouldn’t have to sell her.

“Pascal and Brigitte will be able to benefit from the rental income once the mortgages are paid off, but they will not benefit from the capital,” says Simon Préfontaine. It is their children who benefit from the inheritance. »

But the big question is whether the couple really wants to get into the rental business. “I often tell my clients that it’s like a part-time job,” says the financial planner. If that’s what they want, that’s fine. But otherwise, these worries are to be avoided. »

Also, selling the houses would give them more financial flexibility. “They can do whatever they want with this additional sum of money,” Simon Préfontaine specifies. It’s also easier to sell your home when you live in it, because nobody takes better care of a home than its owner. But we are far from just being on financial matters. This couple really needs to consider the emotional side to be comfortable with their decision. »

* Although the case highlighted in this section is real, the first names used are fictitious.

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