Lifestyle | Cohabitation project: what to do with each other’s houses?

When a couple wishes to live together, they have several choices to make. If he buys a new house to settle down, he will have to decide what will happen to everyone’s residences. Should we sell them, or keep them in case the cohabitation is not as harmonious as we hope?

Martine Letarte
special collaboration

The situation

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

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

They are considering different scenarios, such as each keeping their house, renting it out and thus having the possibility of returning there if they ever separate. They estimate that they could get around $1,800 per month for Brigitte’s and $2,200 per month for Pascal’s, which would more than cover the mortgage and other costs. In addition, they could deduct from rental income various costs of these properties, including mortgage interest. Eventually, if they need cash, they could sell one or both of the properties.

Another option being considered is for Pascal to sell his house right away — in the event of a separation, he could keep the news and Brigitte would return to live in her house.

One thing is certain, the couple now wants to make their money grow. Brigitte and Pascal are not saving at the moment, but they have the capacity to invest around $300 each per month. 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.

Keep both houses

There are a lot of 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 and be able to return to them if ever the cohabitation is not as harmonious as expected.

“If the houses are rented, they will have 12-month leases, so they won’t be able to return to them quickly,” he says. Most people sell everything in a situation like that, live together, then if that doesn’t work, buy something back. It’s easier. »

He nevertheless made the retirement projection considering that the couple is buying a new house and that each one keeps his own and rents it out. Moreover, since Pascal and Brigitte earn a similar income, he separated the expenses of the new house half and half.

To make his projection, Simon Préfontaine took the scenario according to which Pascal takes early retirement with penalty in 2037, therefore at 55 years old. For Brigitte, it is assumed that she also takes it at age 55, in 2026. The financial planner also took into consideration that they now start saving $300 per month each in a registered retirement savings plan (RRSP). and everything is placed in a balanced portfolio. He also considered the legacies the two might have in the long run. Results ? They will have the equivalent each year of $92,000 in today’s dollars after taxes by following the recommendations on life expectancy of the Institut québécois de planification financière (96 years for Brigitte and 94 for Pascal). .

“To make their decision, the couple can take this basic scenario and change different variables, such as retirement age and the sale of a house, and then look at the impact,” says Simon Préfontaine.

The price to pay for Pascal

The financial planner stresses all the same that if Pascal is lucky enough to stop working 10 years before his normal pension, this comes with a price to pay. If he continued to work until age 60, he would retire early with an unreduced pension. The couple would then have about $17,000 more per year after taxes, or $109,000.

“It’s usually between 55 and 65 that you earn the most money, so by taking early retirement, the couple would sacrifice those years,” says the financial planner. Then, if the couple does not work out and Pascal wishes to return to the labor market, he risks not finding the same conditions at this age as if he had remained in the job. But it’s in 15 years, so he has time to see how things evolve in his relationship. »

Then, you have to consider the $400 a month in benefits and family allowances that he would lose by living with his spouse. “Pascal could ask his accountant to calculate each year what more he would receive from the government if he lived alone,” says Simon Préfontaine. This will fluctuate when her eldest daughter turns 18. The idea is that the couple is well aware of this price to pay for Pascal. Thus, Brigitte and Pascal will be able to discuss it and, if necessary, make the necessary adjustments in the sharing of their expenses. The goal is to have as few irritants as possible, because money is the number one cause of separation for couples. »

Sell ​​a house or both

Deciding whether or not to sell their houses remains a big question that Pascal and Brigitte have to think about. Financially, if the couple stick to an annual lifestyle of $92,000 in today’s dollars, they wouldn’t need to sell them.

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

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

Also, selling the houses would give them more financial flexibility. “They could do what they want with these additional sums of money, specifies Simon Préfontaine. It’s also easier to sell your house when you live in it, because no one takes better care of a house than its owner. But we are far from being solely in financial matters. This couple really needs to consider the emotional side in order to be at peace with their decision. »

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