“We are a couple of men and we plan to start a family with a friend,” confides Alexandre*. “We want to buy a plex with our friend to ensure that the child is close to his parents. She will really be the mom and not a surrogate mother. We would like some advice on whether our idea of selling our two current condos is a good idea, knowing that there would be three of us paying the mortgage on the plex. »
THE SITUATION
Alexandre and Guillaume* own two condominiums, a 4 ½ they occupy on the ground floor and a 3 ½ rented upstairs.
They are thinking of selling one, the other or both condos to acquire a duplex or a triplex with the future mother. They would occupy one dwelling, the mother another.
“We would be three investors, so the two fathers and the mother of our child, describes Guillaume. This is the option that we favor the most emotionally, when we think about our family future, to have a single place for our child. »
The 3 ½ rental is encumbered with a mortgage loan at a fixed rate of 2.5%, the term of which will expire in November 2024.
“The 4 1/2 we live in has a variable rate and we’re having a blast right now,” adds Guillaume.
The monthly mortgage payments amount to $3300 for the 4 ½ on the ground floor and $1407 for the rental condo. The tenant pays rent of $1850 per month.
The mortgage balance on the 3 ½ is around $345,000, for a market value that Alexandre estimates at $400,000.
The mortgage balance of the 4 ½ on the ground floor is around $480,000. “I think we could sell it for $575,000, maybe more,” says Alexandre.
They could put it up for rent instead, but they recognize that tenants willing to pay a monthly rent of more than $3,000 do not run the streets, even those of Montreal.
Alexandre has $66,000 in RRSPs, but has already used the HBP.
Guillaume has accumulated about $13,000 in his RRSP and about the same in his current account. “The money in my account, I will keep it as working capital, he specifies. You know, we have a baby project coming up! »
They are targeting a building of $800,000 to $900,000, “in those waters,” says Alexandre.
The purchase would be made at the rate of two-thirds for Guillaume and Alexandre and one-third for the mother. But it is their part of the acquisition that Alexandre and Guillaume submit to analysis, they specify.
The family project is at the in vitro fertilization stage.
“We can think that there will be a pregnancy which would perhaps begin during the winter or in the spring, advances Guillaume. For us, it is certain that as long as there is not a baby on the way and that we are not returned to the sixth month, we will not make a purchase. »
* Although the case highlighted in this section is real, the first names used are fictitious.
NUMBERS
Alexander, 35 years old
Income: $65,000
FAMILY: $66,000
No debt
William, 37 years old
Salary: $100,000
FAMILY: 13 000 $
Student loan: $7,000
No other debt
A fully paid car
The rental condo
Number of rooms: 3 ½
Current value: at least $400,000
Mortgage balance: $345,000
Monthly mortgage payment: $1,407
Property taxes: $295/month
Condominium fees: $278/month
Rental income: $1850/month
The condo personnel
Number of rooms: 4 1/2
Current value: approximately $575,000
Mortgage balance: approximately $480,000
Monthly mortgage payment: $3,300
Property taxes: $253/month
Condominium fees: $325/month
THE ANSWER
Is the project building solid?
PHOTO MARTIN TREMBLAY, ARCHIVES LA PRESSE
Mélanie Beauvais, financial planner at Bachand Lafleur Groupe conseil
To verify this, “I focused on disbursements,” says financial planner Mélanie Beauvais, of the firm Bachand Lafleur Groupe conseil.
How do the current situation and acquisition scenarios compare?
The current situation
Currently, the two condos incur annual outlays of $48,118, after factoring in rental income of $22,200.
But at the next renewal, assuming the interest rate reaches 6%, the rental condo’s mortgage payments would increase from $16,900 to $26,000 per year, a 54% increase.
“The renewal of the mortgage will hurt! “, she notes.
Indeed: the expenses of the rental condo will exceed its income by more than $10,000 – the rent increase would probably be marginal.
The disbursements for the two condos would then total $57,200.
“If they keep their current situation and they renew, the full cost of the two condos will increase by almost 20%, if I consider the same expenses and the same rent,” underlines our planner.
Sale of the two condos
Selling the couple’s personal condo would produce cash of about $65,000, she calculates. That of the rental condo would leave some $25,000 to Alexandre and Guillaume. “I took into account that there was a 5% commission on the sale of the condos and that there was a tax to be paid on the capital gain realized with the rental condo”, explains the planner.
She chose the upper limit of the range suggested by Alexandre, namely a building of $900,000.
The share of the two men would therefore be established at $600,000, on which they could apply a down payment of $90,000.
Their borrowing of $510,000 would result in mortgage payments of $39,150 per year.
“I assumed that property taxes would be similar and that condo fees would become maintenance fees,” says Mélanie Beauvais.
The couple’s disbursements would thus total $46,100, approximately $2,000 less than currently.
“If we sell everything, I have disbursements similar to their current situation,” summarizes the planner.
They keep their rental condo
Mélanie Beauvais also simulated a scenario where Alexandre and Guillaume keep their rental condo, which is easier to rent than the personal condo on the ground floor.
With $25,000 less in down payment, their mortgage payments for the duplex are increased by about $1,825 per year.
After renewing the rental condo’s mortgage, the outlays for this scenario will be around $58,000 per year, if they fail to raise the rent substantially.
If they want to keep disbursements similar to those of today, they would have to sell the two condos.
Mélanie Beauvais, financial planner at Bachand Lafleur Groupe conseil
The details are not known, but it is assumed that the current budget of the two men is able to support their future parental responsibilities.
But other issues arise.
The purchase of a duplex with three owners
Guillaume and Alexandre “will buy 66% of the building, but in fact, they will live in 50%, depending on the area of the housing, raises Mélanie Beauvais. The mother will occupy 50%. Technically, there is part of his apartment that belongs to both men. »
If they had to sell, could the two men take advantage of the principal residence exemption on the capital gain for their entire 66% share, when it only occupies half of the building ?
“According to my understanding of their situation, given that the child will also live in the mother’s home, I believe that the entire 66% of the condominium will be eligible for the exemption for principal residence”, indicates the tax specialist. But it is not impossible that the tax authorities have another interpretation, she adds.
In practice, it will be easier to sell the building together, or for the seller to sell his share to the other co-owners.
Another option: they could buy a triplex, easier to share with three. If they can find one for a similar price, the rent for the third unit will ease the budget situation.
In any case, they will have to sign a joint ownership agreement, advises Mélanie Beauvais: how do you manage maintenance, renovations, insurance, resale?
The resumption of housing
Our planner reminds that a new landlord must give the tenant of the accommodation he wants to occupy a notice of repossession at least six months before the end of his lease, i.e. before December 31 for a lease ending on June 30.
In the case of our trio, this requirement may not be easy to synchronize with the unavoidable and incompressible calendar of pregnancy.
But here another difficulty arises.
According to the Administrative Housing Tribunal, a co-owner of a building in joint ownership can only take over a dwelling “on the condition that there is only one other co-owner and that this other co-owner is his spouse. In other cases, the repossession of housing by undivided co-owners is impossible”.
Even if the trio includes two spouses – and even if their baby lives in the second apartment, which in itself constitutes a reason for repossessing housing! –, the three friends could therefore not force potential tenants to leave their homes. If they do not unearth a duplex whose housing is free, they will have to agree beforehand with the tenants, signed document in support.
But once again, the situation is so outside the usual tax frameworks that another interpretation is not excluded.
2023-09-03 19:29:45
#Lifestyle #duplex #couple #men #future #mother #child
