Q: My fiance and I both purchased condos separately within the last year and plan on moving in together before the wedding.
Would it be wise to rent out one of our condos or just sell it?
A: Congratulations on your impending nuptials. But I’m wondering if you and your fiance were dating seriously when you made these purchases. Did you talk about having a life together and what that would mean financially?
The reason I ask is that now you’re in a tough position. If the condo that you’re not planning to live in hasn’t appreciated enough to cover the costs of sale, it’s likely that you’ll lose money if you choose to sell it.
Typically, the costs of sale can run anywhere from 6 to 10 percent. Unless you’re living in Las Vegas, where the average property increased 41 percent in 2004, you may find it difficult to recoup those costs.
Your other option is to rent the property. Unfortunately, you may find that you will have to accept negative cash flow, since the costs of ownership (mortgage, insurance, taxes, etc.) may exceed the amount of rent the property can generate in today’s market.
You can have negative cash flow, but be able to depreciate the property on your federal income tax return, so the property might give you some taxable benefits. Your tax preparer can help you calculate the numbers.
Which is what you should do now. Talk to some local agents who rent property to see what you might be able to get. Figure out whether you’ll make money, lose money or break even. Figure you’ll miss a month or two of rent every year, and will need to repaint the property between renters.
If you decide to go that route, consider refinancing the property to an interest-only loan that would be fixed for the next 3 to 5 years to help hold down your out-of-pocket costs.
If you and your fiance decide that neither of you want to be landlords, then try to sell by owner and get out of the condo as quickly as possible. Unfortunately, I can’t make the choice for you. You and your fiance need to settle this issue for yourselves.
Going forward, you and your fiance should lay your financial cards on the table and set up a framework in which major financial moves are openly discussed throughout your marriage.