Whose place should we live in?

[bikebuzz]

Hi MMM community.  Long time lurker/reader, first time poster...

My boyfriend and I are near getting engaged and have begun discussions regarding where to live after we get married.  We both own condos (which is why we’re waiting to live together), and are basically trying to figure out whose makes more sense to keep and live in or whose makes more sense to sell.

Given the market right now, I don’t think it’s smart to sell both of our condos and buy something else.  From what I’ve seen in area real estate we won’t do much better unless we go up to around 400k.

Condo 1: Paid off, worth about $265k conservatively.  2br/2ba, about 1300 sf in less desirable area (nice enough, but gang activity in the neighborhood).  Basement (“garden”) unit of smaller vintage building.

Condo 2: 150k mortgage, worth about 250k conservatively. 1br/1ba, about 1000 sf in desirable area.  Corner unit in larger loft building.  More likely to appreciate at a higher rate.

Is there any financial advantage to moving into the paid off condo versus selling it and putting the money to pay off condo 2?  It's otherwise a space versus location scenario.  What would you do in our situation?

Thanks!

[ketchup]

Condo 2 seems like the obvious choice to me, unless you have some reason to need a second bedroom/bathroom (you probably don't if you're asking).

[ShoulderThingThatGoesUp]

Condo 2, pay off any high-interest debts and then invest the big pile of money from Condo 1. 2 is:
-not in a basement
-in a nicer neighborhood
-slightly less expensive right now
-less space to maintain

[Jack]

Does the difference in location make a material difference to either of your commutes (e.g., cause you to drive when you would otherwise bike)?

How much would they rent for?

[frugaliknowit]

Financially, condo 2.

Non-Financially, I think it best that you buy or rent a place together as a married couple.  Otherwise, to SOME degree, it will always be "his/her place" even if it is "our home".  Buying/renting together is more bonding, in my opinion.

[robartsd]

I don't see any financial reason it would be better to sell a mortgaged condo rather than sell a paid off condo and use the proceeds to pay off a mortgaged condo. If you've already come to the conclusion that you'll sell one and live in the other paid off it really is the space vs. location trade-off.

If the interest rate on the mortgaged condo is favorable, investing the proceeds from the sale of the paid off condo might be better than living in a paid off condo. Of course the paid off condo could also be used as collateral for a loan, but that would incur the cost of originating a new loan.

You could also consider keeping both condos and renting out the one you don't live in (the current note on the mortgaged condo could require owner occupancy, so check that before deciding to rent it out). Renting out condo 1 while living in condo 2 retains the flexibility to move into condo 1 later if you think you'll want the space a few years down the road but don't need it now. The better location of condo 2 could attract a better quality tenant and renting it out while enjoying the space of condo 1 would mean you don't loose the opportunity to benefit from the anticipated appreciation.

[Giro]

Your descriptions are pretty biased...clearly you like the 2nd condo.

The only thing I can think of is that 1br/1ba condos are harder to sell.  Most people prefer a 2nd br and ba so think about that long term if you want to sell in the future.

[2704b59cc36a]

It's not fair for condo 1 owner to sell and then dump the money into paying off condo 2. That makes the money community property and it would be split in the event of divorce.

[notactiveanymore]

It's not fair for condo 1 owner to sell and then dump the money into paying off condo 2. That makes the money community property and it would be split in the event of divorce.

Maybe the owner 1 would put 100k towards the mortgage and then invest the other 165k. Then you've each put equal assets into condo 2 and any split in the future would be fair.

We personally didn't pre-plan our finances in case of divorce, but if you're looking for what's even, that is my suggestion.

[bikebuzz]

Thanks for the insight!  I knew you all would think of things I hadn't thought of...

The interest rate on Condo 2 is 5%, so I'm not sure that keeping the mortgage at that rate and investing the money from Condo 1 makes financial sense.  But I'm curious to hear your thoughts. The mortgage from Condo 2 is the only debt we have between the two of us.

Condo 1's building is capped on its rental limit, so that's out of the question.  Condo 2 could possibly rent for $200/month more than the mortgage + taxes + assessments.  Not sure that is worth it, as I think we'd be better off having the 80k invested.

Both places are similar commuting distance to work via bike or public transit.

It's not fair for condo 1 owner to sell and then dump the money into paying off condo 2. That makes the money community property and it would be split in the event of divorce.

I'm not really considering divorce as an option here, but given your statement, how is this different from the owner of condo 2 living in condo 1 without having invested in it at all? 

Thanks again!

[Choices]

Congrats on your near-engagement!
My two cents:
- Don't combine finances until you are actually married.
- Condo 1 seems unsafe, so sell ASAP. You don't want to live there and don't want to be stuck with a rental in a declining neighborhood.

- You could live in Condo 2, but it depends how attached the current owner is. If super-attached, it will be hard for the new person to truly feel at home and make changs to go from "yours" to "ours."

- Have you considered selling both and renting for a year? When you live together, you'll know how much togetherness you can handle and how much space you'll need. You might consider family planning, job changes, location, etc. and eventually buy a new place together with a huge down payment or pay in full.

- Try to declutter and not need a storage shed when you combine households. You're Mustachian and I'm sure you'll make wise, simple, quality choices.

[Jack]

The interest rate on Condo 2 is 5%, so I'm not sure that keeping the mortgage at that rate and investing the money from Condo 1 makes financial sense.  But I'm curious to hear your thoughts. The mortgage from Condo 2 is the only debt we have between the two of us.

Condo 1's building is capped on its rental limit, so that's out of the question.  Condo 2 could possibly rent for $200/month more than the mortgage + taxes + assessments.  Not sure that is worth it, as I think we'd be better off having the 80k invested.

Both places are similar commuting distance to work via bike or public transit.

In that case, I'd lean towards selling Condo 1. Then, you should either live in Condo 2 and refinance into a new 30-year mortgage at less than 3.5%, or also sell Condo 2 and buy a third property jointly as frugalknowit suggests.

IMO, if you refinance Condo 2 you should do cash-out (if you can still get a favorable rate) and invest the proceeds in your name only, then put the new mortgage (and deed) in both names so that you both have equally-low equity and pay it jointly. That way you get equal feelings of ownership and maximum return on investment.

However, I think selling both and buying a third property is the best way to go because then instead of a condo you could buy a multifamily property (2-4 units) that makes a better investment than either of your condos and "house hack." That way you could move from strategy #2 (where you currently are) to strategy #5. (On the other hand, if you would just buy a different condo without house hacking, then you might as well just stay in Condo 2.)