Author Topic: Should I let my new girlfriend buy into my house  (Read 11442 times)

MrSporty

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Should I let my new girlfriend buy into my house
« on: July 30, 2012, 07:13:14 AM »
Hi, I'm a 38-year old from Norway who got divorced three years ago. I've got two sons (8 & 11 years old) who I care for 50%.

The house (villa, nice neighbourhood) I live in is worth around $1.300.000 and my mortgage is currently around $690.000.
In my divorce I bought out my ex by increasing my mortgage. I work in a bank with a company-subsidized mortgage rate, enjoy a decent salary and I also get rent for my basement appartement for $2000/month (tax free). So I believe my finances are quite good at the moment, allowing me to have a savings rate of about 50%.

My dillemma is: I have a new girlfriend. We've been together for about two years, and living together for one. I beliieve this is for the long term (but so I did with my ex - we lived together for 17 years...) You can say I am a burned child....

I took a hit when buying out my ex (the house had then doubled of what we originally bought it for) and I'm not sure if I can take another hit like that in the future - I will have to sell the house and buy something smaller. Not an ideal situation for my kids and I. Besides, I want to live in the same area as my ex since we share the kids equally, one week at a time.

My girlfriend doesn't own any property and wants to get into the housing market. The problem with my town (Stavanger) is that it is a high-priced city and it's very hard to find a rental property that she can afford. She doesn't want to be without any equity if we should split sometime in the future.

I could let her buy into my house, but to keep up with the rising house prices around here (approx 10%/year the last 20 years) I would have to invest the money in stocks and/or high yield bonds - which has a high risk. The may even be worth less if I need to sell them...

This is starting to become a bigger and bigger issue in our relationship as she feels she is just contributing to the monthly expenses (not the mortgage) and not building her own assets, apart from monthly savings in mutual funds....

Suggestions or advices? Thanks in advance... :-)

tooqk4u22

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Re: Should I let my new girlfriend buy into my house
« Reply #1 on: July 30, 2012, 07:44:06 AM »
Not a good idea.  If something were to go wrong you would be jeopardizing the stability of your family and if the relationship is headed in the right direction this shouldn't even be an issue. Not to mention she is a NEW girlfriend - to soon to be tied at the hip if not married. 

If she wants equity she can buy her own house for the time being, right?  Oh wait, she can't afford to buy another property though, but if that were true then she really wouldn't be able to afford buying your property unless she is expecting some favorable deal.  Another way to look at it is at how much she is contributing at the moment vs. what it would cost to be an equity owner - mortgage, taxes, repairs, maintenance, etc.

Oh and opportunity cost of equity - you say you have about $600K of equity if you did this (I still advise against it) I assume she will give you $300k for her half, correct? And be equally obligated for the remaining mortgage, correct?  And you might want to check because this may require getting a new loan to have her on the mortgage and then you may not qualify for low rate subsidized loan.

My guess is if you run the math you will be able to easily show that she is getting a pretty good deal as it stands. And really if this becomes a maajor issue this early on then probably no the right person to be with, hopefully that is not the case.


tannybrown

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Re: Should I let my new girlfriend buy into my house
« Reply #2 on: July 30, 2012, 09:16:18 AM »
Unless you were engaged, buying into the house together may pose more risks than rewards, even for her.

A compromise may be that instead of her putting $X into the house's principle every month, you simply reduce her expenses into the house by $X, and she puts those into some other asset in her name (i.e. - mutual fund). 

strider3700

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Re: Should I let my new girlfriend buy into my house
« Reply #3 on: July 30, 2012, 01:18:10 PM »
I owned my house before I got married.  When my then GF moved in  she started paying for things like groceries  and I kept 100% of the house and it's costs in my budget.   Everything got merged when we got married  but before then it was a weird legal area to be in.     I'd definitely keep things seperate

BonzoGal

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Re: Should I let my new girlfriend buy into my house
« Reply #4 on: July 30, 2012, 01:49:53 PM »
I'd say no, because you have kids and need to make sure they've got a stable place to live.  (Even at 50% custody.)  That could be jeopardized if things didn't work out with you and your girlfriend. 

MrSporty

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Re: Should I let my new girlfriend buy into my house
« Reply #5 on: July 31, 2012, 05:11:57 AM »
Tooqk4u22: No, if I'd let her buy into the house, she would buy approx. 40% - taking on a mortgage of her own...

Tannybrown: Her monthly contribution doesn't involve anything towards the principal of the mortgage - it's only a form of rent, which covers her share of the insurance, electricity, etc.
So in the short term it's a good deal for her, since she gets to live in a nice large house (with me of course! :) but in the long run she doesn't get the leveraged asset-building that you get with real estate. A monthly savings plan in mutual fonds will take a much longer time to accumulate a fortune - assuming the real estate market appreciates over time...

Strider: Hm, so you actually gave your spouse 50% of your house when you married? (ie merged your finances) What then if you file for a divorce 3 years later? Then you would need to buy her share back from her??

tannybrown

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Re: Should I let my new girlfriend buy into my house
« Reply #6 on: July 31, 2012, 08:23:58 AM »
Tannybrown: Her monthly contribution doesn't involve anything towards the principal of the mortgage - it's only a form of rent, which covers her share of the insurance, electricity, etc.
So in the short term it's a good deal for her, since she gets to live in a nice large house (with me of course! :) but in the long run she doesn't get the leveraged asset-building that you get with real estate. A monthly savings plan in mutual fonds will take a much longer time to accumulate a fortune - assuming the real estate market appreciates over time...

My suggestion is that whatever she's currently paying towards rent, have her stop paying it to you, and instead have her put that in a mutual fund.  The amount she would be putting towards the mortgage (one asset) would equal what she puts in another asset.  This will be a wash to you and to her financially:

-instead of you paying X to the mortgage and her paying Y into rent and $0 into this other mutual fund...
-you will now pay X+Y into the mortgage (and Y will presumably not be paid into some other investment of yours), and she will pay $0 to you and Y into the mutual fund
-If both the home and the mutual fund perform the same, each of you would have the same assets to claim over time, but now they'd be separated (not factoring taxes though).

But I wouldn't assume your house would necessarily outperform the market.  It may, it may not.  Either way, she gets to accumulate assets.
« Last Edit: July 31, 2012, 10:04:41 AM by tannybrown »

totoro

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Re: Should I let my new girlfriend buy into my house
« Reply #7 on: July 31, 2012, 08:30:43 AM »
Could you stay where you are and buy a rental property together as a compromise? 

Could you buy a second property together like the one you are in and move there together and keep yours as a double rental?  This would keep things separate enough for your kids and have you both on equal footing.

stigto

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Re: Should I let my new girlfriend buy into my house
« Reply #8 on: July 31, 2012, 09:40:06 AM »
Knowing the Norwegian real estate market, I wouldn't assume that buying into real estate now (especially in the larger cities) would be a safe investment. Prices are astronomical, and a sustained 7% growth just isn't feasible (The 7% figure is the estimated nominal growth for 2012 I believe). Real estate, especially your primary residence, is very favourably taxed compared to other investments here, but its primary benefit is reducing your equity tax (formueskatt) since you get a 75% rebate. It sounds like your girlfriend is not yet at the 750,000 NOK net worth required for this tax to kick in, so I believe it would be in her best interest to invest elsewhere. Nordax Finans gives you 4% interest from your first krone, which is the best savings account deal at the moment. For CDs you can get slightly higher interest, check Finansportalen for the best rates (Finansportalen is a government service). I can also recommend index funds, the KLP ones have low fees, DNB also have similar offerings.

tooqk4u22

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Re: Should I let my new girlfriend buy into my house
« Reply #9 on: July 31, 2012, 10:52:19 AM »
Knowing the Norwegian real estate market, I wouldn't assume that buying into real estate now (especially in the larger cities) would be a safe investment. Prices are astronomical, and a sustained 7% growth just isn't feasible (The 7% figure is the estimated nominal growth for 2012 I believe). Real estate, especially your primary residence, is very favourably taxed compared to other investments here, but its primary benefit is reducing your equity tax (formueskatt) since you get a 75% rebate. It sounds like your girlfriend is not yet at the 750,000 NOK net worth required for this tax to kick in, so I believe it would be in her best interest to invest elsewhere. Nordax Finans gives you 4% interest from your first krone, which is the best savings account deal at the moment. For CDs you can get slightly higher interest, check Finansportalen for the best rates (Finansportalen is a government service). I can also recommend index funds, the KLP ones have low fees, DNB also have similar offerings.

Perfect - we just found a good reason for you to let her buy in. You get to cash out your equity, give up some upside, and reduce potential loss if values go down.  If it plays out this way I am not sure she will be too happy with the outcome.

Jamesqf

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Re: Should I let my new girlfriend buy into my house
« Reply #10 on: July 31, 2012, 11:31:42 AM »
Knowing the Norwegian real estate market, I wouldn't assume that buying into real estate now (especially in the larger cities) would be a safe investment. Prices are astronomical, and a sustained 7% growth just isn't feasible...

I don't know the Norwegian market, but it seems as though it could be about where the US market was a few years ago, a bubble just about ready to burst.

I'd suggest pointing this out to GF, and suggesting that she invest in other things.  If you stay together, you have diversified your collective assets; if you split, you have no legal hassles with a shared mortgage.

MrSporty

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Re: Should I let my new girlfriend buy into my house
« Reply #11 on: July 31, 2012, 02:06:54 PM »
Totoro: I already owned a rental property a few years back, but I found out that's not my kind of investment. I didn't like the hassle with tenants (even though I still rent out my basement), double mortgage, maintenance, etc. I prefer stocks, bonds and mutual funds, also since I work as a CFA...
Also, like Stigo points out, the Norwegian tax system disfavors rental properties - and we may very well have a housing bubble over here.

I tried to advice my girlfriend against buying real estate at the moment, but she already feels she's lost a few good years in the market, and like I said want the leveraged returns...

Tannybrown: Did you mean that for every $ she pays me, I'd use those to invest in mutual funds?
That could of course, but what about leveraged returns. She could just buy a bond-fund or something similar, I guess.

I think one of her most important reasons for wanting to buy real estate, is the psychological feeling of owning something "rock solid" , which you don't really get with paper assests like mutual funds..

tooqk4u22

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Re: Should I let my new girlfriend buy into my house
« Reply #12 on: July 31, 2012, 02:37:59 PM »
Totoro: I already owned a rental property a few years back, but I found out that's not my kind of investment. I didn't like the hassle with tenants (even though I still rent out my basement), double mortgage, maintenance, etc. I prefer stocks, bonds and mutual funds, also since I work as a CFA...
Also, like Stigo points out, the Norwegian tax system disfavors rental properties - and we may very well have a housing bubble over here.

I tried to advice my girlfriend against buying real estate at the moment, but she already feels she's lost a few good years in the market, and like I said want the leveraged returns...

Tannybrown: Did you mean that for every $ she pays me, I'd use those to invest in mutual funds?
That could of course, but what about leveraged returns. She could just buy a bond-fund or something similar, I guess.

I think one of her most important reasons for wanting to buy real estate, is the psychological feeling of owning something "rock solid" , which you don't really get with paper assests like mutual funds..

Even though you posed the question it sounds like you are looking for a reason TO DO IT and not a reason not to or whether or not it makes sense.   All your reponses to the comments and questions are centered around what she wants/expects and not what you do.  Bottomline is that it is your property, which you have a lot of equity in, and she wants in on the action - I think the board here has been pretty conistent with the opinion that this is not a good idea at this stage of your relationship for several different reasons.   

You may be thinking with the wrong brain!

Tannybrowns solution may be the best alternative - let her live with you rent free and just contribute for variable expenses (food/utilities).  Sure you leave money on the table but because you are doing this on your own anyway it won't impact you and if the relationship works out and you take it to the next step then she will have a bigger asset pot and if it doesn't you won't feel bad.

And again I still think it is horribly inconsiderate and questionable that she feels you should do this at this stage. 

tannybrown

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Re: Should I let my new girlfriend buy into my house
« Reply #13 on: July 31, 2012, 03:20:48 PM »
Tannybrown: Did you mean that for every $ she pays me, I'd use those to invest in mutual funds?
That could of course, but what about leveraged returns. She could just buy a bond-fund or something similar, I guess.


Mr. Sporty, say she's paying you $500 every month now for rent.  She'd stop paying you, and start paying Vanguard (into an index fund), that $500 a month.  That's all.  The type of investment would be her choice.

You would no longer be getting that $500/month, but you also wouldn't be giving up any portion of your home's equity (presumably, $500 in principle a month).  It should come out to a wash.
« Last Edit: July 31, 2012, 03:26:38 PM by tannybrown »

strider3700

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Re: Should I let my new girlfriend buy into my house
« Reply #14 on: July 31, 2012, 07:56:53 PM »
Strider: Hm, so you actually gave your spouse 50% of your house when you married? (ie merged your finances) What then if you file for a divorce 3 years later? Then you would need to buy her share back from her??

Well we've since sold and moved to a more expensive house which is equally each of ours.  I did pay 1/3 off when I bought it using profits from my old house.   I didn't do a pre-nup so she gets 50% of everything anyway. 

jawisco

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Re: Should I let my new girlfriend buy into my house
« Reply #15 on: July 31, 2012, 08:44:28 PM »
I think you should listen to Tannybrown - creative solution that makes sense....

ShavinItForLater

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Re: Should I let my new girlfriend buy into my house
« Reply #16 on: July 31, 2012, 09:04:11 PM »
Seems to me this presents only downsides for you, other than making your girlfriend happy.  I'd certainly advise against it, unless and until you two get married.  You would essentially be locked into a business partnership with her, when you're right off the bat stating that you don't have a lifetime commitment and are gun shy about making that commitment.  Keep things simple until you're sure, and to me that means you are already married.  The only way this idea would work out is if everything, EVERYTHING worked out perfectly.  It seldom does.

onehappypanda

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Re: Should I let my new girlfriend buy into my house
« Reply #17 on: August 01, 2012, 09:58:44 AM »
This sounds like it's a pretty good way to screw yourself and your family over, should this relationship not last forever. As the others have said, I would wait until you two get married. Not sure whether you want to marry her yet? Then it definitely isn't a good idea to risk your house and your financial security on her.

As the others have said, the only way this would not screw you over is if everything worked out perfectly and you two were together forever. What happens if you break up? What happens is she loses her job and can't afford her half of the mortgage? What happens if the market goes down and her half of the mortgage ends up under water? Those are all possible situations. You said you can't afford to take a second hit, which to me means you can't afford to risk it.

If you really want to do something to help her out, I agree with Tannybrown: let her live with you rent-free and she can save her extra money until she has enough for her own real estate (or other type of) investment. That should still be a fairly sweet deal for her, and if she insists that investing in YOUR house is the only way she's willing to go, you may want to start questioning her and the relationship, because that doesn't sound reasonable at all.