“We are a couple of men and have the project 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. »
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.
“There 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 on an emotional level, when we think about our family future, to have a single place for our child. »
The rental 3 ½ is encumbered with a fixed rate mortgage loan of 2.5%, the term of which will expire in November 2024.
“The 4 1/2 we live in is variable rate and we’re having a blast right now,” adds Guillaume.
The monthly mortgage payments are $3,300 for the 4½ on the ground floor and $1,407 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 4½ 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.
Alexander 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 checking account. “The money in my account, I’ll keep it as working capital,” he says. You know, we have a baby project coming up! »
They’re aiming for an $800,000 to $900,000 building, “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 stage of in vitro fertilization.
“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 we have not reached the sixth month, we will not make a purchase. »
Income: $65,000
FAMILY: $66,000
No debt
Salary: $100,000
FAMILY: $13,000
Student loan: $7,000
No other debt
A fully paid car
Number of rooms: 3 ½
Current value: at least $400,000
Mortgage balance: $345,000
Monthly mortgage payment: $1407
Property taxes: $295/month
Condominium fees: $278/month
Rental income: $1850/month
Number of rooms: 4 1/2
Current value: approximately $575,000
Mortgage balance: approximately $480,000
Monthly mortgage payment: $3300
Property taxes: $253/month
Condominium fees: $325/month
Is the project building solid?
To verify this, “I focused on disbursements,” says financial planner Mélanie Beauvais of Bachand Lafleur Groupe conseil.
How do the current situation compare to the acquisition scenarios?
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 mortgage payments would increase from $16,900 to $26,000 per year, a 54% increase.
“Mortgage renewal will hurt!” “, she notes.
Indeed: the rental condo’s expenses will exceed its income by more than $10,000 – the rent increase would likely be marginal.
The disbursements for the two condos would then total $57,200.
“If they keep their current situation and they renew, the full disbursement of the two condos will increase by almost 20%, if I consider the same expenses and the same rent”, underlines our planner.
Selling the couple’s personal condo would generate 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 payable 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 the property taxes would be similar and the condo fees would become maintenance fees,” says Mélanie Beauvais.
The couple’s disbursements would thus total $46,100, about $2,000 less than currently.
“If we sell everything, I have similar payouts to their current situation,” summarizes the planner.
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 up by about $1,825 per year.
After the rental condo mortgage is renewed, the outlays for this scenario will be around $58,000 per year, if they fail to raise the rent substantially.
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.
Guillaume and Alexandre “will buy 66% of the building, but in fact, they will live in 50%, depending on the area of the apartments, 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 he only occupies half of the building ?
“Based on my understanding of their situation, given that the child will also be living in the mother’s home, I believe that the entire 66% of the condominium will qualify for the principal residence exemption,” says 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.
In any case, they will have to sign a joint ownership agreement, advises Mélanie Beauvais: how do you manage maintenance, renovations, insurance, resale?
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.
Even if the trio includes two spouses – and even if their baby lives in the second apartment, which in itself constitutes grounds for repossession! –, the three friends could not therefore force potential tenants to leave their homes. If they do not find a duplex whose accommodation is free, they will have to agree beforehand with the tenants, with a signed document in support.
But once again, the situation is so outside the usual tax frameworks that another interpretation is not excluded.
