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What happens to real estate when a new couple forms?

CHICAGO – Feb. 20, 2017 – It’s a classic story: Two people meet, fall in love, decide to move in together. If the lovebirds are moving from one rented pad to another, it’s a simple enough plan to wait until a lease is over and search for a shared abode. But if, like many young professionals, both halves of the couple already own property, the path to domestic bliss becomes a bit more complex.

When Robin Phelps Hanson, a broker with @properties, was dating the man she would later marry, she helped him purchase his condo – and took the experience as a very bad sign for the future of their relationship.

“I actually remember thinking, ‘OK. Maybe this isn’t going anywhere,’” she said with a laugh. At the time, her boyfriend, Rich Hanson, a freelance operations manager, sought a small place to come home to between frequent work trips, so she helped him buy a one-bedroom condo in an amenity-packed building near Chicago’s lakefront. When the couple got engaged a few years later, in 2008, he moved into her condo, and they decided to rent out his place.

“We would have liked to have sold them both and purchased right away, but I also really liked my condo,” Phelps Hanson said. “It was very comfortable and large enough where he could move in. There were lots of couples in the building, so it was kind of natural. It wasn’t an easy decision, because his (mortgage) was a lot lower price.”

But their decision paid off when, a few years later, married with a new baby, the couple got a knock on their door from a neighbor whose parents were hoping to buy in the building. Phelps Hanson and her husband – anxious for more space – jumped at the opportunity to sell. They have since been renting an apartment while they look for their perfect home, taking schools into account for their 4-year-old daughter, Remy.

All the while, they’ve kept Rich Hanson’s condo, which gives them a mortgage interest tax write-off every year.

“We have a great tenant in there who has renewed the last 2½ years,” Phelps Hanson said. “My dream would be to keep it, and to keep it vacant for family, because it really does feel like a hotel.”

She’s living out a situation she sees frequently with her clients. “Many choose to focus on their career for longer, before they get married and start a family,” she said. “Part of that is – a lot of times – purchasing a home as a single person.”

According to the 2015 American Community Survey, based on U.S. Census information, over a third of all homebuyers in Chicago in 2015 were single, 55 percent were married and the other 11 percent were unmarried couples. A study conducted by the online real estate database Zillow placed the 2016 median age of homebuyers across the country at 36.

Kim Wirtz, a suburban real estate agent with Century 21, said she often advises couples in their 30s and 40s who want to combine homes.

“What I’m finding more in the Chicago area is you’ll have two maybe 30-something-year-old corporate executives who found love, but they own their own condos downtown and more than likely they’re a little too small to move in together,” Wirtz said. “What I usually find with that situation is one of them will sell and one of them will rent.”

She’s also worked with clients who both want to sell – one pair of clients lived in the same subdivision and met while walking in the neighborhood. They took the conservative approach, Wirtz said, and sold one property at a time, moving in together temporarily in her house while his sold, then selling hers before they bought jointly.

Wirtz recommends that type of slower, but less risky, approach for couples who can wait. She also recommends that couples find out what type of loans they qualify for before getting too excited about options.

“The first step is talking to a lender,” Wirtz said. Next, she noted, a couple should have their homes appraised to pin down their worth and figure out how soon they can sell. Timing could be everything, she explained; if a couple jumps into purchasing a new home together before their individual homes sell, they could be on the hook for paying three mortgages instead of one.

For those itching to rent, Jeremy Wacksman, chief marketing officer at Zillow, also urges couples to rely on the math. Even before starting talks with a realty agent, a duo can equip themselves with vital information by crunching the numbers.

“The first thing that you want to do is figure out the actual monthly expenses at each given property,” Wacksman said. “Most people understand what their mortgage is, but their (monthly payment) also includes real estate taxes, insurance, your HOA dues.”

Once the actual cost of maintaining each property is determined, the next step is figuring out a reasonable rental rate for each, to determine if it makes sense to hold onto either property and rent it out. There are online tools and calculators that can help with this process. But even if a tenant would more than cover a home’s mortgage and costs, Wacksman cautions that people should also think critically about whether they want to take on landlord duties.

“Your phone’s going to ring if things go wrong,” he said, adding that landlords also have to allocate a maintenance budget. Being a landlord, even part-time, isn’t for everyone. But with home values rising, more couples may see that as an attractive option. Wacksman suggests researching common landlord issues and local laws before jumping in.

Wirtz cautions her clients to get approved by a lender before deciding to hold on to a condo and also purchase a new house.

“Some lenders now want to see six months of actual rental income,” she said.

Getting each person’s financial ducks in a row is crucial, Wirtz said. She has had clients who don’t get approved for a new home loan and need to live in one or the other’s existing property. It helps to absorb that news if couples are prepared for all outcomes.

“What is amazing and fun about buying and selling and renting is, it is an emotional and a rational journey,” Wacksman said. “You fall in love and you make it a home, but then you have to make a math decision at the end of the day.”

Sometimes the decision isn’t based on numbers, but familial needs. That was the case for Kala Callahan, a professional home stager, and Jon Hunt, a real estate broker with Coldwell Banker Residential Brokerage, friends who had known each other for years and began dating about 10 months ago. Callahan owns a five-bedroom house in an affluent Chicago suburb, an investment she made in 2009 to ensure that her son, now a high school senior, would have a nice home near his school. Hunt owns a two-bedroom, two-bath condo in a nearby suburb.

When the couple decided it was time to live together, Callahan said it was tempting to imagine selling her house, but she couldn’t envision making her son move and switch school districts. Hunt agreed; the decision was “a no-brainer” for him to move into her house and find a tenant to rent his.

Callahan plans to put her house on the market once her son heads off to college, and buy a home with Hunt after she sells. “My property taxes here are right around $30,000 a year,” she said. “You could buy a serviceable new car every year for that. But I consider it tuition.”

Copyright © 2017 Daily Hampshire Gazette, Megan Bungeroth. All rights reserved.