Rent burden for cohabitation?
May 15, 2010 11:07 AM   Subscribe

Is there a standard rent rate for cohabitation when one partner already owns the destination home?

My girlfriend of six months and I are planning to move in together, sometime in the next month or two. She already owns a house and currently pays full mortgage and utilities. I plan to pay her rent, but before we get to that particular minefield of a conversation I thought I'd check to see what's typical in these situations.

My inclination is to split utilities 50/50 since I'll be using those as much as she does (for all intents and purposes). But what about the mortgage? Splitting that down the middle doesn't seem to make sense since I won't be getting any equity in the house, right?

My next inclination would be to look at rental rates in the surrounding area, but she lives in a weird area where income levels skew greatly from one block to the next (and besides which, they tend to be single families). It'd be hard to get a representative sample for this situation.

Is there an unspoken standard for how to split living expenses when an asymmetry like this exists? What should I be prepared for going into this conversation so I don't end up paying more than my fair share, but I also don't look like a cheap-ass?

(other details that may matter: we both think we're going to get married down the line, but are very aware that six months is well before the pooled-assets stage. Our salaries are in the ballpark of each other with me having a 5-10% edge, but I have a higher debt burden if you exclude the mortgage itself)

posted by anonymous to Human Relations (24 answers total) 5 users marked this as a favorite
Will you also be splitting homeowner's insurance, the cost of any repairs, and putting your name on the mortgage so you're on the hook if things go sour and she faces forclosure? If not, then I don't think it's all that reasonable to assume that just because she's getting equity that a 50/50 split is unfair. Home ownership is not all gravy - there's a fair bit of risk and responsibility too.

You certainly *could* do those things - I know a couple that did all of them, and then the moving-in partner paid for a number of home improvements to even out what they considered to be ownership of the equity. But they're quite a bit further down the relationship road than y'all.
posted by restless_nomad at 11:15 AM on May 15, 2010

You should be paying her based on the value of what you're getting, not looking at this negatively about what you're NOT getting (i.e. equity).
posted by yarly at 11:17 AM on May 15, 2010

All of this depends on ability to pay etc but in previous situations I've considered 50% of mortgage to be my rent to pay. The argument about equity could equally be made of any landlord situation so is really not important here.
posted by merocet at 11:18 AM on May 15, 2010 [1 favorite]

The people who I know who have done this have done the rather unromantic paperwork to basically outline what would happen in the event of a split, or in the event of a marriage. In most cases I think the non-homeowner usually paid a somewhat reduced rent and the deal was that they'd get some pro-rated amount of equity out of the house if they left [in the form of a payment from the home owner], if they got married, the house became joint property. I guess this varies a little bit depending on whether she'd need to be getting a roommate if you didn't move in [i.e. can she handle the mortgage on her own?] or if you were the person helping her with the mortgage. Obviously if you were "just" a roommate you'd be paying rent and expecting no equity share. That said, if it was me and I'd been planning to cover the mortage by myself anyhow, I'd probably want something like "I pay the mortgage, you pay the utilities" because heat is expensive and I find it really calming to not have to deal with day to day bills. Just another way of saying that peoples opinions on this may vary widely.

And restless_nomad is right, you may also want to look into the other costs of owning a house that are not utilities and ballpark who is responsible for what just to make sure you're on the same page.
posted by jessamyn at 11:21 AM on May 15, 2010 [2 favorites]

Unless you're assuming the risks of home ownership by putting your name on the mortgage, then you're not entitled to equity. The fairest thing in this situation is to just pay her rent and split utilities 50/50. Setting a rental rate is never easy, unless you're in an apartment building with substantially identical units. You'll just have to do what landlords do--look around and make your best guess.
posted by HotToddy at 11:24 AM on May 15, 2010

All of this depends on ability to pay etc but in previous situations I've considered 50% of mortgage to be my rent to pay. The argument about equity could equally be made of any landlord situation so is really not important here. (i.e. equity).

That's your answer right there.
posted by qwip at 11:33 AM on May 15, 2010 [1 favorite]

In a commercial situation a landlord must collect enough rent to pay the mortgage, the real estate taxes, the upkeep and repairs and some reasonable amount for profit. In your situation, I'm assuming your gf will forgo the profit. Pay at least 50% of the mortgage payment and consider yourself getting a great deal.
posted by txmon at 12:04 PM on May 15, 2010 [2 favorites]

There's another kind of equity to take into consideration, which is equity -- not equality -- in the relationship. If one of you makes considerably more than the other, it's totally fair to bring that up when you talk about splitting costs.

Splitting costs down the middle is almost never equitable. You end up with one partner paying a larger percent of his or her income for everything from rent or the mortgage to Saturday night dinner.

I'd suggest sitting down and talking honestly and openly about how much each of you makes, and what your combined living expenses will be. Then split that percentage-wise, instead of down the middle. It makes more sense and reduces the risks that one partner will feel as if they're being burdened with more financial expenses than are fair.
posted by brina at 12:13 PM on May 15, 2010

Even if she had her mortgage paid off, you should still be giving her a fair rent.
posted by blue_beetle at 12:13 PM on May 15, 2010 [2 favorites]

I've seen lots of agreements -- one person paid utilities and food and cleaning stuff but not rent so there wouldn't be any question of equity, one person paid rent (which she got back -- unrequested -- after their amicable breakup), etc, etc.

50% of mortgage is probably fair -- to rent the place out, she'd need to cover 100% of mortgage, plus some upkeep, plus taxes, plus some profit -- but really there are all sorts of fair and reasonable ways to do this, and what's important is that the two of you find something that you both consider fair and discuss it so you understand each other.
posted by jeather at 12:16 PM on May 15, 2010

I most definitely would not recommend moving in together in your situation. I have seen this situation before, and it creates a hell of a lot more problems than you would think. Having that magnitude of imbalance in the relationship power dynamic is brutal.

I know it wouldn't be the optimal deal financially, but I would just keep an apartment of your own or even see about buying a house like your SO did. Since you're still in the "separate assets" phase, this would be more in tune with your current attitudes. You have your space and assets, she has hers. You are both tending to your own equity and expenses and neither will rely on the other.

If you absolutely have to go through with becoming your partner's tenant, then you should absolutely pay only the market rate for renting a room in a private residence, and you should stipulate that she will be financially responsible for all repairs, improvements, maintenance, taxes, and insurance. You would still be getting kind of a bad deal compared to renting somewhere else since you will not be getting a private room and you'll probably be responsible for some outdoor upkeep. If you really, really, really want to pay half her mortgage, then you may need to stipulate beforehand that you are entitled to a share of the equity in the home proportional to the amount you have paid, just like jessamyn said. The thing about making a house joint property on marriage will be absolutely essential if you are helping to pay for its acquisition.
posted by Willie0248 at 12:27 PM on May 15, 2010 [3 favorites]

I went through something like this once in the past. Basically we started off with the moving-in partner paying what they were paying in rent. So, if you were paying $800/mo for the place that you're giving up, you pay that, plus half of utilities and groceries and all that.

That seemed reasonable to start in our case because it was an immediate win-win, or at least it wasn't a lose for either person. The moved-in-on partner got some money that was probably a bit more than they could have gotten out of a roommate (since the place wasn't that big, it wouldn't have rented to a roommate for the rate of a 1bdrm), the moving-in partner didn't have any increase in payments and got a nicer place out of it.

Over time we worked towards parity and split everything down the middle when we both got on the lease at the new place.

I don't think there's a good rule for these sorts of things — you need to find an amount that doesn't make either person feel like they're getting the short end of the stick. So think about the money that's going to be freed up in your budget as a result of the apartment you're giving up — that's the easiest way to think about the value of what you're getting. Then work from there.
posted by Kadin2048 at 12:38 PM on May 15, 2010

As others have mentioned, the amount of her monthly mortgage payments doesn't factor in to this calculation. If she made a smaller downpayment or got a 20-year mortgage instead of 30-year, her monthly payments would be higher--but it wouldn't make sense to have the amount of rent dependent on these things.

It's trickier still because it's nearly impossible to compare to other properties. Unless there are extra bedrooms in the house she couldn't rent it to anyone else without moving out herself; and, I presume, you won't be signing a lease and will have less protection than you otherwise might--you probably can't expect 30 days notice if it doesn't work, that sort of thing. So it's not an apples-to-apples comparison with other rental situations.

50/50 utilities split makes sense. For rent... you're just going to have to pick a number that you're both happy with.
posted by kprincehouse at 1:54 PM on May 15, 2010

If you want iron-clad certainty and fairness, why not just sign a lease? Negotiate a flat rate including mortgage and utilities or whatever and go with that. Half seems a fair place to start. You get the normal benefit of a renter, a place to stay, and she gets rental income. Done.

You can get lease kits quite inexpensively. Simply have the term of the lease expire on the wedding day.
posted by bonehead at 2:41 PM on May 15, 2010

If you're not interested in intertwining your finances yet, her monthly mortgage payment is irrelevant, as is what a landlord would "have to charge" to make their purchase a viable investment. It may not be a viable investment as a rental property, which makes sense because she didn't buy it as a rental property.

As long as you're not interested in sharing the risks/rewards of home ownership, the fairest thing to do is to make an educated guess as to what a reasonable rental price would be for a room and use of the common areas in a single-family home in the area. This will be less than what you'd pay for a private 1-BR apartment, as it should be. And then, if you decide to get married or break up, I'd say you wouldn't have any equity, as all you'd been paying for would have been the right to use the space, which you would have already gotten.
posted by palliser at 2:46 PM on May 15, 2010

Assuming that she is early in the course of the mortgage, she is not building much equity at this point. Most of the mortgage payment in the first third of the term is interest.
posted by yclipse at 3:33 PM on May 15, 2010

Make an equivalent fraction based on your comparative salaries. If you make 60K and she makes 40K, you pay 60% of all joint expenses.
posted by debbie_ann at 3:40 PM on May 15, 2010

I'm in this exact situation. In our case, I simply asked her what I should pay for rent. She thought about it, and gave me the answer "a little less than half, since I get the equity." It has worked out surprisingly free of drama, and since we're both paying less than we were before we're both happy.

Of course, not everyone has the temperament for such a carefree approach. How does your GF approach her other finances? How does she behave when splitting the bill at restaurants? If she's the "close enough" type, you might just ask and be surprised by her answer. If she's a penny pincher, then definitely have a solid, defensible proposal up front.

But frankly, for the sake of the relationship, I'd be prepared to just split it all down the middle if the conversation takes a sticky turn.....
posted by kables at 3:44 PM on May 15, 2010

I don't think the amount of your rent should be tied to the mortgage payment. If she refinanced, or took a home equity loan, why should that change the amount you pay in rent? What if she has a variable rate mortgage? How she has financed her loan has no bearing on what a fair rent is.

she lives in a weird area where income levels skew greatly from one block to the next (and besides which, they tend to be single families)

I'm not sure what "single families" means in this context -- single family homes? That's what she has, right? So you can find out what the rent would be. Yes, income might be different on different blocks, but you don't need to know the income, you just need to know the rent on similar houses. Obviously, look at homes that are similar to hers. If that really won't work for you, offer something based on what you are paying in rent now.

Oh, perhaps you are saying these are unsuitable to compare because you would not rent a whole house? It's very common for adults to rent a house together, say 3 people in a 3 bedroom house. Figure out what a fair share of the rent would be for one person in your situation.
posted by yohko at 4:16 PM on May 15, 2010

You intend to share equal use of the house with your girlfriend, presumably. Find out what those single family homes in the area rent for, divide that number in half, and offer to pay that much rent to your girlfriend (plus your share of any utilities that aren't typically included in rent). If your girlfriend thinks your offer is too much, then she can ask for less, but you can't be expected to pay more than the going rate.
posted by ssg at 5:43 PM on May 15, 2010

If anecdotes help:

I pay slightly less than half of boyfriend/homeowner's mortgage (i.e., it's $800-something a month, I pay $400) and he totals up the utility bills once a month and I pay him half of that total. He makes more than I do and feels guilty about me paying so much of it, but it's way less than what my rent used to be, so I'm quite happy to pay it. We go grocery shopping together and take turns paying. We've done a lot of work on the house (landscape/gardening, taking down popcorn ceilings, repainting, putting up crown molding in the bedroom, etc), and he pays for all the supplies but does expect me to help some with the labor. We intend to get married before long and while we're not planning to add my name on the mortgage/deed, the plan is that I'll have equal equity in the next house (we intend to move within the next few years).

Those are all agreements we came to after having many conversations about what is fair and what our respective expectations are. I can say from a previous, failed experiment with cohabitation that if you're having trouble agreeing about terms or feeling resentments about the unfairness of her equity (not putting words in your mouth, just suggesting you both examine your feelings carefully), TREAD CAREFULLY. Those feelings seem to get worse with time if they're there at the start.

I encouraged my boyfriend to consider drafting a rental agreement for me to sign before I moved in. He didn't feel that was necessary. But between him being an engineer and me being a journalist, we were fairly exhaustive in discussing expectations, obligations and loopholes. And a year and a half later, the sailing continues to be smooth.

(Ignoring a tiny bit of jealousy that we still haven't made space in the garage so we can both park inside. We did agree his car gets priority by merit of being much newer and more expensive to insure.)
posted by katieinshoes at 6:23 PM on May 15, 2010 [4 favorites]

Define the Fair Market Value of rent for this house, without utilities. Pay her between 1/2 of the FMV and 1/2 the mortgage, erring slightly on the side of generosity. She may get some equity out of the mortgage, but she also has a downpayment embedded in the house, and may have lost equity.
ex., FMV 1200/mo, 1/2 = 600
Mortgage + taxes + ins 1300, 1/2 = 650
Pay her 625 + 1/2 utils.

Generosity in a relationship is a fine habit.
posted by theora55 at 6:49 PM on May 15, 2010

One thing to consider: depending where you are (i.e. most Canadian provinces, but not Ontario), you may be legally considered adult interdependent partners (and thus will have many of the same shared equity and responsibilties of a married couple) after one year of co-habiting, even without the commitment of marriage.
posted by Kurichina at 8:04 AM on May 17, 2010

Most of the advice I've heard elsewhere is that couples who keep separate accounts should split things proportionally according to income, not 50/50, as suggested above.

As your lives grow closer together, you'll need to make major decisions together. In time one could get a great new job and get paid way more, or decide to change to a lower-paying but more rewarding career, or get laid off, or go to grad school, or stay home to care for children. Many of these things can mean one or the other of you has periods of time when you're making drastically less money. They recommend paying proportionally so that you can support one-another through these transitions, but, as you've laid out, the trick is figuring out what figure to start from.

It's great that you're thinking about this in a business-like manner. Setting it all up ahead of time is smart. Good luck!
posted by davextreme at 9:50 AM on May 17, 2010

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