June 14, 2008
Dear Economist: Should I persuade my fiance to sell his former love nest?
I am about to be married, and have no doubts about the relationship. But there is one nagging worry: my fiance co-owns a condo overlooking the Pacific Ocean near San Francisco – with an ex-girlfriend, who lives next door to it. She is not in a position to buy him out of his investment, and although they rent it out, the mortgage is steep. I believe the condo is an investment specific to the former relationship and would like it divested – but the housing market is a shambles.
Mary
Dear Mary,
While I sympathise with your problem, I must correct you. A relationship-specific investment is one that is worth more within a relationship than outside it, such as a set of wedding photos. The condo is not relationship-specific, just unprofitable and illiquid.
The condo can therefore be disposed of without destroying value – but not, it seems, by either side buying the other side out.
If your fiance sold his share to a stranger, he’d sell at a loss. But in truth, the loss has already happened; his reluctance to sell suggests he’s pig-headed as well as an incompetent investor.
So I recommend that you buy out your fiance’s share, at a fire-sale price. Subsequent negotiations about the condo would then be between you and the ex. Should your marriage work out, you can share the profits with your fiance. And if not, at least you will have prearranged some compensation.
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Dear Mary,
The San Francisco market is not a mess. In fact for condos overlooking the ocean in San Francisco prices are still likely rising. I own more or less in a similar area in SF and the prices are still only going up or holding steady. Also, inventory in that market is quite low. So I don’t think there will be a problem selling it now. On the other hand, if you sell out of that market, you will never get back in. And it is spectaculary beautiful. I’ve lived in SF for over 25 years and I will guess prices in that time have at least tripled. It’s a great investment. Maybe you should just get over the ex. Unless your fiance is regularly hanging around in SF it’s likely not a problem, plus you have someone to take care of the hassles of renting it out (her). Finally, he’s marrying you not her, that should say everything that needs to be said.
Dear Economist, why should the fiance accept a fire-sale price for some of the best real estate in the world and probably one of his key investments and assets? An economist (I am one as well) would treat this as what it is, an incredibly valuable investment that will continue to appreciate with time. Perhaps the best advice is to treat it as just that, and put the emotions away.
Posted by: SF Condo owner (female) | June 15th, 2008 at 1:32 pm | Report this commentp.s. Rents are also at the highest level in SF than they have been in years. I would be willing to bet that the mortgage is well covered, too. So much for the unprofitable investment.
Posted by: SF Condo owner (female) | June 15th, 2008 at 1:41 pm | Report this comment