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2016_06_07 - Elli Davis

In areas like Toronto, where the housing market is hotter than ever, parents are planning ahead to ensure that their children are able to buy a home when the time comes. Buying a family home today presents more challenges than it did twenty or thirty years ago.

Readying your children for the housing market these days is not just about helping them get a mortgage, or pitching in for a down payment. Here are a few housing options that will help your children enter today’s market:

Low-Maintenance Income Property

For those who want to purchase a home now for their children to move into in the future; investing in a low-maintenance income property is a good option.

  • With a low-maintenance property like a condo or townhouse, you will be able to command a substantial rent without having to worry about vast repair and maintenance expenses.
  • These types of properties typically cost less than houses, meaning you are able to put a larger down payment down and keep mortgage rates lower.

Keep in mind: Income properties can be a great investment (especially if housing prices continue to rise) but they will be subject to capital gains should you decide to hand over the property to your children. You may decide to let your children handle the tax bill which could be around $50,000 if you purchased a $200,000 property with a current valuation of $400,000. Getting your children to handle the tax could be a good lesson in financial responsibility.

Co-Ownership

Buying a property with your children is a great way to get them into the housing market with preferable mortgage rates.

  • Co-ownership does not necessarily mean you would live with your children – you can decide to share the space or simply share the equity gains from rising property values.
  • Even if you decide to live together for the time being, as things change and you want to downsize or your children need more room for a growing family – you can arrange for your children to slowly take over full ownership of the property.

Keep in mind: If you are buying the home as an investment for the children, capital gains will be taxed when the property is sold. One way to get around this is if you are in on the purchase simply to help your children qualify for a mortgage and if your contributions are a gift. You can structure ownership so that your interest is nominal and work with a lawyer to place the interest in a trust benefit for your children.

Laneway Homes

Laneway homes, in-law suites, or guest houses are small dwellings built on the same property.

  • These types of homes have been widely adopted in many areas as a way for house-wealthy parents to give their children an opportunity to enter the housing market.
  • Laneway homes are a good option for a family that is close and it provides a co-ownership environment where each party gets their own space and comfort of financial security.
  • If personal situations change, there is the option of swapping homes (if you want to downsize, your children need more room), or one of the homes can be rented out to tenants.
  • A secondary home will provide significant value to your property should you decide to sell, or it can provide substantial monthly cash flow should you decide to rent it out.

Keep in mind: Building a secondary dwelling can be expensive and ownership of the dwelling cannot be subdivided from the primary home. It is a good idea to enter into co-ownership with a solid agreement in writing about who will be responsible for what payments and a plan of action for different circumstances, for example: what will happen if living arrangements no longer work for one party or the other? Building a second dwelling is a substantial investment and should not be taken lightly, make sure you know what you (and your children) are getting into.

There are many ways to help your children get a head start. If you have any questions or are considering investing in a property that is currently available, give me a call and I would be happy to help: 416-921-1112.