For parents who have the means to help their kids buy a home in today’s pricey environment, gifting money towards a down payment is one of the best way to do it.
In February 2018, the Financial Post ran a story about adults still living with their parents. The figures are staggering. The number of adults still living at Parents Inn—as the Postaffectionately referred to it—is up 13.3 per cent since 2001. For reference, young adults living with a spouse or partner is down 14.6 per cent.
For many boomers who, through modern healthcare and better habits, have been given a second chance at a teenager’s existence (albeit with more money and less mobility), their kids are definitely cramping their style.
“I’m 66 years old,” says Steven James (not his real name), a retired mechanic from Oakville. “I didn’t work my butt off for the last 48 years to share my bathroom with my son.”
Steven’s not alone. Boomers across the country are done with multi-generational living. And it’s gotten to the point where they’re throwing money at the problem. Of Canadian parents recently polled by CIBC, 76 per cent would give their kids a financial boost to help them move out, get married or move in with a partner.
But these days, given the average price of a starter home and the state of employment for young people (the record low since 1976 was still over 10 per cent), it’s going to take more than just a “boost.”
If you’re in a position to help your kids buy a home (and help yourself reclaim your home), you have many options. But a gift—otherwise known as a living inheritance—is among the most sensible. Here are three reasons why:
1. Gifting money makes the most sense for tax reasons.
As a baby boomer, you’re in the middle of an unprecedented wealth transfer that CIBC capital markets estimates to be in the range of $750 billion in cash, property and investment holdings. If you’re in the position to not need the money coming to you, that windfall will just amount to a big tax hit. However, if you were to turn around and gift it to your kids, it’s no longer a tax burden for you or them (unlike in the U.S., Canada has no gift tax). This Globe and Mail article delves into the long-term tax implications of gifting money: namely less for your kids to pay in estate tax when you die.
For all intents and purposes, gifting money is a way to take it off your books, without putting it on your kids’ books.
2. Gifting money makes the most sense for legacy reasons.
Shirtsleeves to shirtsleeves in three generations.
This old proverb neatly sums up what happens when large sums of money are passed down through a family. You’ve no doubt heard of wealthy heirs who finally get their hands on the family fortune, only to squander it away within a generation.
While you still have some control over where your money goes, gifting a portion of it towards the purchase of an appreciating asset for your children is sensible.
You won’t want to gift that money in the form of straight cash—it would be too easy for your kids to spend it haphazardly.
And you won’t want to gift a piece of property over to your kids. This is seen as a gift of assets “in-kind” and the Canada Revenue Agency will treat the transaction as if you sold the property at fair market value. You’ll be hit with a tax bill for 50 per cent of the capital gains, which could be substantial on an inherited property bought decades ago.
To gift the money for a real estate purchase, you’ll sign a letter confirming that the money is a gift and isn’t required to be paid back. On the morning of signing day, you’ll transfer the funds to your kid’s account (most primary lenders need to see money in the account before they complete the mortgage transaction).
3. Gifting money makes the most sense for legal reasons.
If you want to help your kids with their mortgage and you don’t have the liquidity to hand over a sizeable amount of cash, the other option is to co-sign or guarantee their mortgage. The problem with this approach is varying degrees of liability. By co-signing or guaranteeing the loan, you are assuming responsibility if things go wrong for your child if they can’t pay their mortgage. You can potentially be putting your financial future at stake.
In other words, you’d have to have the utmost objective confidence that there’s no risk of them defaulting on their mortgage.
Gifting a portion or all of the down payment, like gifting anything else, severs the tie you have with the money. None of it belongs to you, nor does the liability that comes with how it will be used.
But the best part of gifting your kids money to buy a home…
…will come when you are invited over for the first time and can see the fruits of all your labour: a better life for your children and their family.
So, you want to buy a home. Or maybe you want to sell your home. Either way, working with a real estate professional or REALTOR® is a really good idea. But with all the agents out there competing to earn your business, how do you find the right one? Here is a quick list of tips that should help you narrow down the list of potential suitors. From there, its up to you!
Do Your Research. Hands down, the best advice available is simply do your research. It sounds so basic, but regardless of how many more of these tips you read and follow, if you do your homework and gather as much information about working with a potential REALTOR®, you will lessen the chance of getting a dud while increasing the chance of finding someone who will really work hard for you.
Ask your friends and people you trust. If you know someone who has recently bought or sold a property, ask them who they used. From there, ask about their experience, get them to explain both the positives and negatives, ask how the agent communicated, were they easy to reach, were they responsive. And so on. If you feel comfortable with their recommendation, get the agents name and proceed to google them.
Just Google Them. This is great advice on almost any subject. If you are looking at hiring an agent, you will want to google them first. Don’t simply look at the first few results, take a look a couple pages deep. You will be surprised by what comes up down the line, maybe they have been involved in legal action in the past, these things are good to know and discuss with them if you want to extend an interview to them.
Check Out Online Reviews. A lot of sites like Google, Facebook, Yelp, and various local media publications will have sections where client testimonials are shared. Because these are shared publicly on independent 3rd party sites, they tend to be more reliable than say the testimonial section on an agents website. The more reviews you can find the better, just as you shouldn’t let one rave review sell you, don’t let one bad review deter you. The key here is balance.
Check Out Their Website and Social Media Presence. It’s no longer 2006, a good website that is mobile friendly is necessary. A REALTOR’S® job is to sell your property or find you the best property available on the market before someone else scoops it up. How they communicate online and how they use technology is a window into how well they will be able to represent you in an online world. You want to find an agent who is up to speed and understands how information is shared online.
Check Out Their Credentials. Have they won any industry awards? Have they won any local awards or people’s choice awards? There is probably a reason for it. Good agents tend to get recognized.
Do they Sell Real Estate Full Time? In order to be extremely successful at selling real estate, they have to put in the time. It is very hard to do that working part time hours. You will want to find an agent that works full time in real estate so they are available when you need them to be.
Have an interview. After you have spent the time finding an agent that comes highly recommended by friends, and you have done your research, you should have an informal interview to see if you get along with them. If you are looking to buy a property, you might want to meet in a local coffee shop in the area you would like to buy in and ask questions about the area. If you are selling, consider having the agent over to your property and have them provide you with an estimated sales price. You can also discuss their commission structure and the plan they would have to sell your place.
Don’t Feel Any Pressure. Finding a great agent is important, if you feel uncomfortable with someone, chances are other people will as well. Sometimes it works out and you simply “click” with a certain agent, while other times you might have to interview 3 or 4 agents before finding someone you want to work with. Not all agents are created equal, some are better than others, and some are A LOT better than others.
The key to finding a great REALTOR® is to do your research ahead of time. Make sure this is someone you feel comfortable with. This will save you time, heartache and money down the road. The last thing you want to have to do is find another REALTOR® half-way through the process.
Of course if you would like an introduction to a REALTOR® or two that I have worked with in the past and highly recommend, please let me know, I would be happy to pass some names on to you. Contact me anytime!
Every few weeks, we open our mailboxes (or our email inboxes) with bated breath. Inevitably, we find another heap of utility bills, waiting to separate us from our hard earned dollars. This is not unusual; this is simply part of life for most Canadians. But, what if it didn’t have to sting so much? What if this cycle didn’t have to replay itself, in it’s ugly fullness, month after month? What if we could cut down on our bills while being kind to mother nature?
For a small (but growing) number of hard working Canadians, living utility bill free has become a reality. How, you ask? These folks have left the power grid behind. And no… no one is suggesting you move to a place like this (unless of course that is what you want to do).
Now, let’s be frank, here: many of these “off the grid’ers” live in rural areas, often times to the point of total and complete seclusion. But the fact remains, most of us live in urban areas. We’re involved in our communities; we have families and responsibilities. So, while it may not be possible for the majority of us to live entirely off the grid, it’s certainly worthwhile to ask the question of, “How can we use the self-sustaining technology that’s been developed to lessen our footprint and gain a measure of independence for ourselves?”
This series will focus on just that; we’ll answer the question of, “What does it look like to be an urbanite ‘off the grid’ adherent?”But, before we get too deep into this, let’s get some basics out of the way:
WHAT is “the grid”?
You’ll hear the term “the grid” often within this series; but don’t be afraid. Each time, we’ll be referring to the power grid, or the power distribution grid. Essentially, it’s the way that power travels from it’s source to your home.
Most of us use this power every day, for various tasks such as: connecting our devices and appliances to power outlets, cooling our homes in the spring and summer, heating our homes in the fall and winter, cooking our food, refrigerating much of our food, etc. And sadly, we, as a society, have become largely dependent on this technology; so much that, in the event of a power outage many neighbourhoods become completely crippled. The city of Toronto suffered a major ice storm in late December of 2013, and countless folks had to leave their homes because they weren’t set up to live, even a few days, without grid powered electricity.
WHY going “off the grid” is gaining traction…
Why is going off the grid gaining traction with an increasing number of people? There seems to be three main reasons. Firstly, producing your own power takes away the need to buy it from others, thus saving you money. It’s just that simple. Secondly, for many individuals, concern for the earth and the desire to cut down on their environmental footprint takes precedence. And thirdly, many people simply don’t like the idea of remaining reliant on others for the necessities of life.
This is larger than fear mongering, and it’s wider than the few individuals who live in the hills outside of town. As the population grows, and as the threat of natural and man-made disasters creep closer to home, many individuals are asking, “What would I do in the event that [fill in the blank] happens?”. And this question often leads to a deepening interest in all things self-sufficiency.
WHO can do it?
If you resonate with any or all of the previous rationales behind going “off the grid”, you might be a candidate to take the next step.
Which leads us into our final “W” of this post:
WHERE: Off the grid living in an urban setting…
While “off the grid” style living has been popularized by people who generally occupy the nooks and crannies of this world, an increasing number of city and suburban folk are taking up the challenge. The Ingredients needed are straightforward: willing individuals, a base of knowledge (because remember, knowledge is power!), and some help to get it all started.
Urban “off the grid” living is honourable and achievable (at least to a certain degree). It just takes a little creativity and a willingness to look at life from a slightly different angle.
Mortgage rule changes and increasing interest rates—surprisingly—weren’t the top motivators for prospective homebuyers in 2017, according to a new survey from the Canada Mortgage and Housing Corporation (CMHC).
Instead, the 2018 Prospective Home Buyers Survey found that improved accessibility (i.e., fewer physical obstacles and barriers) and investment opportunity were the main driving factors to purchase a home.
The results were divided into three segments of buyers: first-time buyers, previous owners (who had previously owned a home but do not currently) and current owners.
For first-time buyers and previous owners, the desire to stop renting was ranked as one of the top three motivators to buy a home by 65% and 60%, respectively.
“The majority of prospective home buyers from all groups agree that home ownership is a good long-term financial investment,” the survey noted.
This is the first time CMHC has conducted this specific study, which examined attitudes and expectations of prospective Canadian homebuyers, as well as their understanding of the homebuying process.
There was also some positive news for brokers, as the survey confirmed that a majority of buyers from all three groups—including a full 80% of first-time buyers—planned to consult a mortgage broker before making their home purchase.
Here are some of those findings:
Mortgage Rule Changes, Home Prices & Rising Interest Rates
36% of first-time buyers were aware of the 2016 mortgage qualification rule changes(e.g., the 10% down payment required for the home price portion above $500,000 and the requirement for all insured mortgages to be stress-tested using the 5-year posted rate).
53% of previous owners and 58% of current owners were aware.
20% of first-time buyers not previously aware of the rule changes said it will impact their purchase decision in some way.
Vs. 18% of previous owners and 14% of current owners.
50% of first-time buyers said the changes would cause them to delay their home purchase, while 23% would purchase a smaller home.
51% of previous owners and 65% of current owners would delay their purchase
35% of previous owners and 32% of current owners would purchase a smaller home
76% of first-time buyers said they are likely to delay their home purchase due to high home prices, followed by 73% of previous owners and 63% of current owners.
70% of first-time homebuyers said they are concerned about the possibility of interest rates increasing before they buy their home, followed by 62% of previous owners and 61% of current owners.
61% of first-time buyers would, as a result, likely delay their home purchase, followed by 61% of previous owners and 50% of current owners.
69% of first-time buyers agree that they have a good understanding of how much mortgage they can afford.
Vs. 79% of previous owners and 83% of current owners.
54% of first-time buyers and previous owners are planning to spend under $300,000 on their next home.
Vs. 33% of current owners.
25% of first-time buyers and previous owners are planning to spend between $300,000 and $500,000 on their next home.
34% of current owners are planning to spend over $500,000 on their next home.
68% of first-time homebuyers feel confident they can find a suitable home within their budget.
Vs. 83% of current owners.
In a scenario where buyers would not be able to find their ideal home:
43% of first-time buyers would delay their purchase.
Vs. 45% of previous owners and 28% of current owners.
42% of first-time buyers would compromise on the size of the home.
Vs. 39% of previous owners and 42% of current owners.
38% of first-time buyers would compromise on the location of the home.
Vs. 39% of previous owners and 38% of current owners.
80% of first-time homebuyers plan to consult with a mortgage broker before purchasing a home.
Vs. 72% of previous owners and 69% of current owners.
16% of first-time buyers pre-qualify for a mortgage within three months of purchasing their home.
Vs. 21% of previous owners and 22% of current owners.
33% of all buyers prepare a detailed budget on their own within six months to a year before purchasing their home.
66% of first-time buyers say they have a good understanding of the full cost of homeownership, including mortgage payments, property taxes, condo fees, utilities, maintenance, etc.).
Vs. 79% of previous owners and 85% of current owners.
33% of all homebuyers say they will take additional steps to pay down their mortgage as soon as possible.
40% of first-time buyers and previous owners say they are unlikely to have a financial buffer in case their expenses change in the future.
40% of first-time buyers say they are confident they have the necessary tools and information to manage their mortgage and debt load.
Vs. 40% of previous owners and 50% of current owners.
Homebuyers and Technology
68% of first-time homebuyers would prefer to complete the entire homebuying process with help from a professional and be using online tools and resources:
Vs. 60% of previous owners and 58% of current owners.
7% of first-time buyers would prefer to use online tools and resources exclusively, without the help of a professional:
Vs. 4% of previous owners and 5% of current owners.
The BC Government released Budget 2018 today. As it relates to housing, the government made changes to the foreign buyers tax, and added a new speculation tax.
Foreign Buyers Tax – This is really an enhancement to the tax that is already in place, effective Wednesday, the government will increase the foreign buyers tax from 15% to 20%.The tax will be extended to the Fraser Valley, the capital regional districts in Victoria and Nanaimo and the Central Okanagan Regional Districts, instead of simply being applied in Metro Vancouver.
Speculation Tax – This new, annual property tax will apply to foreign and domestic homeowners who do not pay income tax in B.C., including those who leave their properties vacant. The new tax will initially apply to homes in Metro Vancouver, the Fraser Valley and capital regional districts in Victoria and Nanaimo, Kelowna and West Kelowna. In 2018, the tax rate will be 0.5 per cent of assessed value. In 2019, it will rise to 2.0 per cent of assessed value.