Buying a Home for Your Child

It used to be big deal if Dad bought you a car when you were old enough to drive – but now some parents are buying homes for their kids. It's a great investment and saves them from paying rent, whether they are attending college or university or are striking out into the working world.

A recent poll by TD Canada Trust says that 10 per cent of Canadians would consider buying a condo for their adult children. For the parents it offers some peace of mind, since the investment may help their children into better housing than they could afford if paying rent. For the kids, it's a way to learn about the pros and cons of looking after their own homes, and perhaps even get some experience at becoming a landlord.

The trend is growing in cities across the country. In Montreal, developers have offered incentives specifically geared to families who are buying a condo for a young adult. In Toronto and Vancouver, where Asian investors are buying up many of the new condos, it's not uncommon for a family to buy a unit for their child to live in while attending school. Sometimes they have long-range plans to move to Canada themselves, so they buy now and have their child live in the unit, or rent it out.

For students heading to a new city to attend college or university, buying a house or condo eliminates the need to search for sometimes pricey student accommodation. Some of these students live in the homes and rent out a basement apartment or have roommates to help offset costs.

As with any real estate investment, there are a number of financial, tax planning and social aspects to consider before buying a home for your child. The usual rules of real estate apply: location, location, location. Buyers must ensure that the property will be in demand for renters, because the child may not want to live there for long. If the unit is sold in a couple of years, will the buyer be able to recoup his investment?

Buyers must ensure that a property being purchased with a rental suite complies with local zoning bylaws, fire codes and electrical safety standards, and that the proper insurance is in place. Some municipalities have tried to clamp down on student housing in new developments because of complaints from the neighbours.

If the adult child is going to rent out part of the house or have roommates, even if they are moving in with friends, it's important that the living arrangements are spelled out in advance in a businesslike manner. Each renter should sign a written tenancy agreement that covers how much rent will be paid, what additional costs (such as utilities) will be paid by the renter, what facilities will be shared, and house rules such as whether pets are allowed, smoking policies and provisions for parking and laundry facilities if applicable.

In some provinces, if the kitchen and bathrooms are being shared, the provincial tenancies act may not apply. That gives the landlord the ability to evict a renter without going through a formal eviction process if they find out they can't get along with the roommate.

Kathy Monro and Caryn Watt of PricewatershouseCoopers recently wrote a paper (Wealth and Tax Matters, Winter 2011) about the tax implications of buying a home for your adult child, setting out four options.

The first is purchasing a condo in your own name. The downside to this is that when the condo is sold, it will be subject to capital gains tax because it isn't your principal residence. Under Canada's tax law, you and your spouse (including common-law partners) and any unmarried children under the age of 18 are entitled to designate just one property as your principal residence for each year.

The advantage is that it may protect your investment if your adult child is married or gets married and then gets a divorce. In provinces like Ontario, the matrimonial home is included in calculating "equalization payments" even if the home was a gift or inheritance and even if it was owned by one of the spouses before the marriage. So, the other spouse is entitled to an equal share of the value of the condo. If the condo is in your name, it would not be subject to this rule.

Munro and Watt say the second option is giving a cash gift to your child to cover the cost of the condo. The child holds the condo in their own name, and as a principal residence it does not incur capital gains taxes when sold. It does not protect the condo from equalization in the event of a divorce.

Option three is lending the money to the child by way of a mortgage. The mortgage should be interest-free to avoid taxable income. "Because the child owns the condo subject to a mortgage, we understand that this plan could provide better protection to you and your child under family law legislation should the child divorce while owning the condo," say Munro and Watt.

The fourth option is setting up a family trust, which would then own the condo. "Family trusts are popular vehicles for sharing wealth with family members because they offer the trustees the flexibility to accommodate the changing and competing needs of the beneficiaries," say the authors.


Written by Jim Adair
January 18, 2011

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First-Time Buyers Do's

If you are ready to buy your first house, congratulations! This is an exciting time that can bring you sweet rewards. It's also a time, however, full of questions. Here are a few do's and don'ts to get you started.

Before you shop, you must decide what type of home is best. Are you looking for a condo, with a strong sense of community, extra amenities, easy maintenance, and willing to pay a monthly HOA fee? Would you prefer a larger house in the suburbs, even if it means a longer commute? Are you looking for older charm or newer construction?

After you've decided this, write down a list of your wants and needs. This is a time to be honest with yourself. Rarely does a homebuyer get everything they "want" in a home. You will need to compromise. For example, you may need 3 bedrooms, but want a fenced back yard. If push comes to shove, you may have to forgo the fenced yard to get the bedrooms.

When you begin to shop, have a budget in mind. While prices are always negotiable, you don't want to waste your or a seller's time. Be realistic about a home's price. Let your real estate agent compile a list of homes to visit that fit your criteria, as well as your budget. As you make your way to and through the homes, be sure you don't judge a home until you've been through the entire place. There are homes that seriously lack curb appeal, but with a few cosmetic enhancements can be real showstoppers.

Pay close attention to what repairs the home may need. Don't get swept up by fantastic staging. Keep your list of criteria in mind the entire shopping process.

Once you have decided on a home, it is time to begin negotiations. Do not hesitate. Desirable homes don't sit on the market for long. Hesitation may translate into missing out on a property that you really love. That said, you must be confident with your decision. This is not a time to buy a house simply because you feel pressured.

Your agent will help you put in an offer. By researching area comparables (that's other homes that have sold or are selling in the area), they can come up with a reasonable amount to pay. How much are you willing to pay for this home? Set a top number in your mind and don't let emotion push you to buy past your budget. And leave room in your coffers for closing costs, a down payment, initial repairs, as well as a home inspection.

Home buying can be a stressful process, but keep the end goal in sight and you'll do great!


Written by Carla Hill
October 27, 2010

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Mortgage Rates Down for Second Week

McLean, VA – Freddie Mac (OTC: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®). The survey results showed lower mortgage rates for both long- and short-term rates, with the 30-year reaching a four-week low.

30-year fixed-rate mortgage (FRM) averaged 4.71 percent with an average 0.8 point for the week ending January 13, 2011, down from last week when it averaged 4.77 percent. Last year at this time, the 30-year FRM averaged 5.06 percent.

15-year FRM this week averaged 4.08 percent with an average 0.7 point, down from last week when it averaged 4.13 percent. A year ago at this time, the 15-year FRM averaged 4.45 percent.

5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.72 percent this week, with an average 0.7 point, down from last week when it averaged 3.75 percent. A year ago, the 5-year ARM averaged 4.32 percent.

1-year Treasury-indexed ARM averaged 3.23 percent this week with an average 0.6 point, down from last week when it averaged 3.24 percent. At this time last year, the 1-year ARM averaged 4.39 percent.

Frank Nothaft, vice president and chief economist of Freddie Mac, reports, "Bond yields drifted lower following the release of the December employment report , which was weaker than the market consensus forecast and implied that the labor market is still in a sluggish recovery. Fixed mortgage rates followed bond yields lower for a second consecutive week, bringing them to a four-week low."

"In its January 12th regional economic review, the Federal Reserve noted that activity in residential real estate and new home construction remained slow across all Districts over the last two months of 2010 due to concerns about the pace of economic recovery, especially in employment. In addition, the outlooks for residential real estate were mixed, with contacts in most Districts described as expecting continued weak conditions."

January 14, 2011, Published on Realty Times

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Baby Boomer Survey

Baby boomers are entering retirement and recent findings indicate that they are bucking the trend of what it means to be a retiree.

Triology by Shea Homes recently released its Trilogy's interactive retirement survey. It found that boomers are active and social retirees.

This could mean big changes in the housing industry in the years to come, including what new retirement communities will look like.

"Today's boomers are still very active, adventurous and connected, as our survey suggests. They want to travel and enjoy family and friends and are a vibrant part of the community,” said Hal Looney, area president of Shea Homes Active Lifestyle Communities. "Understanding and addressing the needs and desires of boomers has been integral to our offerings since Shea Active Lifestyle Communities began 11 years ago, with a vision of creating a new active lifestyle environment for a generation of people looking to redefine this stage in life. This survey confirms that boomers are still making a big impact today.”

The survey has found that social media isn't just for the younger set. Boomers say "they prefer collecting friends on social networks just as much as they do recipes – and even rank it slightly higher (37.28%) than collecting pictures of the grandkids (33.64%)."

But boomers rank being within driving distance of family and friends as the most important factor of retaining a balanced lifestyle.

Also part of that balanced lifestyle is making a difference in their communities. According to the survey, 23.93% say their church, synagogue or place of worship is their favorite cause, followed closely by environmental and animal causes with 23.59%.

Retirement is now focused on a new chapter of life, full of re-invention, instead of simply an "end phase." Traveling, new hobbies, and being active rank high on the list of what retirees look forward to.

Overall, boomers are interested in healthy relationships and strong mind-body balance.


Written by Carla Hill
January 11, 2011

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Consequences of Defaults and Foreclosures

The economy has put a strain on thousands of households across the nation. In these tough times, many homeowners are struggling in the face of foreclosure. What are the consequences of defaulting on your loan? And what can you do to prevent this loss?

One of the most startling impacts of a foreclosure appears on one's credit report. Your credit score may plummet by 200 to 300 points. In this economic climate, where credit lending standards are already tightened, you may then find it difficult to do everything from buying a car to renting an apartment. What's worse is that the notation of foreclosure stays on your report for up to seven years.

Next, you may owe the lender money. They backed a loan on a home worth X amount. If they sell your home at foreclosure for less than that amount, you may be responsible for the difference. Many states have laws protecting you against this action, but speak with an attorney to find out for what you may be liable.

Lately, after the sudden drop in property values in certain markets, investors have been guilty of strategic defaults. This is when an investor purposely defaults on a property, because the time it will take for them to recoup their money is perceived as too great. A word to the wise: courts are now ordering deficiency judgements in some cases, where the investor must pay the lender back their losses.

There really is no winner in a foreclosure. With homeownership comes increased family stability. The loss of a home can be a trying time on all members of the family. Beyond your own family, a foreclosure can mean lowered property values for your entire neighborhood.

Avoiding default and foreclosure is not always possible. If you are not able to make your payments, be sure to be honest with your lender. They may be able to present you with an alternative. In addition, here are a few tips to get you thinking.

1. Short Sale. A short sale occurs when a borrower is unable to pay their mortgage loan. Both the homeowner and lender consent to a short sale, which means selling the home at a moderate loss, avoiding foreclosure and its associated frees and havoc on credit reports.

2. Talk to your lender. They may be able to offer you programs, refinancing, or counseling that can help you avoid losing your home. Most banks don't want you to foreclose, as it would mean they take a loss.

3. Selling if not underwater. If you are not underwater on your home loan, meaning you don't owe more than you can sell for and owe, then now is the time to employ a real estate agent and get your home sold. Downsizing or even renting is a better option than ruining your credit for the next seven years.

4. Budgeting. There are non-necessities that can be cut out of your expenses. Cut down and live as simply as possibly. You may have more money than you realized!

5. Financial counseling. Defaulting is serious business. You would be wise to meet with a financial counselor to see if they can help you avoid losing your home.

6. Refinancing or loan modification. Your bank or lender may be willing to allow you to refinance. This can translate into lower monthly payments.

The bottom line is this. Defaulting on your mortgage has severe consequences. Try your best to balance finances before your mortgage becomes an issue. And be honest and upfront with your lender in the event that a default is likely.


Written by Carla Hill
January 6, 2011

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Deciding to Sell

Deciding whether or not to sell your house can be a trying time. Many questions pervade your mind. "Is now the best time to make a move?" "Will I make money from this sale?" Will a move disrupt my family's routine?" There are numerous factors that come into play when making this decision. Let's look at just a few to consider.

First and foremost, can you afford to make a move? In many areas of the country, home values fell dramatically during the recession. Homeowners across the nation now find themselves owing more than their home is worth. If you find yourself in this predicament, it is probably not the best time for you to move. If you are able to afford your payments and have no fear of defaulting, then it will be best to stick it out for a while longer, waiting for your home to regain some of its lost value.

Along those same lines is the topic of job stability. Do you have money saved for downpayments and closing costs, as well as an 8 month emergency fund should you get laid off?

Next, consider the impact the move will have on your family. Do you have children? Moving during the middle of a semester can be difficult for children. Will you be able to move and stay in the same school district? If not, they will be coming into a new school in the middle of activities, after bonds and friendships have been established. Timing is everything when it comes to moving with children.

Additionally, research has shown that having strong social relationships can lengthen your lifespan. Consider this strongly before you move away from family and friends. Or consider it as motivation for moving closer if you live far away!

What if you need to move for your health. Warmer climates, less humidity, and even a change of settings can be a boost to some people's health. Some seniors find cold winters too hard on their older bodies. A move for health is always a good decision, since without our health we have nothing.

The bottom line is this. Moving means changing routines, hobbies, and even friends. Be sure to evaluate your decision carefully, weighing all of your options, before jumping into a life changing decision.


Written by Carla Hill
December 22, 2010

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Selling And Buying All At Once?

For many people this can be a true nightmare but it doesn’t have to be. And that’s a good thing because a lot of people find themselves in the position of needing to sell and buy all at once.

If you’re in this situation then you know that timing and money are two critical issues. What you do or don’t do, can affect whether you have a successful sale and purchase of your next home.

Here are some important tips to expediting and effectively navigating the sell and buy process.

Collaboration. The real estate process is about collaboration and teamwork. When you begin the process, experts advise that you use a notebook to record your timeline of important dates such as when you absolutely must be relocated. For instance, if you’re moving to another city for a job, when are you starting? When do you have to have the kids in school, etc? In this notebook, jot down details of conversations with experts and any transactions. Also, use the notebook to write down your questions that you have for your team of experts so that you’re certain to get the answers you need.

Meet with your team which likely includes a real estate agent, lawyer, lender, inspector, appraiser, and advise them of your needs and time frame.

First things first–must sell that home. Many homeowners need the money from their homes in order to purchase their next one. With that in mind, be proactive. Get a home inspection so that you can find out any potential issues that will slow the sale process. Then repair or adjust your asking price before you list your home for sale.

Get your home on the market as soon as possible. Delaying listing your home will result in a shorter time-frame to get it sold.

When it comes time to sell, if you’re not ready to move in to your next home, work with your agent to arrange a long close or a rent-back option. This will help to avoid the hassle of an interim move.

It’s not always all about the price. When you’re in a situation that has some very particular time constraints, you might find that it’s not always all about the price. Prepare for the best possible offer by screening your potential buyers, make sure they’re pre-approved “within five to 10 days of accepting their offer,” writes Lendingtree.com.

Sometimes a slightly lower offer may be the one that offers greater flexibility and just what you need when it comes to the closing schedule.

Get your buyer of your old home and the seller of your new one on the same page. Put in writing the specific window of dates. Lendingtree.com suggests, “negotiate financial penalties to encourage both stick to those dates.”

Know your price point. This is really important regardless of whether you’re selling a home in order to buy another one. However, when you’re in a time crunch, it’s even more critical to know and shop for the home that’s in your price range. And, of course, just like you’re asking for with your buyers–get pre-approved.

Get an inspection and make sure the new home can be insured.

Having a buyers notebook where you can record all of your notes on your home search and jot down questions is an excellent tool to have handy when choosing which home you want to make an offer on.

Ultimately, selling and buying a home is a lot to handle but it can be a smooth transition. Be clear about your time frame, new home purchase price, and any other details that are specific to your needs. Then before you move, I recommend reading my column: Go Bananas Over Moving!


Written by Phoebe Chongchua
December 31, 2010

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Or visit our website: www.LivingLakeTahoe.com