Don't want to co-sign a mortgage with your adult child? Join them in business instead

for rent

 

Recently, a news report highlighted home affordability and the challenges; “Home affordability to deteriorate with rising mortgage costs: RBC, especially for new home buyers. It points out the widening gap in entry into home ownership. Following the thread of comments, some encourage renting as "the" option for younger people. (We talked about that here already if you missed it.) Others rant about not being able to enjoy the same options as their parents in home ownership.

Here's a new idea in the mix! Go into business with your young adult children, by investing in real estate.

As an example, let's use Calgary's median house price of 280,600 for an apartment style condominium.

Condo price: $280,600
20% down payment: $56,120
Interest rate: 3%
Amortization: 25 years
Monthly payment: $1,063
Interest paid: $94,223 (based on a 25yr amortization for the sake of comparison)

 

Condo price: $280,600
5% down payment: $14,030
Interest rate: 3%
Amortization: 25 years
Monthly payment: $1,262
Mortgage Insurance: $7,330 (usually gets added to the mortgage, and you pay interest on it)
Interest paid: $111,889 (based on a 25yr amortization for the sake of comparison)

 

The average 1 bedroom apartment is renting for approximately $1,000-$1,300/month (in reasonable proximity to U of C). The average 2 bedroom apartment is renting for approximately $1,300-$2,000/month. (according to rentfaster.ca)

Given that, does it not make more sense then, to buy a two bedroom apartment style condo with your student, and teach them about business by having them manage it as a rental?

When they are done school, you can either keep the property as a student rental, or sell it and split the proceeds, leading to a contribution to your retirement fund and a contribution to a more robust down payment on a house for your young adult child.

The median single family home price in 2000 was $172,000 & the average family income was $70,800 for a 1:2.43 ratio. (statscan and CREB)

In 2013, the median single family home price was $405,000 and the average income was $79,600, for a 1:5.09 ratio. (statscan and CREB)

If you think you're 'spoiling' your adult child by helping them out, think again.

Where would you be at now, if when you bought your family home, the income to home price ratio was 1:5.09 instead of 1:2.43?

We talk about investing in RRSPs as a long-term investment plan, however more often overlooked, is real estate which has for the most part always been a solid long-term investment.

Perhaps the take-away lesson in real estate is a "how to be wise and use real estate as an investment" lesson, rather than a "make it on your own" lesson.

Not everyone is going to buy into this theory, either because they don't or they can't, meaning your young adult should be able to find a tenant.

Think about it, when the time comes!

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Team Leesman C.A.R.E.S

Team Leesman C.A.R.E.S

REALTORĀ®
CENTURY 21 Bamber Realty Ltd.
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