Helping your adult child buy a home
Our guide for helping your adult child buy a home.
BUY A HOME AND SAVE MONEY ON RENT
Buying a home for your child to share with other students – and their monthly rent cheques — is one alternative to saving money on residence costs. The Wilson Team of mortgage professionals understands the ins and outs of buying and managing a rental property and we’re here to help you decide if owning student housing is the right move for you to make.
STUDENT HOMES: PROS AND CONS
Many parents today are purchasing homes for their children to live in during their university or college years. Before jumping on the bandwagon, consider some of the positives and negatives of purchasing as second home and renting it to students:
• Student housing can cost as much as $30,000 annually. If you purchase a home and rent some of the rooms, rents can generally cover the mortgage, saving you housing costs in the long term.
• You’ll also save on the cost of campus meal plans; buying food and cooking at home is generally cheaper.
• If more than one of your children attends university/college in this locale, you’ll be far ahead on housing costs. Holding the property longer can also affect resale value – in a positive way, if all goes well.
• Solid rental properties in student-friendly locations can reap monetary rewards long after your child graduates.
• You and your child will become experts in property management.
• If you choose wisely, the property will appreciate in value prior to resale.
• Students can cause property damage or get behind on their rent.
• If the market changes, the resale value may not increase.
• Fixing up the property for resale may cost more than you expected.
If you are seriously considering purchasing a home for your child to occupy during his/her post- secondary years, give some thought to these additional points:
• Location, location, location. Proximity to the university/college and/or to public transportation is essential to attracting and retaining tenants.
• Know the market. Is property in the area increasing in value or decreasing? Is the value of homes in the area inflated? Would this be a good investment in the area?
• Bedroom bonanza. The more bedrooms there are, the better the home’s earning potential.
• Vacancies, begone. Avoid or minimize vacancies by requiring a 12-month lease, if feasible, or give students a “hold-the-room” rate to hold their rooms during the summer when they return home.
• Calculate costs. Make sure you understand what your costs will be, including the down payment, mortgage, insurance and property taxes. Determine if the benefits will make it financially worthwhile.
MORTGAGES AND TAXES:
The Wilson Team will be with you every step of the way as you make your purchase. From a mortgage perspective, here is some useful information:
• If the home is a single-family home and your child doesn’t pay rent, it can be considered a second home for tax purposes. This would make your eligible for CMHC mortgage insurance, reducing your down payment to as little as five per cent.
• If any mention of rent is made, rental purchasing rules apply, requiring a minimum down payment of 20 per cent.
• Projected rents can be used to help you qualify for a mortgage.
• Rents must be declared on your tax return.
• If you need/want to spruce up the property, you can obtain funding for some of those improvements through the mortgage process.
• You can claim some of your expenses, including mortgage interest, on your tax return.
If you decide to take the plunge, the Wilson Team has your back. Rely on us to help you obtain the best
possible mortgage for your purposes.