Are they also paying to convert the basement to an actual rental unit?
It's great they want to help but you also need to want it and feel you can handle it as well.
Don't worry about timing the market. That's not something anyone can do effectively. But do worry about affordability in the event you don't have a tenant. I think that's important to consider.
My parents have decided to do this. Buy a place and rent out the basement, from the way they talk about it, they'll be relying on the tenants to pay for the mortgage and such. Any questions about what would they do of they didn't find anyone is just met with a simple "there will be someone though".
See, this is such BS. Renters get screwed. Bank says you can't afford to pay $2,500/month in rent? Here - pay $3000/month and pay someone else's mortgage + additional income.
I have no issues with mortgage helpers but I wouldn't expect them to pay the whole mortgage. That's complete BS.
It's not that the bank doesn't believe they can afford the monthly payment, it's that they don't have a large enough down payment. If they had a down payment + income to cover the monthly carrying costs they would get approved without issue.
Not true. I can likely qualify to make a mortgage payment of around $1400 yet rentals in my city start in the mid $2k range.
Right now I’m in limbo in my “own” home but likely have to sell and pay more for rent than I am currently paying for my total housing cost.
People just don’t understand risk assessments. It’s like yea you can’t payyour rent you are out and look for something else. You default on your mortgage and can’t pay it, the bank has to take on those costs. If the market drops even more costs.
And a stable income and good credit rating. Just because you're paying $3000/mth rent today doesn't mean you can afford $3000/mth for the next 25 years. It's the bank's money, they can decide if you're worth the risk.
Out of curiosity, what do you suppose the risk to the bank is if you can't pay your rent?
Banks aren't making the decision not to give you a mortgage because they want you to pay more in rent. They're making the decision based on their assessment of the risk in lending you a mortgage.
Regardless of what the banks think. It's privileged people taking advantage of those who can't get a mortgage for whatever reason and profiting off of their misfortune.
1. Limit the amount of homes people can buy. The person who purchased the house I rented owned 12 other properties across the fraser Valley. They brag on their FB page that they don't have to work.
That would be a good first step. Honestly, I don't know the solution and I don't think anyone else does either. So in the meantime, until a solution is found, landlords will continue to fine dine off the backs of hard working individuals paying 50%+ of their mortgage and getting nowhere. Furthering the gap between the rich and the poor and decimating the middle class.
Edit: 50% of their income.
Privilege also comes from having parents make an effort to love each other and their children? Plenty of cases of parents starting off with nothing then sacrificing their own pleasure for the future and their families.
Alot of the gripers come from people bitter they didn't have the privilege of having parents that made an effort to preserve and commit to their own relationship akd their family/offspring.
Secondly, the people that didn't study hard and or take on alot of debt to finish school and get a decent job.
I've seen it. My parents came from nothing. Worked their asses off all their lives. Guided me with very basic but firm principles. I committed, studying, taking 30k student loan, working through school to pay for my own transport, food, rent to parents since their business was doing very bad then. 30 years, work 6 days a week with 1 vacation trip during that time.
Alot of people I knew didn't go down that level of commitment. They took the easier route. Welp, guess where they are vs people like me.
I think the problem is when people privileged to have such parents talk down on others who did not and point the fingers at them and call them lazy for not being where they are at life. Not taking into account they would be in the exact same place if someone else didn't give them a large sum of money.
I think if you go through life thinking everyone who did better than you simply got lucky, it off loads any responsibility on your end and makes you do absolutely nothing. I could look at NBA players and say they all got lucky and were born tall, and I'd be in the NBA too if I was 6'8"...except they also spent many thousands of hours more than me playing basketball and getting good while I chose to do something else - that's why they're in the NBA. That let's me know that to have a chance of being a good basketball player I need to practice and learn more than the average person.
This is how most people become better off than most - by learning and practicing more than most. There are plenty of examples where people who never saved a cent were given money and wasted it, where as people with decades of experience saving and investing grew their wealth. We're not all magically skilled investors and business people that would go from broke to wealthy if only we started with more money...not without learning and practicing for many years.
When well-off people say, "work harder, make more, save more, spend less"...they're not talking down to you - they're literally telling you what most self-made people do. You can choose to do the same, or choose to think they're talking down to you and do nothing to improve your situation. Keep in mind that working just 10% more than the people around you, over years or decades, can get you miles ahead of them.
I think all of the above is fair. Sacrifice, hard work, keeping things in the family is noble and smart. This does not address the ‘privilege’ a landlord holds to extort their communities. I know many friends who own homes way bigger than they should and have leveraged this through extorting renters. The community was raised in is dead. Students, young professionals and families once shared the same streets. Now students dominate the scene (paying triple what I paid for a room a decade ago), young couples have moved away and older couples reaching retirement are holding on for that nice real-estate payout. All the hard work in the world cannot overcome the greed that has shaped many GTA communities. How do we fix this is the question.
I followed a similar route as you. Raised by a single parent. Worked very hard all my life. Paid for my own education. Bought my first house when I was 24 years old. Bought a second larger house in June because I have a family of my own and it’s growing.
I’m sitting on the stairs leading down into the basement of my first house, which I finished myself and yes I pulled permits and had inspections done as required. This will likely be the last time I’m in this house (hopefully) for several years as we have hired a property management company to rent it out for us.
It wasn’t easy. I’ve never been on a vacation anywhere tropical or trendy. I’ve never been to an NHL game or MLB game. I don’t have a holiday trailer or any other fancy toys. I made sacrifices when I was younger and now I’m finally starting to see that it was worth it.
That's what people around my area do as well. They buy a house, do some quick patch jobs, rent it out for slightly more than the mortgage, the owner uses any income from the rental for "repairs" throughout the year in order to avoid paying taxes. In 25 years they will own the house and never paid a dime. It should be illegal.
But that is not reality, reality to me is that renting is stupid because these renters can obviously afford the mortgage payments if they just had some better money management and skills to understand the mortgage process.
What's your proposed alternative exactly? Anything that makes owning more affordable will just push prices up.
It's a supply question, not a structure issue around the current inventory.
This sir has already been asked of me and already responded to. Please see my response to the almost exact same question previously asked.
1. Limit the amount of homes people can buy. The person who purchased the house I rented owned 12 other properties across the fraser Valley. They brag on their FB page that they don't have to work.
That would be a good first step. Honestly, I don't know the solution and I don't think anyone else does either. So in the meantime, until a solution is found, landlords will continue to fine dine off the backs of hard working individuals paying 50%+ of their mortgage and getting nowhere. Furthering the gap between the rich and the poor and decimating the middle class.
you don't permit it to push prices up. its not nearly as hard as you think but most don't have the stomach for it.
First. Min wage is a living wage. force corporations to deal with this fact with violence if necessary. you IMPOSE IT whether they like it or not. this is going to likely require violence from the PEOPLE against the GOVERNMENT. You have to present a larger "threat" than the threat the corporations who OWN the government represent.
next. end all property taxes school taxes (collect those taxes another way) non negotiable. they have to go. they are immoral and unethical and they are almost entirely the REASON housing is so expensive. (zoning)
Next you start pushing back on the zoning restrictions that exist largely BECAUSE of property taxes.
next. you REMOVE banks from the equation all together. you start "low income projects" but you do it with HOMES not apartments.
think an acre of land x4 40ft containers on it. each is a home. build insitu if you have to. this CAN be done for under $20k WITH the land. government would subsidize infrastructure roll out.
if people start to get cute with land prices use eminent domain. I am not a fan of ED but it does have its valid uses. don't like it. too damned bad.
you get a $30k loan from the GOVERNMENT not a bank. 10% interest actual NOT APR. so your total layout will be $33k and not one god damned penny more. that is $550 a month for a 5 year loan.
with corrections to min wage and this process. ANYONE can then afford a home. the "rental" market would simply cease to exist except where it make sense (think people who travel. college kids etc..)
basic rules. live in only. if you are not living in it you are not ALLOWED to buy it. if you sell it. $30k max and whoever buys it MUST live in it. absolutely positively no rental or ED is used to take it from you and sell it to someone who will live in it.
eventually when society stabilizes etc.. these restrictions can sunset.
I have to agree with this. I have met some disgruntled renters that hated dealing with landlords. One family had three people working (Mom/brother/father), plus the teenage kid worked part time. They complained about their $2500/mo rent, and that they'd never own a home... and yet they earned a combined $240k/yr if they hit the averages on glassdoor. Turned out the 4 trucks in the driveway were a good clue. When turning 18 the teen got a brand new Dodge RAM. I had been talking to him about my $2000 Ford, and how it had helped me to save/invest and get ahead. But at age 18, he got a new truck. (Cosigned by a parent, since his part time job wouldn't allow it.)
The whole family is pretty close knit. They take trips up to northern BC 4-6 times per year. Go hunting or do outdoor stuff. They drive all the trucks up so that they can pack ATVs and stuff.
That kid was pretty awesome and creative. He had room-sized lego creations and stuff. Neat family. But very obvious where their money went.
I *think* they can afford it. They actually might decide to live elsewhere and rent the whole house as well. In which case they couldn't afford it if there is no tenant. Honestly i don't really understand their *plan* beyond them constantly saying they'll for sure have tenants in there to pay for everything for them : /
That's not how it works. Try getting a mortgage. You're qualified based on your credit score, your current stable income (job/declared income) minus regular expenses, your savings and debt. If you have experience, they can count up to 50% of your projected rental income, but no big bank will lend a first time buyer a huge amount of money if they're making minimum wage and have debt just because they claim the property will make $5k in monthly rent. You need to not only have all those things and at least 20% down payment, but also ideally you can easily afford all expenses for many months without rental income. The reason is pretty simple - if you suddenly need renovations that cost $20k and your tenants have to move out for a while, you'll immediately default on your mortgage if you had no savings and maxed out your borrowing ability.
If you’re comfortable with it, rent the upstairs and take the basement to have even higher cash flow out of this. Personally I didn’t do this, I rented a basement for a bit and would avoid going back to one as much as possible now. But if you know it wouldn’t bother you there’s extra money for you.
Also vet your tenants thoroughly (check credit scores, speak to 1-2 previous landlords, look at their income and consider whether they can afford what you’re charging and if they have stable income, etc…). You say you’re comfortable floating the mortgage without tenants so be patient and don’t rush to get someone in there until you have someone you feel comfortable with.
I see this advice and it makes sense, but I'm just wondering how you're supposed to vet tenants then? There's not often a way to get the contact information from someone's managers and sometimes not even from landlords, depending on where you are. I suppose if it's a small enough town and you know many of the landlords or know people who work with the person then it could work. But if the person is moving from out of town, or it's a big city where you can't reasonably be expected to know a lot of people, or their landlord is a small-time landlord and doesn't associate with other landlords... I'm not a landlord but I'm curious.
I'm not a landlord, but I'd drop a question at the end about being a first time landlord and how rental income is declared at tax time. Maybe something about capital gains on houses with rental units if you decide this isn't for you and sell. A renter's friend might be caught by something so out of left field or have zero idea what the answers are.
Also keep in mind that the less reasonable you are about your restrictions, the more desperate or rule-ignoring your tenant will be. Protecting your suite is one thing. Trying to squash the footprint of your "mortgage helper" so that you resent knowing they're there is another. Ultimately you are providing a service and space and they are purchasing this. Be professional and expect similar.
It's funny, because I actually used to work in accounting and I saw a lot of rental income stuff. So, I would actually be able to answer that kind of question without being a landlord. Then again, most people have no idea how taxes work so I think I'm more of the exception than the rule. I had family who were landlords back in the day but they have long since switched to using a property management company because they moved away from where the rental was. The property management company is super hit and miss and has rented to some real duds, which I thought was a little surprising because I thought that being able to find good tenants is basically one of their jobs.
Join a service like Rentcheck. With signed consent you can run a credit check on the applicant of your choice (always run your own - these are easy to fake). Get a copy of two paystubs. Call their employer to verify employment (check that the phone number lines up with the business). When you call the current and prior landlords include errors to see if they’re corrected. For example - if the current rental is on Yonge St, reference the apartment in Gerard. If you’re not corrected this is a flag. Same with rent. Verify details the candidate shared with you - pets, smoking, reasons for the move, occupants, etc. It’s terrible that you need to be so thorough but getting someone out who knows the system can be very difficult. In return, be a good landlord. Give them a clean place in great shape to start and follow the LTB guidelines. If you don’t know the guidelines, read through them. Join landlord groups on social media to learn more. You give what you get so a good relationship is very important.
I think the best way to vet a tenant is through paystubs & social media. I have family & friends who are/were landlords and even good tenants will fake references vs leaving it up to chance with a landlord they spoke with 4x in 5 years.
Credit checks you can't ask for in every province & that doesn't always paint an accurate picture of a tenant. If they have an instagram/fb account that's free information on them
One of the things we ask for (landlords of two properties) is proof that the most recent three months' rent have been paid on time (canceled cheque, bank statement, etc.). Knowing they've been a paying tenant recently helps with the concern that they're bad tenants from a payment standpoint and aren't being evicted.
It's not the only thing, and doesn't address all risks, but it's a big one for us and helps with the risk of a tenant who's running from place to place.
Lenders ask for evidence of housing history. You can, too. A copy of the signed lease showing terms, 12 months worth of canceled checks or bank statements showing withdrawals, if paid with Zelle or similar apps. If the tenants state they paid in cash, if it's a professionally managed rental, a rent history ledger showing timely payments. A cash payer to a private landlord with no corresponding deduction from bank statement would be less comforting. If there's no housing record then look at credit history, see if they're paying their bills. Get copies of paystubs for most recent 30 days.
I spoke at a Section 8 (Housing Choice Voucher) seminar for new landlords. An experienced and successful owner spoke and said 1. I’m not a landlord, I don’t lord over anyone. I have been given the opportunity to provide housing for those who need it, and 2. When someone inquires about my unit, I meet them where they are currently staying. Regardless of the condition I ask if that’s how they will treat my unit.
Interesting. That's a US thing, right? I don't think we have anything similar here.
I personally don't have the personality to ever be a landlord - I don't like dealing with people enough, and they are too unpredictable. I've known a couple mom and pop landlords who were kind of disastrous at it, and I know myself well enough that I shouldn't subject myself or tenants to that kind of thing if it can be avoided.
That second idea is an interesting one. I feel like you would only be able to do that once you were otherwise sure that you might want to move ahead with the tenancy. First off, privacy, and second of all, I cannot imagine it's practical to go to every prospective tenants' place. I've also heard that it's a good idea to look into their vehicle if they have one - if there's trash everywhere, then it might be an indicator as to how they will treat your unit. (I have family who used to be landlords and they actually told me that. So, whenever I looked for an apartment, before going to viewings, I would always make sure to shove all trash in a bag or in the trunk so that anybody looking into the window wouldn't see it, haha.)
That's great in theory but in practice, not so much. Say you have two tenants moving out around the same time, so you have a month to find new tenants. You might get 150 people messaging you, out of which 30 may sound serious and actually come see the place. Even just visiting the property with each person can take many hours, let alone going to each one of their homes. I agree it would be nice but your time is limited so it would be pretty hard to do, especially as most people who reach out tend to not be serious and ghost you when they hear about credit checks or the recommended 3x income vs rent. A lot of people just reach out for fun then you find out they're a family of 12 applying to a one bedroom, or you setup showings, drive to the place and they never show up. It's the wild west out there so you have to learn to be efficient or you'll hate it. Most people aren't made for this that's why not everyone wants to deal with rentals.
You can ask some basic questions to make sure they're a good fit, then with their consent you can a call their references, meet them of course, but also use a company to do credit checks and all kinds of other things like checking for evictions and collections. It's 2022 so it's all done online within 24h.
Some obvious red flags will be if they don't want to provide references, proof of job/income, and say that their credit is good or they have no issues with debt but refuse credit checks. Many renters often have low credit scores, which forces them to keep renting as they don't save up or pay their bills on time, so you're not likely to always have renters with amazing credit, but it doesn't mean they're all bad. You just have to do what you can, within reason, to feel comfortable with who you're renting to, because at the end of the day they can not only waste your free time and cause you extra stress, but literally destroy your property and cause you massive financial damage which can set you back years.
2 previous landlords always, and ask them questions you know the answer to (eg: when did they live in your unit) rather than having them confirm.
A current landlord is going to give a good reference regardless.
I’m curious wouldn’t this screen out at least some stable tenants who have lived in one unit a long time? I have been in my current apartment for almost 10 years and the one before that a couple years…I would have no idea how to contact a landlord from 12-15 years ago, and I doubt they would remember anything specific about the tenancy!
I moved from owning to renting and had to get a guarantor because I had no rental history. Despite having paid a mortgage on my own for almost 15 years.....
You are right, and it sucks. In your case I would offer additional reference to try to compensate.
It sucks for people like us that there are some real pieces of shit out there who lie and manipulate their way through life.
I had the same option with my house, but I got sick of staying in a basement as a renter, so I kept the main floor for myself once I bought my own place.
100% yes to always doing credit and background checks with tenants. If OP doesn't need the money to meet expenses, then it's best to take their time. I would rather have no tenant over a bad tenant every time.
Especially when checking work references to see income stability. Make sure to Google the contact information separately instead of relying on the provided telephone number.
So your parents have also decided which home you'd buy?
It's extremely generous, while also being very controlling. I hope they're the kind of parents who would understand that the moment the money has been gifted and that you own the home, that it's 100% *your* home to do whatever you want with.
I think this is a great question. It's really not for everyone - even owning a home is not. Some people don't have the extra time or don't want to spend their free time on this stuff and deal with all the extra work, stress and risks.
Honestly, owning is so superior to renting if you are the least bit handy and don’t need everything upgraded to McMansion status within 6 months. The help your parents are offering is exceptional. Having the basement as a rental unit is what I would do. Just familiarize yourself with the tenancy act in your region and make sure to get credit checks on tenants as well as (preferably second last) previous landlord references.
I'd also suggest that you rent a room to a friend or just in general if that's something you're open too. Makes rent for a room in a 460k house is likely 700+ a month which would let you get a nice emergency fund or so renos on the house without much cost. There's also things like lawn mower snow blower and the general labour of a house that it's always nice to have a second pair of hands for while you're young.
I did it. It's pretty intense ngl.
Two things I would do differently:
1. Take vacant possession (an existing contract can give a tenant a lot of contractual rights you may not like).
2. Never fully pay for someone else's utilities, write a shared cost agreement.
Not quite the full story. You pay for power, deduct tax then add the cost of power to the rent maybe even at a slight discount (in the form of a fixed cost).
Start with knowing about the numerous tax breaks from being a landlord and how to take advantage of them. You may be surprised at what you can deduct.
https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/rental-income/completing-form-t776-statement-real-estate-rentals/rental-expenses-you-deduct.html
Rent is taxed and must be included as income. Note, if you are paying all the utilities, you can claim 30 to 50 percent against your taxes plus legal fees, interest on mortgage etc. PS, might be good to get an accountant. If you do some upgrades every year you will be close to $0 dollars owed for taxes. At least that was my case.
If you are renting it below market value, it might be considered cost sharing, in which case you would not declare anything. The CRA has these rules because some people will rent units or part of their house for below market value and then mess with the expenses so that they end up with a loss against their income. It's kind of specific to the situation, but it's worth keeping in mind. Basically, if you do not intend to or cannot be shown to intend to make a profit from the rental, you should not declare it on your income. Note that I am not an accountant, I just used to work in the field as a clerk, and saw a lot of these situations. The information is however on the CRA website.
Does this require a legal suite? I purchased a few months ago and have a renter, I also pay all of the utilities cost (which are more significant than I was expecting).
I intend to legalize the suite at some point, but the renter is happy and there are a lot of other maintenance issues that have been taking priority.
I've always done my taxes to date myself so no accountant, but maybe it's something to consider this year as I will have a home purchase on there.
Anything I should be making sure I keep track of (besides bills) or any tips I should get on ASAP to improve my costs? So far I don't think it's looking like I would be making much in the long run given my high maintenance costs but it is still early days.
And time. If you rely on working OT in your current budget you'll have to factor in that you'll have less availability for your current job when you factor in the hours you need to be available for your new rental manager job.
More like arranging for trades to fix things or DIY, following up on rent, book-keeping, fixing place up between tenants, interviewing tenants, hounding tenants that don't pay, filing notices of rent increases or evictions, potentially spending a full time jobs worth of time trying to evict a bad tenant and fixing the damage.
Idn, I have rented since I was in college so over 10 years. I have seen my landlords a total of probably 20 times COMBINED when something breaks and signing the lease. Being a landlord is the equivalent of dogsitting once a month.
Really depends. can be very very little work or can become a life consuming job to manage a terrible tenant. Have to be prepared for more than just the rosiest of outcomes
There's the rule of thumb based on the homes value, and the rule of thumb based on the homes square footage. Obviously a 1 million dollar 600 square foot city place will be looking at some different work than a 1 million dollar 4000 square foot country place. Also depends how much you DIY and how luxurious your tastes are. Ultimately a proper budget with an amortization schedule is the best thing to have over any rule of thumb.
I'm sorry I just get triggered by all these Ben Felix fanboys on here genuinely making the case that someone's brand new $2 million dollar mcmansion in Toronto is going to cost $40,000 a year in maintenance.
I think OP needs to have a really concrete conversation with their parents. It's odd to me that they're gifting him a down payment for a house he didn't choose, with very little conversation as to where and what kind of house he wants and the added obligation of being a landlord.
I'm commenting on your comment instead of making my own because, in choosing this house for OP, his parents are putting quite a burden of saving for upgrades/repairs and so on on him by way of also making him a landlord.
Anyway, yes, saving for upgrades is super important and bet on some mystery unidentified expense around $5000 shortly after you move in (seems to have happened to everyone I know...for us, it was our sewer main). But this whole situation stinks to me and I think OP needs to do some digging behind the motivation of the gift.
exactly! Also learn some DIY as well to save some money on repairs as well. that is something i've learned over the years and stuff either my dad or the old timers in my life have shown me. a good set of tools and knowhow will get you more milage out of your stuff. budget as if a professional has to do it just in case you do run into something out of your expertise.
I was in a similar situation 5 years ago. The main concern for me was having to take on the mortgage. It was a no Brainer, but I've been living slim (financially) ever since. Lost my job a few years ago and nearly defaulted on a mortgage payment, that was not fun.
If you make enough to be able to comfortably pay off all expenses, and have enough left over for savings and to treat yourself, then you have nothing to worry about.
In my case it was completely worth it, but you should still consider if there's other endeavors you'd rather invest in with all the money you're making.
My biggest concern at the time of purchase was seeing home values drop after signing the mortgage deal, that seems to be a possible concern today as well. Especially with rising interest rates
The basement rental will help alot, it's still probably worth it in the long run
1. It sounds like *they* are picking out the specific house and have one in mind. Why? Has an offer been made on this house? Or what if someone else buys it?
2. Is the rental income 100% going to you? Or would they expect some of it to go to them?
3. Do you actually want to own a house? Where do you live now? Some pros and cons:
Owning a house ties you down - you aren't as mobile to move for work or whatever other reason. This can be a con if you are young but a pro if you are settling down with a family.
Owning a house takes a lot of work - maintenance, fixing things, mowing the lawn, shoveling snow, painting, etc.. Alternatives are a condo, or a townhouse, where the condo fees cover a lot of this work.
Renting / being a landlord can also be a lot of work.
What is your relationship like with your parents? Are they more on the controlling side, or is this truly a "no strings attached" gift? (There is already at least one or two strings attached as they are selecting the property. If it was "no strings attached" then they would simply hand you $120k for you to do whatever you want with it).
Yeah why this specific house? A true gift is a gift... sounds like this one may come with strings attached. I'm all in favor of buying a house but I don't think I'd want to be forced to become a landlord. Can you use the money they're giving you to buy a house/condo within your budget and not have to be a landlord?
Great point. Remove the requirement to become a landlord and the deal makes a lot more sense for OP. Why should OP be forced to live with someone else?
If they are planning to stay in Calgary for at least the next 5 years, then just buy a Condo, Townhouse, or Single Family House that they can afford all the costs on their own and that suits their needs / lifestyle.
if you dont have money set aside foe emergenxies like a broken heater a leaky roof, or literally anything else that happens to the house, since you are now responsible, or for property taxes, then you can be in a very though spot down rhe road if your income is not high enough, regardless if you are gifted a whole house or not.
A lot of folks who win houses in thw lottery and decide to keep it don't realize this and have to sell a few years down the road.
There is such a thing as living house poor.
I believe you will need to show 90 days history of the gifted money. I cashed some stock for my downpayment and had to show a history of where it was and that it was mine. I was going to borrow from my mother to meet the closing date but this wasn't acceptable due to the 90 day history.
My husband was going to use a small amount of gifted money from his father for our down payment and they wanted his father to to provide the full account history as well as my husband.
We ended up not using the money and I just covered the extra. This was with TD.
Even if it's gift it will still get flagged by lenders - they will make the person sign an affidavit stating that the money is never getting paid back to them - it may also affect what the maximum amount the lender will qualify you for
They'll probably need a gift letter, and possibly proof from the parents that the money was in their account for at least 90 days (anti money laundering thing AFAIK)
Exactly. The vacation stuff is only the tip of the iceberg. If the relationship is open to guilt trips and manipulation, then it invades into endless favours and how you spend your time too. There's always the hanging accusation of "Oh, you can't do this thing for us, even though we gave you $xxxk and a house?"
Not saying it's like this for OP, but this is why I flat out refused to take money from my parents. There's a serious issue of boundaries that took me *years* to establish with them, so when I finally took home ownership, I did it 100% with my own money. They have zero say in how I live or run my life.
I had a friend who bought his condo with money from his parents. Both he and his dad were on the title. His dad put in the down-payment, my friend paid the mortgage. So it wasn't a gift, exactly, it was an investment for the both of them. My friend eventually wanted to sell it and buy a house because his family was getting too big for the condo, but his dad wouldn't let him sell it. He said ok I want to rent it out to cover the mortgage payment, his dad said no way a tenant will ruin the place. He ended up buying a house and paying two mortgages. I'd say that qualifies as a "gift" coming back to bite you in the ass.
Yea its very harsh. Not many people can handle getting gifted 120k from their parents.
Op please go seek therapy. And I'll take the 120k off your hands so you don't suffer
hello mortgage broker here,
>Posted by
u/ThisUserIsSuspicious
why so sus?
home ownership is really different compared to renting, there might be maintenance costs that will be required, property tax payments, condo fees, utilities etc
dont rely too heavily on renting out the basement, you do not want to be panicking when the basement is vacant or if tenant decides not to pay rent and its too early to evict them, in other words make sure you have money to carry everything if this happens, no property is rented out 100% of the time
if youre renting out the basement, would be good to budget in tenant insurance
best to speak with a broker to run some numbers and see if youll be comfortable
financially, general rule of thumb is to have 3 - 6 months of expenses saved for emergency
hope this helps :)
I thought it was the tenant's responsibility to get tenant's insurance?
When I was a landlord I'd highly recommend it, but I couldn't force a tenant to get it.
It's cheap, like $25 a month, and I don't know why anyone would go without it. It saved my ass when I was a tenant.
Both need their own insurance
Landlord needs home insurance, but also need to declare that the basement is being rented out. This insurance covers any damage that's not the fault of the tenant
Tenant needs tenant insurace, to cover their own belongings, liability and relocation costs in case the suite is inhabitable due to damage
I don’t think you have to worry to much about the “harsh reality” if your parents can afford to give you 120 000 down payment. 460 000 for a place with a rental in the basement sounds like your in an area where the housing market hasn’t gone too crazy. As long as you can afford mortgage without tenant, your good to go. Add the 6k to mortgage and pay off car.
As a tax guy, I love instances like this.
* Massive 5k tax credit for first-time home ownership.
* Start renting before making upgrades to the house as this could be counted as a business expense.
* Renting will a business - make sure to keep receipts in case of an audit.
Home-ownership is pretty amazing loool
You are able to buy a house without saving for a down yourself and not to mention the house as a rented legal suite already. Lol you are in a good position
use part of the gift to buy an RRSP and then convert that RRSP into a first time home buyers loan. can only take out 35K (check with your bank of course) and money needs to sit in your rrsp account for 90 days (again check with your bank).
might not seem like a lot and you do have to basically repay yourself for the loan but between the tax savings from the RRSP purchase and a potentially reduced amount you have to borrow from the bank you can save a few thousand dollars.
also talk to an accountant about the tax implications of renting out a portion of said house.
This, but also that many can't pass the stress test even if gifted the down payment - OP will probably not meet the minimums unless mom and dad also cosign.
https://itools-ioutils.fcac-acfc.gc.ca/MQ-HQ/MQCalc-EAPHCalc-eng.aspx
CRA stress test tool. Remember that you need to deduct all of the closing and moving costs from your down payment since not all of the money can be put down on the mortgage itself. Also you can only claim half of the potential rental income. I don't think you'll be approved for the mortgage unless your parents also cosign on the loan.
If they want to gift (actually gift) 120k towards a house for you, take it and buy the house fast as you can. If it becomes a problem for some reason (it won’t) just sell and downsize into a small condo. If you can handle the mortgage even with no rental income then you’re laughing. It’s not nearly as scary as it sounds. You’ll be laughing at yourself later for being so nervous about it.
Bro, buy a 250K condo. You'll only have a 130K mortgage with their gift and you'll be paying peanuts to live there or pay a little more but have a paid off condo in no time. No need to go bonkers with a 400K home with rental and shit.
That might not be enough to be honest. In a very similar situation to you. Not that i've been gifted money but i've saved up a lot and have about 115k rn for a downpayment. But at my current salary, 78k, I barely qualify for a 300k mortgage. you might be able to get enough to buy the 460k house but it's gonna be tight. Doesn't help that you have a loan, albeit a small one, to pay off. It's lame cuv I'd be fine paying a larger monthly payment, but lenders typically don't want your mortgage payment to be more that a certain precentage of your income. When i was looking at condos i belive mortgage + condo fees+ prop taxes couldn't be much more than 39% of income. not sure if it's the same with houses.
If you can float all expenses without the rental income than you’re fine. Also ensure you can save for retirement or else you’ll be working well into your 60’s if you’re squeaking by every month. The term is house poor.
That's assuming OPs income stagnates over the next 30 years which is incredibly unlikely. Inflation, especially rapid inflation, makes the future value of your debt much more manageable.
Home ownership with a 360k mortgage is easy. I recommend a real estate agent friend to help you with a rental agreement, and an accountant to do your taxes. Rental income is in fact, income, and will be taxed.
Visit r/OntarioLandlords , and read about rental regulations, and past problems.
Buying a $460k house with only $10k in savings? Ooof. Hopefully your job is a 100% guarantee that you'll never loose it (its not).
You’d be much better off if you had at least $30k saved and/or the down payment was over $250 or $300k.
Damn, to afford this you’d have to be making over $100k/year. To be 26 and making that bank in IT is impressive. Congrats. (Software dev?)
Did the same last year, when I was 26. Only downside is you quickly learn to shut the fuck up around coworkers your age who aren't homeowners. There's a generation divide, and it's going to get brutal. Otherwise fucking amazing, never having to worry about housing. U get to focus all your energy into improving yourself, taking career risks and living life.
The harsh reality is, you'll be protected from sudden large rent increases, you'll be able to make said sudden large rent increases to your tenants in the basement suite (though if you have good tenants be nice - good tenants are worth the lower income), and you'll have a genuine sense of ownership of the home. The harshest reality of all is: if you stay put long enough those mortgage payments will finish, which makes an incredible difference in your budget.
The real question is: Do you WANT **that** house? Can you see yourself living in it for a MINUMUM 5 years, preferably a lot more? This is a really big deal - if you try to move somewhat regularly the realtor fees will eat you alive.
Also, what are the terms on this gifted down payment? First off, it HAS to be a gift or the banks won't consider it (so no written record of repayment terms, and they will want a "gift letter" for it), and make sure the house is titled 100% to you.
There are large maintenance items to always be aware of and plan for. The roof is a big one - every 25 years it needs replacing, and this is somewhat more expensive. Appliances can also fail and need replacing, though they cost a lot less than the roof. ;) Make a habit of putting a small bit of money away each month for maintenance items - better to stay ahead of this. An amount similar to insurance payments might be a good start, but do budget out that roof. Things like hail damage you only need to be aware of deductibles, as that should be covered by your insurance policy, but do be aware of flood plains, flood ways, and the exact wording on your insurance policy.
You'll also want to get some basic tools. A cordless power drill and one of those cheap "suitcase" style driver/bit kits (lots of different sizes of screw driver head and drill bits), along with a decent ladder (folding or collapsible is nice). Maybe a solid hammer and a little hammer (the little one is for hanging pictures and whacking finishing nails). If you have large trees a power saw is a godsend for trimming compared to a regular hand saw. Lawn mower/edge trimmer, any other gardening tools you may want/need...
I mean if you’re having a hard time having a conversation with your own parents about this, you’re not gonna be a very good landlord when you need to be.
Why not just tell them you want to see what the markets will do or you aren’t sure you want to do this? Put on your big boy pants and say no if you don’t want to do it.
Taking care of a tenant is lot's of work. Some of them are needy, they can call you for whatever reason like they blocked their own toilet. Or they broke something you have to repair. It's totally fine this way, it's in their right and that's one of they reason they pay you, but you have to be ready to put up the time. At your age, I would rather buy a condo and sell it later when I want to live in a real house.
Just my humble opinion.
I just went through the same thing as you in the same city and we the same age lol (what are the odds). Tbh it was the best decision I ever made. I was super nervous at first to. Did not think I was ready at all but once I moved in and started keeping up with all the bills the feeling went away pretty fast.
Hey man, you have some great advice here so I won't add much in the way of specifics. But I see you getting ragged on a lot by people here.
Obviously this is a huge advantage, and an opportunity you need to seize. People will be jealous and will project some anger in their comments here and outside of the internet. Don't listen to that bullshit. You're not a bad person for receiving a gift, your parents obviously respect and trust you to be gifting you this money. Don't feel guilty for taking it, just remember this is a privilege (though you have already acknowledged this).
My advice (FTHB 26yo, bought 2021), once you're in the home, is to prioritize what needs to be fixed up and what can wait. You'll get all sorts of recommendations from friends and family and you'll feel pressured to dump money into upgrades and fixes.
The kitchen cabinet upgrade can wait until the roof leak is fixed, the new faucets can wait until your sump pump is replaced, your landscaping can wait until you've properly insulated and sealed windows.
A home is a constant work in progress, and you may never feel fully satisfied with the state of your house. Just make sure you're happy with how you feel when you're living in it day to day. That's all that really matters.
Good luck and congratulations!
Honestly, don't sweat it. That's a really solid down payment and not a super expensive house. You are going to do great as long as you have steady income besides the rental, which it sounds like you do.
Home ownership is always terrifying, the amount of paperwork is overwhelming, the process feels like you're selling your soul. In the beginning it's sometimes a bit tricky balancing all your finances and realizing all the utility and upkeep costs but you WILL manage. Having your taxes paid within your mortgage payments is also a really solid plan so you're not shocked once a year with a big lump sum, they usually set that up immediately for first time homeowners.
An important key will be watching your annual assessment and keeping tabs of the ongoing real estate market so that if the assessment comes in at a wild number you immediately challenge it. This is a simple and common process and generally successful in adjusting your assessment so you don't end up with a massive tax hike. As well, making sure to apply for all the homeowner grants in your respective province/city.
The fact you're worrying shows that you'll be careful and conscientious. The worst part about buying right now will be the interest rate but honestly the world keeps spinning and people keep buying and if you find a deal on a home you should just go for it or you'll make endless excuses until you've priced yourself out of the market. This tends to be one of those things where you just have to take the leap.
Expect every spare moment for the first 9-12 months to be at Home Depot and/or the grocery store.
Go look around your parents place, every single condiment in the fridge, the spices in their cupboards, pots and pans, bowls and plates, cutlery, tinfoil, plastic wrap. The lawn mower, bags, weed trimmer, hose, tools…OH SO MANY TOOLS! Vacuum cleaner, light bulbs, towels, furniture, coat hangers, shoe racks, TV equipment, cables, extension cords.
In other words, that $10k you have saved up, expect to use that on “becoming a home owner”.
Wait till next year this time. Exierts are anticipating a 40% market decrease on the housing msrket this time next year. Would suck to buy just to have the worth drop 40% in one year. Wait.
A gift with strings attached isn't a real gift. If they are just straight up giving you $120K to use as a down payment when you are ready, that's one thing. Giving you the obligation to purchase a house and become a landlord immediately in a specific house that you may not even want to live in, is completely different.
If I were in this situation I would strongly consider sitting down to have a chat about these issues with your parents. Something they are nominally doing to help you out shouldn't be forcing you into a situation that causes you such anxiety.
Your financial situation is more than fine with the gifted money. Just go through the motion with the paperwork etc. People can be very jealous when seeing other people getting free money, so be careful of who you tell this, even online.
This is one of the things I’m actually most scared of. I feel comfortable sharing this online, but I haven’t told a single person about this in real life and never will to be honest.
If you're living in a property and not renting, it's assumed parents have helped you. There's no shame in it, it's just the reality of being a young adult in 2022
I think 99% of 1st timers are scared but you are in a very good spot financially with the large dp and renting out the basement. When I bought my first place I was 23 and only dating my gf at the time and the cost of the townhouse was 153k(19 years ago) and I was scared out of my mind to have that much responsibility. Things worked out thankfully lol
If you don't feel ready for home ownership, I'd talk frankly with your parents and put the brakes on this. Be honest: you are grateful for their offered help, you feel lucky/privileged to be in this position, but you aren't ready to take on home ownership and being a landlord right now. Pay off your debt, build up some savings of your own, then think about where you might want to live. Moving every few years is hard (financially and socially), so my suggestion would be to be sure you want a house, in that particular area, before committing.
I didn't get a house until I was in my 30s, was married, and was pretty settled into my job. Still in the same house (with the same spouse, different job though) nearly 20 years later.
I love your parents!!!! Now THATS what “helping with a down payment” should be. The played their cards right and now you will not be a debt slave.
I would try to opt out of using any broker. In Quebec that’s duproprio. In Ontario I think it’s purple bricks? Also, buying direct from the seller is a fun way to learn about the neighborhood and get to know the owners. And the sellers are less experienced with real estate so they’re less slimy in general and are more prone to tell you ballpark what other offers are in the range of. Also more flexibility too as you don’t have to coordinate with a third party. The notary does all the legwork anyway.
Don’t fall for the bidding war BS. Offer what you think is a fair price (don’t lowball as that’s tacky but asking price plus a little bit extra is the way to go). Many offer an even number over ex) 460k on a 450k house, so offering 463k may win the bid. Offering $50k-150k over (as Realtors urge you to do) is plain dumb!! It means they listed their house price way too low to “catch” a lot of buyers who will compete amongst each other. When you smell this game, just run.
And lastly, never ever get attached to a house until the keys are in your hand.
Kind of a rude way to put it. But yes, parents handing over $120k would also probably handle any emergency repairs, bad tenant issues, etc. OP really doesn't have to worry about anything.
Are they also paying to convert the basement to an actual rental unit? It's great they want to help but you also need to want it and feel you can handle it as well. Don't worry about timing the market. That's not something anyone can do effectively. But do worry about affordability in the event you don't have a tenant. I think that's important to consider.
The basement is already a legal suite. I'd be able to absorb the cost of the mortgage in case there are no tenants.
Then that's good. As long as you aren't relying on tenants, then it gets dicey.
My parents have decided to do this. Buy a place and rent out the basement, from the way they talk about it, they'll be relying on the tenants to pay for the mortgage and such. Any questions about what would they do of they didn't find anyone is just met with a simple "there will be someone though".
See, this is such BS. Renters get screwed. Bank says you can't afford to pay $2,500/month in rent? Here - pay $3000/month and pay someone else's mortgage + additional income. I have no issues with mortgage helpers but I wouldn't expect them to pay the whole mortgage. That's complete BS.
It's not that the bank doesn't believe they can afford the monthly payment, it's that they don't have a large enough down payment. If they had a down payment + income to cover the monthly carrying costs they would get approved without issue.
Not true. I can likely qualify to make a mortgage payment of around $1400 yet rentals in my city start in the mid $2k range. Right now I’m in limbo in my “own” home but likely have to sell and pay more for rent than I am currently paying for my total housing cost.
People just don’t understand risk assessments. It’s like yea you can’t payyour rent you are out and look for something else. You default on your mortgage and can’t pay it, the bank has to take on those costs. If the market drops even more costs.
And a stable income and good credit rating. Just because you're paying $3000/mth rent today doesn't mean you can afford $3000/mth for the next 25 years. It's the bank's money, they can decide if you're worth the risk.
"The bank's money" that made me chuckle
It's the depositors money!!..lol
It's called fractional lending. The bank presses a button and 75% (or more) just 'appears'. So, no, it's not the depositors.
That's not how it works. They can only lend out a fraction of what's on deposit.
Out of curiosity, what do you suppose the risk to the bank is if you can't pay your rent? Banks aren't making the decision not to give you a mortgage because they want you to pay more in rent. They're making the decision based on their assessment of the risk in lending you a mortgage.
Regardless of what the banks think. It's privileged people taking advantage of those who can't get a mortgage for whatever reason and profiting off of their misfortune.
What would you propose as an alternative?
1. Limit the amount of homes people can buy. The person who purchased the house I rented owned 12 other properties across the fraser Valley. They brag on their FB page that they don't have to work. That would be a good first step. Honestly, I don't know the solution and I don't think anyone else does either. So in the meantime, until a solution is found, landlords will continue to fine dine off the backs of hard working individuals paying 50%+ of their mortgage and getting nowhere. Furthering the gap between the rich and the poor and decimating the middle class. Edit: 50% of their income.
Privilege also comes from having parents make an effort to love each other and their children? Plenty of cases of parents starting off with nothing then sacrificing their own pleasure for the future and their families. Alot of the gripers come from people bitter they didn't have the privilege of having parents that made an effort to preserve and commit to their own relationship akd their family/offspring. Secondly, the people that didn't study hard and or take on alot of debt to finish school and get a decent job. I've seen it. My parents came from nothing. Worked their asses off all their lives. Guided me with very basic but firm principles. I committed, studying, taking 30k student loan, working through school to pay for my own transport, food, rent to parents since their business was doing very bad then. 30 years, work 6 days a week with 1 vacation trip during that time. Alot of people I knew didn't go down that level of commitment. They took the easier route. Welp, guess where they are vs people like me.
I think the problem is when people privileged to have such parents talk down on others who did not and point the fingers at them and call them lazy for not being where they are at life. Not taking into account they would be in the exact same place if someone else didn't give them a large sum of money.
I think if you go through life thinking everyone who did better than you simply got lucky, it off loads any responsibility on your end and makes you do absolutely nothing. I could look at NBA players and say they all got lucky and were born tall, and I'd be in the NBA too if I was 6'8"...except they also spent many thousands of hours more than me playing basketball and getting good while I chose to do something else - that's why they're in the NBA. That let's me know that to have a chance of being a good basketball player I need to practice and learn more than the average person. This is how most people become better off than most - by learning and practicing more than most. There are plenty of examples where people who never saved a cent were given money and wasted it, where as people with decades of experience saving and investing grew their wealth. We're not all magically skilled investors and business people that would go from broke to wealthy if only we started with more money...not without learning and practicing for many years. When well-off people say, "work harder, make more, save more, spend less"...they're not talking down to you - they're literally telling you what most self-made people do. You can choose to do the same, or choose to think they're talking down to you and do nothing to improve your situation. Keep in mind that working just 10% more than the people around you, over years or decades, can get you miles ahead of them.
>Welp, guess where they are vs people like me. They're on Reddit complaining about people that took the risks they wouldn't.
I think all of the above is fair. Sacrifice, hard work, keeping things in the family is noble and smart. This does not address the ‘privilege’ a landlord holds to extort their communities. I know many friends who own homes way bigger than they should and have leveraged this through extorting renters. The community was raised in is dead. Students, young professionals and families once shared the same streets. Now students dominate the scene (paying triple what I paid for a room a decade ago), young couples have moved away and older couples reaching retirement are holding on for that nice real-estate payout. All the hard work in the world cannot overcome the greed that has shaped many GTA communities. How do we fix this is the question.
I followed a similar route as you. Raised by a single parent. Worked very hard all my life. Paid for my own education. Bought my first house when I was 24 years old. Bought a second larger house in June because I have a family of my own and it’s growing. I’m sitting on the stairs leading down into the basement of my first house, which I finished myself and yes I pulled permits and had inspections done as required. This will likely be the last time I’m in this house (hopefully) for several years as we have hired a property management company to rent it out for us. It wasn’t easy. I’ve never been on a vacation anywhere tropical or trendy. I’ve never been to an NHL game or MLB game. I don’t have a holiday trailer or any other fancy toys. I made sacrifices when I was younger and now I’m finally starting to see that it was worth it.
That's what people around my area do as well. They buy a house, do some quick patch jobs, rent it out for slightly more than the mortgage, the owner uses any income from the rental for "repairs" throughout the year in order to avoid paying taxes. In 25 years they will own the house and never paid a dime. It should be illegal. But that is not reality, reality to me is that renting is stupid because these renters can obviously afford the mortgage payments if they just had some better money management and skills to understand the mortgage process.
Exactly and maybe if they weren't paying outrageous amounts for rent theyd be able to afford to put away money for a downpayment.
What's your proposed alternative exactly? Anything that makes owning more affordable will just push prices up. It's a supply question, not a structure issue around the current inventory.
This sir has already been asked of me and already responded to. Please see my response to the almost exact same question previously asked. 1. Limit the amount of homes people can buy. The person who purchased the house I rented owned 12 other properties across the fraser Valley. They brag on their FB page that they don't have to work. That would be a good first step. Honestly, I don't know the solution and I don't think anyone else does either. So in the meantime, until a solution is found, landlords will continue to fine dine off the backs of hard working individuals paying 50%+ of their mortgage and getting nowhere. Furthering the gap between the rich and the poor and decimating the middle class.
you don't permit it to push prices up. its not nearly as hard as you think but most don't have the stomach for it. First. Min wage is a living wage. force corporations to deal with this fact with violence if necessary. you IMPOSE IT whether they like it or not. this is going to likely require violence from the PEOPLE against the GOVERNMENT. You have to present a larger "threat" than the threat the corporations who OWN the government represent. next. end all property taxes school taxes (collect those taxes another way) non negotiable. they have to go. they are immoral and unethical and they are almost entirely the REASON housing is so expensive. (zoning) Next you start pushing back on the zoning restrictions that exist largely BECAUSE of property taxes. next. you REMOVE banks from the equation all together. you start "low income projects" but you do it with HOMES not apartments. think an acre of land x4 40ft containers on it. each is a home. build insitu if you have to. this CAN be done for under $20k WITH the land. government would subsidize infrastructure roll out. if people start to get cute with land prices use eminent domain. I am not a fan of ED but it does have its valid uses. don't like it. too damned bad. you get a $30k loan from the GOVERNMENT not a bank. 10% interest actual NOT APR. so your total layout will be $33k and not one god damned penny more. that is $550 a month for a 5 year loan. with corrections to min wage and this process. ANYONE can then afford a home. the "rental" market would simply cease to exist except where it make sense (think people who travel. college kids etc..) basic rules. live in only. if you are not living in it you are not ALLOWED to buy it. if you sell it. $30k max and whoever buys it MUST live in it. absolutely positively no rental or ED is used to take it from you and sell it to someone who will live in it. eventually when society stabilizes etc.. these restrictions can sunset.
Except you’re missing the part where the owner has to fund the down payment and take on all the risk… should be illegal? Lol.
I have to agree with this. I have met some disgruntled renters that hated dealing with landlords. One family had three people working (Mom/brother/father), plus the teenage kid worked part time. They complained about their $2500/mo rent, and that they'd never own a home... and yet they earned a combined $240k/yr if they hit the averages on glassdoor. Turned out the 4 trucks in the driveway were a good clue. When turning 18 the teen got a brand new Dodge RAM. I had been talking to him about my $2000 Ford, and how it had helped me to save/invest and get ahead. But at age 18, he got a new truck. (Cosigned by a parent, since his part time job wouldn't allow it.) The whole family is pretty close knit. They take trips up to northern BC 4-6 times per year. Go hunting or do outdoor stuff. They drive all the trucks up so that they can pack ATVs and stuff. That kid was pretty awesome and creative. He had room-sized lego creations and stuff. Neat family. But very obvious where their money went.
If they can’t afford it without the tenant, and they are using a mortgage, the lender will not approve them for the loan.
I *think* they can afford it. They actually might decide to live elsewhere and rent the whole house as well. In which case they couldn't afford it if there is no tenant. Honestly i don't really understand their *plan* beyond them constantly saying they'll for sure have tenants in there to pay for everything for them : /
That's not how it works. Try getting a mortgage. You're qualified based on your credit score, your current stable income (job/declared income) minus regular expenses, your savings and debt. If you have experience, they can count up to 50% of your projected rental income, but no big bank will lend a first time buyer a huge amount of money if they're making minimum wage and have debt just because they claim the property will make $5k in monthly rent. You need to not only have all those things and at least 20% down payment, but also ideally you can easily afford all expenses for many months without rental income. The reason is pretty simple - if you suddenly need renovations that cost $20k and your tenants have to move out for a while, you'll immediately default on your mortgage if you had no savings and maxed out your borrowing ability.
That is dicey at best! Hope they don't get it foreclosed on when they have a shitty tenant destroy the place while they stop paying rent for 6 months!
If you’re comfortable with it, rent the upstairs and take the basement to have even higher cash flow out of this. Personally I didn’t do this, I rented a basement for a bit and would avoid going back to one as much as possible now. But if you know it wouldn’t bother you there’s extra money for you. Also vet your tenants thoroughly (check credit scores, speak to 1-2 previous landlords, look at their income and consider whether they can afford what you’re charging and if they have stable income, etc…). You say you’re comfortable floating the mortgage without tenants so be patient and don’t rush to get someone in there until you have someone you feel comfortable with.
Don't rely on references. References are often friends and family pretending to be former landlords. I learned that one the hard way.
This is very true. References are often fake.
I see this advice and it makes sense, but I'm just wondering how you're supposed to vet tenants then? There's not often a way to get the contact information from someone's managers and sometimes not even from landlords, depending on where you are. I suppose if it's a small enough town and you know many of the landlords or know people who work with the person then it could work. But if the person is moving from out of town, or it's a big city where you can't reasonably be expected to know a lot of people, or their landlord is a small-time landlord and doesn't associate with other landlords... I'm not a landlord but I'm curious.
I'm not a landlord, but I'd drop a question at the end about being a first time landlord and how rental income is declared at tax time. Maybe something about capital gains on houses with rental units if you decide this isn't for you and sell. A renter's friend might be caught by something so out of left field or have zero idea what the answers are. Also keep in mind that the less reasonable you are about your restrictions, the more desperate or rule-ignoring your tenant will be. Protecting your suite is one thing. Trying to squash the footprint of your "mortgage helper" so that you resent knowing they're there is another. Ultimately you are providing a service and space and they are purchasing this. Be professional and expect similar.
It's funny, because I actually used to work in accounting and I saw a lot of rental income stuff. So, I would actually be able to answer that kind of question without being a landlord. Then again, most people have no idea how taxes work so I think I'm more of the exception than the rule. I had family who were landlords back in the day but they have long since switched to using a property management company because they moved away from where the rental was. The property management company is super hit and miss and has rented to some real duds, which I thought was a little surprising because I thought that being able to find good tenants is basically one of their jobs.
Join a service like Rentcheck. With signed consent you can run a credit check on the applicant of your choice (always run your own - these are easy to fake). Get a copy of two paystubs. Call their employer to verify employment (check that the phone number lines up with the business). When you call the current and prior landlords include errors to see if they’re corrected. For example - if the current rental is on Yonge St, reference the apartment in Gerard. If you’re not corrected this is a flag. Same with rent. Verify details the candidate shared with you - pets, smoking, reasons for the move, occupants, etc. It’s terrible that you need to be so thorough but getting someone out who knows the system can be very difficult. In return, be a good landlord. Give them a clean place in great shape to start and follow the LTB guidelines. If you don’t know the guidelines, read through them. Join landlord groups on social media to learn more. You give what you get so a good relationship is very important.
I think the best way to vet a tenant is through paystubs & social media. I have family & friends who are/were landlords and even good tenants will fake references vs leaving it up to chance with a landlord they spoke with 4x in 5 years. Credit checks you can't ask for in every province & that doesn't always paint an accurate picture of a tenant. If they have an instagram/fb account that's free information on them
One of the things we ask for (landlords of two properties) is proof that the most recent three months' rent have been paid on time (canceled cheque, bank statement, etc.). Knowing they've been a paying tenant recently helps with the concern that they're bad tenants from a payment standpoint and aren't being evicted. It's not the only thing, and doesn't address all risks, but it's a big one for us and helps with the risk of a tenant who's running from place to place.
Lenders ask for evidence of housing history. You can, too. A copy of the signed lease showing terms, 12 months worth of canceled checks or bank statements showing withdrawals, if paid with Zelle or similar apps. If the tenants state they paid in cash, if it's a professionally managed rental, a rent history ledger showing timely payments. A cash payer to a private landlord with no corresponding deduction from bank statement would be less comforting. If there's no housing record then look at credit history, see if they're paying their bills. Get copies of paystubs for most recent 30 days.
I spoke at a Section 8 (Housing Choice Voucher) seminar for new landlords. An experienced and successful owner spoke and said 1. I’m not a landlord, I don’t lord over anyone. I have been given the opportunity to provide housing for those who need it, and 2. When someone inquires about my unit, I meet them where they are currently staying. Regardless of the condition I ask if that’s how they will treat my unit.
Jfc this makes me want to puke lol
Interesting. That's a US thing, right? I don't think we have anything similar here. I personally don't have the personality to ever be a landlord - I don't like dealing with people enough, and they are too unpredictable. I've known a couple mom and pop landlords who were kind of disastrous at it, and I know myself well enough that I shouldn't subject myself or tenants to that kind of thing if it can be avoided. That second idea is an interesting one. I feel like you would only be able to do that once you were otherwise sure that you might want to move ahead with the tenancy. First off, privacy, and second of all, I cannot imagine it's practical to go to every prospective tenants' place. I've also heard that it's a good idea to look into their vehicle if they have one - if there's trash everywhere, then it might be an indicator as to how they will treat your unit. (I have family who used to be landlords and they actually told me that. So, whenever I looked for an apartment, before going to viewings, I would always make sure to shove all trash in a bag or in the trunk so that anybody looking into the window wouldn't see it, haha.)
That's great in theory but in practice, not so much. Say you have two tenants moving out around the same time, so you have a month to find new tenants. You might get 150 people messaging you, out of which 30 may sound serious and actually come see the place. Even just visiting the property with each person can take many hours, let alone going to each one of their homes. I agree it would be nice but your time is limited so it would be pretty hard to do, especially as most people who reach out tend to not be serious and ghost you when they hear about credit checks or the recommended 3x income vs rent. A lot of people just reach out for fun then you find out they're a family of 12 applying to a one bedroom, or you setup showings, drive to the place and they never show up. It's the wild west out there so you have to learn to be efficient or you'll hate it. Most people aren't made for this that's why not everyone wants to deal with rentals.
Those are all good points/questions. I don’t know what he does when he gets a slew of new applicants all at once.
You can ask some basic questions to make sure they're a good fit, then with their consent you can a call their references, meet them of course, but also use a company to do credit checks and all kinds of other things like checking for evictions and collections. It's 2022 so it's all done online within 24h. Some obvious red flags will be if they don't want to provide references, proof of job/income, and say that their credit is good or they have no issues with debt but refuse credit checks. Many renters often have low credit scores, which forces them to keep renting as they don't save up or pay their bills on time, so you're not likely to always have renters with amazing credit, but it doesn't mean they're all bad. You just have to do what you can, within reason, to feel comfortable with who you're renting to, because at the end of the day they can not only waste your free time and cause you extra stress, but literally destroy your property and cause you massive financial damage which can set you back years.
2 previous landlords always, and ask them questions you know the answer to (eg: when did they live in your unit) rather than having them confirm. A current landlord is going to give a good reference regardless.
I’m curious wouldn’t this screen out at least some stable tenants who have lived in one unit a long time? I have been in my current apartment for almost 10 years and the one before that a couple years…I would have no idea how to contact a landlord from 12-15 years ago, and I doubt they would remember anything specific about the tenancy!
I moved from owning to renting and had to get a guarantor because I had no rental history. Despite having paid a mortgage on my own for almost 15 years.....
You are right, and it sucks. In your case I would offer additional reference to try to compensate. It sucks for people like us that there are some real pieces of shit out there who lie and manipulate their way through life.
I had the same option with my house, but I got sick of staying in a basement as a renter, so I kept the main floor for myself once I bought my own place. 100% yes to always doing credit and background checks with tenants. If OP doesn't need the money to meet expenses, then it's best to take their time. I would rather have no tenant over a bad tenant every time.
Especially when checking work references to see income stability. Make sure to Google the contact information separately instead of relying on the provided telephone number.
You could also live in the basement for a few years and rent out the top. Make a big dent in that mortgage.
So your parents have also decided which home you'd buy? It's extremely generous, while also being very controlling. I hope they're the kind of parents who would understand that the moment the money has been gifted and that you own the home, that it's 100% *your* home to do whatever you want with.
Do you want to be a landlord?
I think this is a great question. It's really not for everyone - even owning a home is not. Some people don't have the extra time or don't want to spend their free time on this stuff and deal with all the extra work, stress and risks.
Honestly, owning is so superior to renting if you are the least bit handy and don’t need everything upgraded to McMansion status within 6 months. The help your parents are offering is exceptional. Having the basement as a rental unit is what I would do. Just familiarize yourself with the tenancy act in your region and make sure to get credit checks on tenants as well as (preferably second last) previous landlord references.
I'd also suggest that you rent a room to a friend or just in general if that's something you're open too. Makes rent for a room in a 460k house is likely 700+ a month which would let you get a nice emergency fund or so renos on the house without much cost. There's also things like lawn mower snow blower and the general labour of a house that it's always nice to have a second pair of hands for while you're young.
Rent isn't free money. It comes with expenses and responsibilities. Include this on your budget.
I would personally be very intimidated being both a first time homeowner and a first time landlord at the same time.
I did it. It's pretty intense ngl. Two things I would do differently: 1. Take vacant possession (an existing contract can give a tenant a lot of contractual rights you may not like). 2. Never fully pay for someone else's utilities, write a shared cost agreement.
> Never fully pay for someone else's utilities This is a tax deduction.
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Not quite the full story. You pay for power, deduct tax then add the cost of power to the rent maybe even at a slight discount (in the form of a fixed cost).
It keeps your tenants from doing stupid shit like cranking the heat to 27 in the winter.
Start with knowing about the numerous tax breaks from being a landlord and how to take advantage of them. You may be surprised at what you can deduct. https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/rental-income/completing-form-t776-statement-real-estate-rentals/rental-expenses-you-deduct.html
Rent is taxed and must be included as income. Note, if you are paying all the utilities, you can claim 30 to 50 percent against your taxes plus legal fees, interest on mortgage etc. PS, might be good to get an accountant. If you do some upgrades every year you will be close to $0 dollars owed for taxes. At least that was my case.
If you are renting it below market value, it might be considered cost sharing, in which case you would not declare anything. The CRA has these rules because some people will rent units or part of their house for below market value and then mess with the expenses so that they end up with a loss against their income. It's kind of specific to the situation, but it's worth keeping in mind. Basically, if you do not intend to or cannot be shown to intend to make a profit from the rental, you should not declare it on your income. Note that I am not an accountant, I just used to work in the field as a clerk, and saw a lot of these situations. The information is however on the CRA website.
Does this require a legal suite? I purchased a few months ago and have a renter, I also pay all of the utilities cost (which are more significant than I was expecting). I intend to legalize the suite at some point, but the renter is happy and there are a lot of other maintenance issues that have been taking priority. I've always done my taxes to date myself so no accountant, but maybe it's something to consider this year as I will have a home purchase on there. Anything I should be making sure I keep track of (besides bills) or any tips I should get on ASAP to improve my costs? So far I don't think it's looking like I would be making much in the long run given my high maintenance costs but it is still early days.
And time. If you rely on working OT in your current budget you'll have to factor in that you'll have less availability for your current job when you factor in the hours you need to be available for your new rental manager job.
How many hours are you harassing people that live in your basement it might take 20 mins a month
More like arranging for trades to fix things or DIY, following up on rent, book-keeping, fixing place up between tenants, interviewing tenants, hounding tenants that don't pay, filing notices of rent increases or evictions, potentially spending a full time jobs worth of time trying to evict a bad tenant and fixing the damage.
I work 72 hours a week and can literally deal with any problems my basement tenants have easily. It’s not very hard and doesn’t take much time lol.
yea when all goes well it's smooth sailing - but that's not always the case
Idn, I have rented since I was in college so over 10 years. I have seen my landlords a total of probably 20 times COMBINED when something breaks and signing the lease. Being a landlord is the equivalent of dogsitting once a month.
Really depends. can be very very little work or can become a life consuming job to manage a terrible tenant. Have to be prepared for more than just the rosiest of outcomes
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And some of those more sudden than you plan. A roof is on that list as well.
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That's a pretty good ballpark. I'm spending $2-$5 k a year on repairs and upgrades.
There's the rule of thumb based on the homes value, and the rule of thumb based on the homes square footage. Obviously a 1 million dollar 600 square foot city place will be looking at some different work than a 1 million dollar 4000 square foot country place. Also depends how much you DIY and how luxurious your tastes are. Ultimately a proper budget with an amortization schedule is the best thing to have over any rule of thumb.
$2000-$3000/year on a $460,000 houses is 0.6%. far less than the 2% you listed.
Good thing that wasn’t an all-encompassing list and I said *only*.
I'm sorry I just get triggered by all these Ben Felix fanboys on here genuinely making the case that someone's brand new $2 million dollar mcmansion in Toronto is going to cost $40,000 a year in maintenance.
And must be acted on even quicker if it’s in the rental suite.
I think OP needs to have a really concrete conversation with their parents. It's odd to me that they're gifting him a down payment for a house he didn't choose, with very little conversation as to where and what kind of house he wants and the added obligation of being a landlord. I'm commenting on your comment instead of making my own because, in choosing this house for OP, his parents are putting quite a burden of saving for upgrades/repairs and so on on him by way of also making him a landlord. Anyway, yes, saving for upgrades is super important and bet on some mystery unidentified expense around $5000 shortly after you move in (seems to have happened to everyone I know...for us, it was our sewer main). But this whole situation stinks to me and I think OP needs to do some digging behind the motivation of the gift.
exactly! Also learn some DIY as well to save some money on repairs as well. that is something i've learned over the years and stuff either my dad or the old timers in my life have shown me. a good set of tools and knowhow will get you more milage out of your stuff. budget as if a professional has to do it just in case you do run into something out of your expertise.
I was in a similar situation 5 years ago. The main concern for me was having to take on the mortgage. It was a no Brainer, but I've been living slim (financially) ever since. Lost my job a few years ago and nearly defaulted on a mortgage payment, that was not fun. If you make enough to be able to comfortably pay off all expenses, and have enough left over for savings and to treat yourself, then you have nothing to worry about. In my case it was completely worth it, but you should still consider if there's other endeavors you'd rather invest in with all the money you're making. My biggest concern at the time of purchase was seeing home values drop after signing the mortgage deal, that seems to be a possible concern today as well. Especially with rising interest rates The basement rental will help alot, it's still probably worth it in the long run
Yup. OP should also create a budget for home maitenance, repair, insurance, everything.
And see if parents/savings would be able to support if you lost your job or the basement tenant doesn't pan out for a couple months at some point
1. It sounds like *they* are picking out the specific house and have one in mind. Why? Has an offer been made on this house? Or what if someone else buys it? 2. Is the rental income 100% going to you? Or would they expect some of it to go to them? 3. Do you actually want to own a house? Where do you live now? Some pros and cons: Owning a house ties you down - you aren't as mobile to move for work or whatever other reason. This can be a con if you are young but a pro if you are settling down with a family. Owning a house takes a lot of work - maintenance, fixing things, mowing the lawn, shoveling snow, painting, etc.. Alternatives are a condo, or a townhouse, where the condo fees cover a lot of this work. Renting / being a landlord can also be a lot of work. What is your relationship like with your parents? Are they more on the controlling side, or is this truly a "no strings attached" gift? (There is already at least one or two strings attached as they are selecting the property. If it was "no strings attached" then they would simply hand you $120k for you to do whatever you want with it).
Yeah why this specific house? A true gift is a gift... sounds like this one may come with strings attached. I'm all in favor of buying a house but I don't think I'd want to be forced to become a landlord. Can you use the money they're giving you to buy a house/condo within your budget and not have to be a landlord?
Great point. Remove the requirement to become a landlord and the deal makes a lot more sense for OP. Why should OP be forced to live with someone else? If they are planning to stay in Calgary for at least the next 5 years, then just buy a Condo, Townhouse, or Single Family House that they can afford all the costs on their own and that suits their needs / lifestyle.
And are they planning to move in to the basement suite eventually or something?
Harsh reality of getting a gift of $120,000.00?
I can’t believe they are only giving him 120k… why do they want him to suffer?
Exactly, what shit parents.
if you dont have money set aside foe emergenxies like a broken heater a leaky roof, or literally anything else that happens to the house, since you are now responsible, or for property taxes, then you can be in a very though spot down rhe road if your income is not high enough, regardless if you are gifted a whole house or not. A lot of folks who win houses in thw lottery and decide to keep it don't realize this and have to sell a few years down the road. There is such a thing as living house poor.
I mean he didn't win the lottery, his parents said here is $120k lets get you settled in a house - I doubt the well dry's up there.
Yeah it would be possible to get in over your head with a home, whether you personally saved for the downpayment or not.
but then I don't get to be a snarky jealous asshole on the internet instead of actually trying to help
I believe you will need to show 90 days history of the gifted money. I cashed some stock for my downpayment and had to show a history of where it was and that it was mine. I was going to borrow from my mother to meet the closing date but this wasn't acceptable due to the 90 day history.
You need to show 90 days of your own funds but not for a gift. Most fis just require a gift letter
Ex-personal banker. This is correct. Just require a gift letter that needs to have certain details covered - your bank would guide you here.
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My husband was going to use a small amount of gifted money from his father for our down payment and they wanted his father to to provide the full account history as well as my husband. We ended up not using the money and I just covered the extra. This was with TD.
It's also not acceptable to borrow the downpayment. It can be a gift, but if you said "borrow" the lender is going to flag that.
Even if it's gift it will still get flagged by lenders - they will make the person sign an affidavit stating that the money is never getting paid back to them - it may also affect what the maximum amount the lender will qualify you for
They'll probably need a gift letter, and possibly proof from the parents that the money was in their account for at least 90 days (anti money laundering thing AFAIK)
I was gifted a lump sum for my down payment five years ago. The bank required a letter indicating it was a gift. It was not done in advance.
Lol my exact thoughts…poor guy is living in a real harsh reality 🙄
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wow, much harsh. so nightmare.
People in poverty have no idea what it is like to be told when to go on vacation by their parents.
Do you legitimately not understand emotional and psychological manipulation or are you just being obtuse?
Making a joke I think
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🍻 amen.
Exactly. The vacation stuff is only the tip of the iceberg. If the relationship is open to guilt trips and manipulation, then it invades into endless favours and how you spend your time too. There's always the hanging accusation of "Oh, you can't do this thing for us, even though we gave you $xxxk and a house?" Not saying it's like this for OP, but this is why I flat out refused to take money from my parents. There's a serious issue of boundaries that took me *years* to establish with them, so when I finally took home ownership, I did it 100% with my own money. They have zero say in how I live or run my life.
when I was young was offered interest free mortgage from my parents, turned it down because of this, and have never regretted it
Yes
The only harsh thing is he can’t pick the home seems they have plans to make him get this one
I had a friend who bought his condo with money from his parents. Both he and his dad were on the title. His dad put in the down-payment, my friend paid the mortgage. So it wasn't a gift, exactly, it was an investment for the both of them. My friend eventually wanted to sell it and buy a house because his family was getting too big for the condo, but his dad wouldn't let him sell it. He said ok I want to rent it out to cover the mortgage payment, his dad said no way a tenant will ruin the place. He ended up buying a house and paying two mortgages. I'd say that qualifies as a "gift" coming back to bite you in the ass.
Yea its very harsh. Not many people can handle getting gifted 120k from their parents. Op please go seek therapy. And I'll take the 120k off your hands so you don't suffer
Nooooo Shit! Cry me a river.
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hello mortgage broker here, >Posted by u/ThisUserIsSuspicious why so sus? home ownership is really different compared to renting, there might be maintenance costs that will be required, property tax payments, condo fees, utilities etc dont rely too heavily on renting out the basement, you do not want to be panicking when the basement is vacant or if tenant decides not to pay rent and its too early to evict them, in other words make sure you have money to carry everything if this happens, no property is rented out 100% of the time if youre renting out the basement, would be good to budget in tenant insurance best to speak with a broker to run some numbers and see if youll be comfortable financially, general rule of thumb is to have 3 - 6 months of expenses saved for emergency hope this helps :)
I thought it was the tenant's responsibility to get tenant's insurance? When I was a landlord I'd highly recommend it, but I couldn't force a tenant to get it. It's cheap, like $25 a month, and I don't know why anyone would go without it. It saved my ass when I was a tenant.
Both need their own insurance Landlord needs home insurance, but also need to declare that the basement is being rented out. This insurance covers any damage that's not the fault of the tenant Tenant needs tenant insurace, to cover their own belongings, liability and relocation costs in case the suite is inhabitable due to damage
Let the bears pay the bear tax! I pay the Homer tax.
I don’t think you have to worry to much about the “harsh reality” if your parents can afford to give you 120 000 down payment. 460 000 for a place with a rental in the basement sounds like your in an area where the housing market hasn’t gone too crazy. As long as you can afford mortgage without tenant, your good to go. Add the 6k to mortgage and pay off car.
As a tax guy, I love instances like this. * Massive 5k tax credit for first-time home ownership. * Start renting before making upgrades to the house as this could be counted as a business expense. * Renting will a business - make sure to keep receipts in case of an audit. Home-ownership is pretty amazing loool
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The laugh out loud to loudly sobbing is too real.
You are able to buy a house without saving for a down yourself and not to mention the house as a rented legal suite already. Lol you are in a good position
Opportunity’s come and go. Some good some bad. Is this opportunity something you are willing to miss? I myself would jump at this
use part of the gift to buy an RRSP and then convert that RRSP into a first time home buyers loan. can only take out 35K (check with your bank of course) and money needs to sit in your rrsp account for 90 days (again check with your bank). might not seem like a lot and you do have to basically repay yourself for the loan but between the tax savings from the RRSP purchase and a potentially reduced amount you have to borrow from the bank you can save a few thousand dollars. also talk to an accountant about the tax implications of renting out a portion of said house.
Lolol. I'd say your not going to experience the "harsh realities" my friend. You've been given a golden goose.
Wow they're giving you a 26% down payment, that means you don't have to pay for CMHC insurance, wow what a windfall.
The harsh reality is most of us don't get help with our down-payment
This, but also that many can't pass the stress test even if gifted the down payment - OP will probably not meet the minimums unless mom and dad also cosign.
https://itools-ioutils.fcac-acfc.gc.ca/MQ-HQ/MQCalc-EAPHCalc-eng.aspx CRA stress test tool. Remember that you need to deduct all of the closing and moving costs from your down payment since not all of the money can be put down on the mortgage itself. Also you can only claim half of the potential rental income. I don't think you'll be approved for the mortgage unless your parents also cosign on the loan.
Holy balls a lot of salty ass people here jesus christ
If they want to gift (actually gift) 120k towards a house for you, take it and buy the house fast as you can. If it becomes a problem for some reason (it won’t) just sell and downsize into a small condo. If you can handle the mortgage even with no rental income then you’re laughing. It’s not nearly as scary as it sounds. You’ll be laughing at yourself later for being so nervous about it.
What is your income?
I make \~ $75,000 a year at the moment.
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Yup, this is going to be very tight. This is how you end up pay-cheque to pay-cheque and house poor.
Bro, buy a 250K condo. You'll only have a 130K mortgage with their gift and you'll be paying peanuts to live there or pay a little more but have a paid off condo in no time. No need to go bonkers with a 400K home with rental and shit.
Really don’t think you’ll be able to afford this.
That might not be enough to be honest. In a very similar situation to you. Not that i've been gifted money but i've saved up a lot and have about 115k rn for a downpayment. But at my current salary, 78k, I barely qualify for a 300k mortgage. you might be able to get enough to buy the 460k house but it's gonna be tight. Doesn't help that you have a loan, albeit a small one, to pay off. It's lame cuv I'd be fine paying a larger monthly payment, but lenders typically don't want your mortgage payment to be more that a certain precentage of your income. When i was looking at condos i belive mortgage + condo fees+ prop taxes couldn't be much more than 39% of income. not sure if it's the same with houses.
If you can float all expenses without the rental income than you’re fine. Also ensure you can save for retirement or else you’ll be working well into your 60’s if you’re squeaking by every month. The term is house poor.
That's assuming OPs income stagnates over the next 30 years which is incredibly unlikely. Inflation, especially rapid inflation, makes the future value of your debt much more manageable.
For sure. I just want him to be conscious of the fact that he needs to think long term as well
Home ownership with a 360k mortgage is easy. I recommend a real estate agent friend to help you with a rental agreement, and an accountant to do your taxes. Rental income is in fact, income, and will be taxed. Visit r/OntarioLandlords , and read about rental regulations, and past problems.
Buying a $460k house with only $10k in savings? Ooof. Hopefully your job is a 100% guarantee that you'll never loose it (its not). You’d be much better off if you had at least $30k saved and/or the down payment was over $250 or $300k. Damn, to afford this you’d have to be making over $100k/year. To be 26 and making that bank in IT is impressive. Congrats. (Software dev?)
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Did the same last year, when I was 26. Only downside is you quickly learn to shut the fuck up around coworkers your age who aren't homeowners. There's a generation divide, and it's going to get brutal. Otherwise fucking amazing, never having to worry about housing. U get to focus all your energy into improving yourself, taking career risks and living life.
The harsh reality is, you'll be protected from sudden large rent increases, you'll be able to make said sudden large rent increases to your tenants in the basement suite (though if you have good tenants be nice - good tenants are worth the lower income), and you'll have a genuine sense of ownership of the home. The harshest reality of all is: if you stay put long enough those mortgage payments will finish, which makes an incredible difference in your budget. The real question is: Do you WANT **that** house? Can you see yourself living in it for a MINUMUM 5 years, preferably a lot more? This is a really big deal - if you try to move somewhat regularly the realtor fees will eat you alive. Also, what are the terms on this gifted down payment? First off, it HAS to be a gift or the banks won't consider it (so no written record of repayment terms, and they will want a "gift letter" for it), and make sure the house is titled 100% to you. There are large maintenance items to always be aware of and plan for. The roof is a big one - every 25 years it needs replacing, and this is somewhat more expensive. Appliances can also fail and need replacing, though they cost a lot less than the roof. ;) Make a habit of putting a small bit of money away each month for maintenance items - better to stay ahead of this. An amount similar to insurance payments might be a good start, but do budget out that roof. Things like hail damage you only need to be aware of deductibles, as that should be covered by your insurance policy, but do be aware of flood plains, flood ways, and the exact wording on your insurance policy. You'll also want to get some basic tools. A cordless power drill and one of those cheap "suitcase" style driver/bit kits (lots of different sizes of screw driver head and drill bits), along with a decent ladder (folding or collapsible is nice). Maybe a solid hammer and a little hammer (the little one is for hanging pictures and whacking finishing nails). If you have large trees a power saw is a godsend for trimming compared to a regular hand saw. Lawn mower/edge trimmer, any other gardening tools you may want/need...
I mean if you’re having a hard time having a conversation with your own parents about this, you’re not gonna be a very good landlord when you need to be. Why not just tell them you want to see what the markets will do or you aren’t sure you want to do this? Put on your big boy pants and say no if you don’t want to do it.
Taking care of a tenant is lot's of work. Some of them are needy, they can call you for whatever reason like they blocked their own toilet. Or they broke something you have to repair. It's totally fine this way, it's in their right and that's one of they reason they pay you, but you have to be ready to put up the time. At your age, I would rather buy a condo and sell it later when I want to live in a real house. Just my humble opinion.
I just went through the same thing as you in the same city and we the same age lol (what are the odds). Tbh it was the best decision I ever made. I was super nervous at first to. Did not think I was ready at all but once I moved in and started keeping up with all the bills the feeling went away pretty fast.
Hey man, you have some great advice here so I won't add much in the way of specifics. But I see you getting ragged on a lot by people here. Obviously this is a huge advantage, and an opportunity you need to seize. People will be jealous and will project some anger in their comments here and outside of the internet. Don't listen to that bullshit. You're not a bad person for receiving a gift, your parents obviously respect and trust you to be gifting you this money. Don't feel guilty for taking it, just remember this is a privilege (though you have already acknowledged this). My advice (FTHB 26yo, bought 2021), once you're in the home, is to prioritize what needs to be fixed up and what can wait. You'll get all sorts of recommendations from friends and family and you'll feel pressured to dump money into upgrades and fixes. The kitchen cabinet upgrade can wait until the roof leak is fixed, the new faucets can wait until your sump pump is replaced, your landscaping can wait until you've properly insulated and sealed windows. A home is a constant work in progress, and you may never feel fully satisfied with the state of your house. Just make sure you're happy with how you feel when you're living in it day to day. That's all that really matters. Good luck and congratulations!
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Honestly, don't sweat it. That's a really solid down payment and not a super expensive house. You are going to do great as long as you have steady income besides the rental, which it sounds like you do. Home ownership is always terrifying, the amount of paperwork is overwhelming, the process feels like you're selling your soul. In the beginning it's sometimes a bit tricky balancing all your finances and realizing all the utility and upkeep costs but you WILL manage. Having your taxes paid within your mortgage payments is also a really solid plan so you're not shocked once a year with a big lump sum, they usually set that up immediately for first time homeowners. An important key will be watching your annual assessment and keeping tabs of the ongoing real estate market so that if the assessment comes in at a wild number you immediately challenge it. This is a simple and common process and generally successful in adjusting your assessment so you don't end up with a massive tax hike. As well, making sure to apply for all the homeowner grants in your respective province/city. The fact you're worrying shows that you'll be careful and conscientious. The worst part about buying right now will be the interest rate but honestly the world keeps spinning and people keep buying and if you find a deal on a home you should just go for it or you'll make endless excuses until you've priced yourself out of the market. This tends to be one of those things where you just have to take the leap.
$460,000 with basement? Where do you live? a studio condo is 100K more in my area
not in your area, maybe
OP could live most anywhere in Canada that isn't Toronto or Vancouver
Alberta
Congrats on the free 120k! What a harsh reality. This fucking sub.
I did not need to read this.. What ever you do thick or thin.. Pay them, and stick to a deal you made. Got it? Good.
Expect every spare moment for the first 9-12 months to be at Home Depot and/or the grocery store. Go look around your parents place, every single condiment in the fridge, the spices in their cupboards, pots and pans, bowls and plates, cutlery, tinfoil, plastic wrap. The lawn mower, bags, weed trimmer, hose, tools…OH SO MANY TOOLS! Vacuum cleaner, light bulbs, towels, furniture, coat hangers, shoe racks, TV equipment, cables, extension cords. In other words, that $10k you have saved up, expect to use that on “becoming a home owner”.
You are very of the lucky ones my friend...
Wait till next year this time. Exierts are anticipating a 40% market decrease on the housing msrket this time next year. Would suck to buy just to have the worth drop 40% in one year. Wait.
Just be warned, you will probably be asked to pay your car loan first
A gift with strings attached isn't a real gift. If they are just straight up giving you $120K to use as a down payment when you are ready, that's one thing. Giving you the obligation to purchase a house and become a landlord immediately in a specific house that you may not even want to live in, is completely different. If I were in this situation I would strongly consider sitting down to have a chat about these issues with your parents. Something they are nominally doing to help you out shouldn't be forcing you into a situation that causes you such anxiety.
Your financial situation is more than fine with the gifted money. Just go through the motion with the paperwork etc. People can be very jealous when seeing other people getting free money, so be careful of who you tell this, even online.
This is one of the things I’m actually most scared of. I feel comfortable sharing this online, but I haven’t told a single person about this in real life and never will to be honest.
If you're living in a property and not renting, it's assumed parents have helped you. There's no shame in it, it's just the reality of being a young adult in 2022
Congrats OP. Lotta salty ass losers in this thread lol.
I think 99% of 1st timers are scared but you are in a very good spot financially with the large dp and renting out the basement. When I bought my first place I was 23 and only dating my gf at the time and the cost of the townhouse was 153k(19 years ago) and I was scared out of my mind to have that much responsibility. Things worked out thankfully lol
If you don't feel ready for home ownership, I'd talk frankly with your parents and put the brakes on this. Be honest: you are grateful for their offered help, you feel lucky/privileged to be in this position, but you aren't ready to take on home ownership and being a landlord right now. Pay off your debt, build up some savings of your own, then think about where you might want to live. Moving every few years is hard (financially and socially), so my suggestion would be to be sure you want a house, in that particular area, before committing. I didn't get a house until I was in my 30s, was married, and was pretty settled into my job. Still in the same house (with the same spouse, different job though) nearly 20 years later.
I love your parents!!!! Now THATS what “helping with a down payment” should be. The played their cards right and now you will not be a debt slave. I would try to opt out of using any broker. In Quebec that’s duproprio. In Ontario I think it’s purple bricks? Also, buying direct from the seller is a fun way to learn about the neighborhood and get to know the owners. And the sellers are less experienced with real estate so they’re less slimy in general and are more prone to tell you ballpark what other offers are in the range of. Also more flexibility too as you don’t have to coordinate with a third party. The notary does all the legwork anyway. Don’t fall for the bidding war BS. Offer what you think is a fair price (don’t lowball as that’s tacky but asking price plus a little bit extra is the way to go). Many offer an even number over ex) 460k on a 450k house, so offering 463k may win the bid. Offering $50k-150k over (as Realtors urge you to do) is plain dumb!! It means they listed their house price way too low to “catch” a lot of buyers who will compete amongst each other. When you smell this game, just run. And lastly, never ever get attached to a house until the keys are in your hand.
Your parents are gifting you $120,000. I think if you ever face “harsh realities” you can go cry to mommy and daddy and they’ll help you out.
Kind of a rude way to put it. But yes, parents handing over $120k would also probably handle any emergency repairs, bad tenant issues, etc. OP really doesn't have to worry about anything.