Real Estate

Buying 2nd property for a child

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  • Dec 8th, 2020 2:38 pm
[OP]
Jr. Member
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Dec 10, 2004
115 posts
58 upvotes

Buying 2nd property for a child

I and wife are thinking about buying a cottage type property. Our son and his girlfriend will be leaving there full time. Our son is self employed with a minimal income at this time (he is in the process of starting his own business). His girlfriend is a well paid professional. Since it’s a relatively new relationship to them, they are not ready to buy the house together. Our current primary residence is fully paid off. We will need to get a mortgage for ~$600K for this purchase. Which scenario would you recommend in terms of protecting our investment and future proofing tax implications:
1. Should we just buy this property ourselves?
2. Co-sign son’s mortgage application (without girlfriend) with 1% ownership attributed to us and 99% to our son?

I’m leaning towards option #1.

Thank you!
21 replies
Deal Guru
Feb 22, 2011
10138 posts
12546 upvotes
Toronto
Buy it yourself and rent it to them. That way the gf can't try to take half if things don't work out. You can have an agreement where it's "theirs" such that if they ever want to sell and upgrade they can. That's what I plan on doing for my kids. I would just charge less for rent, basically what the unrecoverable cost would be.
Deal Guru
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Mar 23, 2008
12078 posts
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Edmonton
ross wrote: I and wife are thinking about buying a cottage type property. Our son and his girlfriend will be leaving there full time. Our son is self employed with a minimal income at this time (he is in the process of starting his own business). His girlfriend is a well paid professional. Since it’s a relatively new relationship to them, they are not ready to buy the house together. Our current primary residence is fully paid off. We will need to get a mortgage for ~$600K for this purchase. Which scenario would you recommend in terms of protecting our investment and future proofing tax implications:
1. Should we just buy this property ourselves?
2. Co-sign son’s mortgage application (without girlfriend) with 1% ownership attributed to us and 99% to our son?

I’m leaning towards option #1.

Thank you!
My advice is to talk to a professional account to get accurate advice your specific situation.

C
Sr. Member
Mar 10, 2004
690 posts
230 upvotes
mazerbeaner wrote: Buy it yourself and rent it to them. That way the gf can't try to take half if things don't work out. You can have an agreement where it's "theirs" such that if they ever want to sell and upgrade they can. That's what I plan on doing for my kids. I would just charge less for rent, basically what the unrecoverable cost would be.
Yup. Do not cosign even if ur son is married. If you cosign you may as well gift the property. Everyone starts with good intentions. Sorry for being such a pessimist but this comes from experience.
Member
Nov 12, 2019
345 posts
541 upvotes
ross wrote: I and wife are thinking about buying a cottage type property. Our son and his girlfriend will be leaving there full time. Our son is self employed with a minimal income at this time (he is in the process of starting his own business). His girlfriend is a well paid professional. Since it’s a relatively new relationship to them, they are not ready to buy the house together. Our current primary residence is fully paid off. We will need to get a mortgage for ~$600K for this purchase. Which scenario would you recommend in terms of protecting our investment and future proofing tax implications:
1. Should we just buy this property ourselves?
2. Co-sign son’s mortgage application (without girlfriend) with 1% ownership attributed to us and 99% to our son?

I’m leaning towards option #1.

Thank you!
Out of curiosity, where are you looking to buy?
[OP]
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Dec 10, 2004
115 posts
58 upvotes
RaC1550 wrote: Out of curiosity, where are you looking to buy?
Not sure yet, but the property has to be 2-3 hours from Toronto, and have some acreage, waterfront is a big plus.
Member
Jul 18, 2020
407 posts
636 upvotes
Get some professional advice, just make sure this Cinderella story that you created for your future daughter in law won't become your family worst nightmare.
Jr. Member
Dec 12, 2011
198 posts
214 upvotes
Toronto
Buy the house yourselves. Let them be your tenants. Make them sign a lease agreement. This is assuming the girlfriend is okay with all of this. We own a rental property which we are keeping for our girls who are still very young. If one of the girls in 20 years decides to move in with her partner, you can bet they will be renting it from me. If my future son in law has a problem with that then they can buy their own house, or pay 2040 toronto market value rent.
Member
Oct 14, 2010
217 posts
130 upvotes
Toronto
clydelee2020 wrote: Buy the house yourselves. Let them be your tenants. Make them sign a lease agreement. This is assuming the girlfriend is okay with all of this. We own a rental property which we are keeping for our girls who are still very young. If one of the girls in 20 years decides to move in with her partner, you can bet they will be renting it from me. If my future son in law has a problem with that then they can buy their own house, or pay 2040 toronto market value rent.
This. We have done something similar where we bought a condo for our son. Although I am not sure we will collect rent from him Thinking Face....
Back on topic - whatever you do make sure the future daughter in law doesn't walk away with half the property one day if the relationship sours one day...
[OP]
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Dec 10, 2004
115 posts
58 upvotes
Thank you everyone for the input.
Sounds like buying it ourselves + renting it to my son + advice from RE lawyer/accountant is the best option here.
Deal Addict
Mar 3, 2018
1970 posts
1967 upvotes
GTA
ross wrote: Thank you everyone for the input.
Sounds like buying it ourselves + renting it to my son + advice from RE lawyer/accountant is the best option here.
Something else to consider is that buying it yourselves creates an income tax problem. As your second property it will be subject to capital gains tax. Whereas if your son owned it and resided there it would be tax exempt.
[OP]
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Dec 10, 2004
115 posts
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DaveTheDude wrote: Something else to consider is that buying it yourselves create an income tax problem. As your second property it will be subject to capital gains tax. Whereas if your son owned it and resided there it would be tax exempt.
Yes, capital tax gains is a concern, but the possibility of losing 50% of the property if the they break up I think is more serious in this situation...
Deal Addict
Mar 3, 2018
1970 posts
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GTA
ross wrote: Yes, capital tax gains is a concern, but the possibility of losing 50% of the property if the they break up I think is more serious in this situation...
You can take back a very large interest free mortgage to cover that. Any breakup means the mortgage gets paid out to you first.
Sr. Member
Mar 10, 2004
690 posts
230 upvotes
DaveTheDude wrote: You can take back a very large interest free mortgage to cover that. Any breakup means the mortgage gets paid out to you first.
This is how it starts. 1st the principal exemption. Then you start making the mortgage payments on your kids behalf. But we all had good intentions right?
Member
Jun 15, 2015
424 posts
457 upvotes
Thornhill, ON
OP, seems you have some doubt whether the relationship will last "forever"... Disappointed But Relieved Face
Jr. Member
Dec 12, 2011
198 posts
214 upvotes
Toronto
DisneyKruze wrote: OP, seems you have some doubt whether the relationship will last "forever"... Disappointed But Relieved Face
This is a very tough situation to be in. I am fortunate that I have atleast 20 years to think about this "problem". As more of us buy or have bought properties for our kids, i am sure problems are to arise and I would love to read about them on this forum so we can make better informed decisions. OP why dont you have a sit down conversation with your son and his girlfriend? Perhaps she would be willing to go (and has the means) 50/50 on a down payment. Any shortfall your son has in covering his portion of the mortgage you can help him out until his business gets off the ground. If things go sour, they can sell the house and split it in half.
Deal Addict
May 9, 2017
1113 posts
1168 upvotes
DaveTheDude wrote: You can take back a very large interest free mortgage to cover that. Any breakup means the mortgage gets paid out to you first.
Yes, I was thinking the same thing. Any thoughts on how to deal with property appreciation? Could you just increase the size of the mortgage?
Deal Addict
Mar 3, 2018
1970 posts
1967 upvotes
GTA
NotRobot wrote: Yes, I was thinking the same thing. Any thoughts on how to deal with property appreciation? Could you just increase the size of the mortgage?
Not sure where the OP is located but in Ontario common-law partners do not have any automatic entitlement to divide assets accumulated during the relationship. You can always draft a cohabitation agreement for greater certainty to protect the accumulated appreciation.
[OP]
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Dec 10, 2004
115 posts
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DaveTheDude wrote: Not sure where the OP is located but in Ontario common-law partners do not have any automatic entitlement to divide assets accumulated during the relationship. You can always draft a cohabitation agreement for greater certainty to protect the accumulated appreciation.
I'm in Ontario. Thank you for advice.
[OP]
Jr. Member
User avatar
Dec 10, 2004
115 posts
58 upvotes
DaveTheDude wrote: You can take back a very large interest free mortgage to cover that. Any breakup means the mortgage gets paid out to you first.
Can you please elaborate on that? What is interest free mortgage?

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