Investing in Your Children While Investing In Real Estate
Sometimes the easiest way to buy a new home is to find somebody willing to buy it for you.
According to a recent survey, one of the hottest new trends in Canadian real estate is parents contemplating the purchase of a condominium for their adult child. A year ago, there were only about 5% of parents thinking about this kind of purchase. Today, that percentage has gone up to around 10%.
There could be a number of different reasons why parents are starting to think along these lines. One of the most obvious reasons might be as a long-term investment opportunity that could eventually provide them with a long-term income source. But for now, they may be content to let their child live in the condominium until they are ready to use it for income generation.
The rising price of condominiums might also be factoring into this thought pattern, since prices are reaching unprecedented levels. Parents might be considering this purchase because they feel that their adult child might find it difficult if not impossible to come up with even the minimum 5% down payment, much less the 20% down payment they would need to avoid the purchase of mortgage default insurance.
The average price during the first quarter of 2010, even for an existing condominium in the city, was $331,000. This equates to a 900 square foot unit, based on the average per square foot price of $369. A new condominium of the same size would sell for around $400,000 at an average price of $443 per square foot.
Add to this the current low interest rates, and the end result may be more parents who are willing to take the plunge and buy their child a home. Because of the stable pricing, condominiums are an especially attractive option.
The lack of maintenance responsibilities for condominiums may also be a factor. Parents no doubt feel more confident in the fact that their child could handle a condominium as compared to the added worries of maintaining a house.
Parents might also have a few ulterior motives for wanting to purchase a condominium for their child… grandchildren. A recent study has shown that over a third of Canadians say they would be perfectly happy starting their family while living in a condominium.
It doesn’t hurt that most of the new condominiums are being built in good existing neighborhoods. These neighborhoods have all the most-wanted amenities as well as great school systems.
Although some people are dubious that condominiums will ever be at the top of the most-wanted list for families with children, there are other compelling reasons why a parent might be willing to buy a condominium for their child. One of these reasons might be to keep their child close… by making sure they move into a nearby neighborhood.
Especially in the case of those who have recently immigrated to Canada, they may be a need for plenty of help from parents to acquire that first home. If adult children haven’t yet had a chance to work on building their finances, they will probably need some assistance in order to come up with the down payment for a condominium or even the monthly payments. Many parents have simply resigned themselves to the reality that they may have to help their children out a bit financially so that they are able to afford a condominium in today’s economy.
Plus, it’s no secret that the Baby Boomers probably have the financial resources to provide this help to their children. Not only are most Baby Boomers financially comfortable, but studies have shown that in the upcoming years, most will be inheriting even more money from their parents. There’s probably no way of telling just how much financial help Baby Boomers are willing to provide for their children, but they certainly seem have the resources to do it if they are so inclined.
It’s important to remember that the parents of the Baby Boomers were a generation of dedicated money savers. At some point, the money they saved will pass on to their Baby Boomer children. It only stands to reason that some of this inherited money will be used to purchase real estate and housing.
With today’s rising real estate costs and tightening financing regulations, the adult children of the Baby Boomer generation could certainly use a bit of help. In today’s economy, there are probably plenty of grown children hoping that their parents will follow along with this recent trend.
