# buying property with family



## the-royal-mail (Dec 11, 2009)

Does anyone here have any experience or recommendations for this? I am considering splitting a mortgage with my parents and wanted to open this up for discussion. My short term intention is not to live in the place, I have my own place in the city already. So I am more or less doing this to help them out but also as a bit of an investment for me. Working full time and being fairly busy I have no interest in the costs and work of maintaining a house and have made that clear up front. The idea is to split the mortgage with them.

I guess this is kinda private but since no one here knows me, what the heck. 

Anyone object to this? Pitfalls?


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## m3s (Apr 3, 2010)

I had friends who split the mortgage on a condo in Alberta even though only one lived in it. They agreed to split the capital gains/loss. I guess the one friend was assuming Alberta RE would keep booming, and it's gone down I think

I guess the pros are if your parents are paying all the "costs" of ownership plus you help them out. Downside is you can't really sell when you want etc what about when you want that money back

I'd invest someone else myself but it's a family thing


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## the-royal-mail (Dec 11, 2009)

mode3sour said:


> I had friends who split the mortgage on a condo in Alberta even though only one lived in it. They agreed to split the capital gains/loss. I guess the one friend was assuming Alberta RE would keep booming, and it's gone down I think
> 
> I guess the pros are if your parents are paying all the "costs" of ownership plus you help them out. Downside is you can't really sell when you want etc what about when you want that money back
> 
> I'd invest someone else myself but it's a family thing


Thanks sour. Actually this isn't an investment/speculation thing, beyond me simply parking some of my money in the house, helping out my parents at the same time and them ending up with a nice place to live. They are contemplating moving cross-country so we can be closer together so I just thought this might be a good way of helping the process. Purchase decision and mortgage paperwork will be a split thing and yet the intention is for them to live in and maintain the property as I need to stay in the city close to work. None of us are city people really. Location is a tough call but I'll give them more weight in that decision since they have to live in the house and be satisfied moreso than me.

I don't understand your last sentence. Can you please expand? Opinions and bias most welcome!


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## Berubeland (Sep 6, 2009)

Dear Royal,

Please expand on how you think this is an investment for you?

How is the deal structured?

You pay half down and own half the house? They pay the entire payment? You pay half the payment? 

I need more detail before providing an analysis lol


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## the-royal-mail (Dec 11, 2009)

Thanks Berube!

We didn't get into too much detail right now (I don't want to come across as anal) but I think it will be half ownership between me and them, with each side going down to the bank and signing for our respective halves of the monthly mortgage payment. I presume you can do that. I want to keep it official and on paper and perhaps even document in word what our general agreement is.

I would obviously want half the equity back when the house gets sold at some point in the future.

As far as maintenance however I do not wish to get into that part of it so the idea is for them to live in and maintain it 100% and my 50% capital be very passive.

Hmmm I also wonder if this will complicate things at tax time.

Dunno. I guess I'm sorta putting my neck on the line here by giving out all these details but my anonymity should protect me lol.

Thanks for taking the time to respond.


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## theredtribe (Apr 29, 2010)

I am moving at the end of the month (same building, different floor), but have lived i the same place with my roommate for 3 years.

Roommate has joint mortgage with his parents (95% his, 5% parents). He lives in the place and will continue to do so in the near future. The monthly rent covers the mortgage (your situation might be different) and place was brand new since we moved in.

The expenses he has after the mortgage being paid is: 
- Property Taxes
- Strata fees
- Minor in-suite fixes (I'm a hassle free tenant)

When times were tough last year (recession and all), it was quite a bit of stress for him since he had to help his parents out financially, but other than that, no prob.

Edit: I noticed you mentioned your parents will be moving out-of-country. Having had friends with property and getting others to manage it (individuals, no companies), it's a...hassle. Maybe look into a property management company, if you are not there.


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## sprocket1200 (Aug 21, 2009)

um, your parents can't afford the mortgage on their own??

that sucks...

why would they even need a mortgage to begin with...


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## the-royal-mail (Dec 11, 2009)

They can afford it but are nearing retirement age. They want to have some of their present fully-paid equity in the bank so they can do the RV/snowbird thing. They are moving CROSS country to be closer to me, not out of country.


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## Four Pillars (Apr 5, 2009)

I'm not sure why posting here is "sticking your neck out".  If you want advice you have to give the facts.

Would it be possible for your to buy the place on your own and have your parents rent it from you? I'm just thinking that there might be problems in the future if you want to sell to get the money or if they want to move.


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## 72camaross (Apr 26, 2010)

I know I'm young and have no experience but I have experienced property/money rip families apart if things happen.

I personally would look into something like what Four Pillars is saying. Everything in your name and rent to them. Have them do all the maintenance and hopefully you can come up with a rent price that makes everyone happy.

Good luck! It's a nice thing you're doing and I wouldn't hesitate to do the same for my family if could.

JD


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## the-royal-mail (Dec 11, 2009)

Thanks for the comments. I too have been wondering if collecting an agreed-to rent amount would be worthwhile. The property tax bill would come to me then. And this would give me the advantage of tax deductions for the mortgage interest and repair expenses and property tax since that wouldn't be my primary residence.

Only wrinkle is that they intended to put down a significant down payment chunk. If I'm signing for the house then on paper wouldn't the money need to come from me? I am sure CRA will notice if my parents transfer $xK to me (to be used for the down pmt) without me declaring it as income. This could get complicated.

Maybe it would be better for THEM to buy the house 100% and me simply send them a bunch of postdated personal cheques equivalent to what my half would have cost. I guess the risk there is when they sell, any gains made would have to be sent to me manually/cash/cheque. And again, transferring such funds would attract CRA attention no?


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## MoneyGal (Apr 24, 2009)

TRM! You need some advice on this beyond what you are going to get here. 

1. Your parents can give you whatever money you want and you can use it for whatever purpose you want, including buying property with them. There is no attribution for tax purposes between adults in the case you've described. It isn't taxable income. 

2. Same goes for you sending them cheques. You can send them whatever cheques you want for whatever reason you want, and so long as these are gifts, there is no attribution and they do not need to report the $$ as income. 

3. HOWEVER, at a certain point, you veer away from the mutual exchange of gifts of money and into tax evasion. Not in what you've described BUT you have only given a very high-level summary of what you might do. 

You and your parents need to understand the space in which you would be operating, tax-wise, where the boundaries are, and what's kosher and not. Get thee to a competent fee-for-service financial planner or an accountant (don't call them until Monday!) who can work through the options with you.


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## Berubeland (Sep 6, 2009)

I am in a bit of the same boat but in reverse... 

When I was in the midst of buying my house I was also working on a job where there was a distinct possibility that I would be sued. Because I was self employed I was having a hard time getting a mortgage. 

We killed two birds with one stone and my parents became the sole owners of my house. I then proceeded to pay off the house in 5 years. 

I guess it turned out to be ok because I did get separated from 2 common lay husbands during that time. The first one about one year after we bought the house and the other one about 4 years after the house was paid off. Making double payments and prepayments kept me really broke for that entire time. It was like ramen soup and 18 hour days.

Because my parents owned the house I got to keep use of it. 

There are downsides to the whole deal for me as well at one point my parents decided to sell because they were unhappy with what was going on in my life. See common law #2 above. So I don't really feel very safe on that front. 

Second I have no access to any of the equity in my house despite the thousands of $ I have put into it. 

Third who the hell knows what will happen if my parents pass away. I have discussed it but still have no straight answers. 

Forth they don't like my current husband either so still won't put the house in my name. 

But I get a free place to live. Well after the taxes, utilities and maintenance.

So Royal Mail maybe some thing to consider about how it can work or not work. 

In the balance of things I guess I'm lucky but there are serious drawbacks.


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## 412driver (Apr 30, 2010)

Family + Business (of ANY kind) = 

UNLESS....you have a solid, very well laid out and DETAILED contract!

Otherwise, you are asking for trouble.....


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## Dana (Nov 17, 2009)

There is so much to consider here:

If you own the property jointly with your parents, you will all have to be on the mortgage which means you will all have 100% responsibility for the mortgage payments. If your parents become unable to make their payments, you will become responsible for the full amount and vice versa. 

The property will not be creditor proof. For example, if you are married and your marriage ends, the equity in that property would be included in your assets and would become part of the division of assets. Ditto if you or your parents are sued. 

This is not your primary residence, so you would have a taxable event upon disposition of the property. 

Would a better solution be for you to purchase the property and have your parents rent it from you for an amount equal to the mortgage, taxes and insurance? This way they can keep their cash available for their retirement needs, the house is already in your name for estate planning purposes and you get to take advantage of the tax benefits that come with landlording.


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## the-royal-mail (Dec 11, 2009)

Sheesh. Now I feel like I may have stepped in it by offering this. I was only trying to be helpful. Never realized it would have this much thought required. Still, I will speak to my accountant about this.

Also dana, I think your idea is probably the best one. I am sure I could purchase the property solely on my income, determine what the mortgage payments are, ask for rent cheques for 50% of that and then have them maintain and pay for the taxes etc for the privilege of living in the house exclusively. How does that sound?

Of course, if I should marry and then divorce that could put all of us in a real pickle.

And the other risk remains in the down payment they wish to contribute. Wouldn't their transmittal of that chunk of cash attract attention somewhere?

I would hate to have to explain this to auditors. But would also hate to have to go back on my word with my own parents. They are completely trustworthy.


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## MoneyGal (Apr 24, 2009)

TRM: once again, your parents can give you WHATEVER amount of income you like. There is no attribution between adults in Canada. 

Also - if you get married and then divorced, you can exclude this property from the division of marital assets via a pre-nup.


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## the-royal-mail (Dec 11, 2009)

I have spoken to my accountant. I think dana has the right idea. They should find a house to their/our liking nearby here and I will buy it outright. I will collect rent cheques from them equal to 50% of the mortgage. I will ask them to handle the property mtc for the privilege of having the whole property and house to themselves since I won't be living there. For tax purposes I should be able to deduct the mortgage interest and other costs. I guess I might have to write them some sort of rental receipt to show on paper that they were my tenants.

Splitting the mortgage on paper could get messy if (gasp) they pass away. And if (as discussed above) I get married...good way to break an engagement is to ask your fiancee to sign a prenup lol.

So I guess the last thing to do is head down to the bank and see if I can get a pre-approval for the mtg and for how much.


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## the-royal-mail (Dec 11, 2009)

MoneyGal said:


> TRM: once again, your parents can give you WHATEVER amount of income you like. There is no attribution between adults in Canada.


I am still a bit surprised by this. My acct told me the same thing. But can this be right?? So, MG can hand royal $50K in cash or cheque, call it a gift and no one will bat an eyelash?? Or can this only be among family members? If this is true, the potential for fraud here is enormous. 

And what if these "gifts" come regularly? Surely that would attract attention? Will someone ever need to justify these payments?

This seems too good to be true.


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## Dana (Nov 17, 2009)

TRM, did your accountant mention that you may not be able to show an operating loss year after year for this income property? If you are only collecting 1/2 of the mortgage payment as rent and you also have insurance, taxes and mortgage interest as deductions against that income it sounds like you will be running a loss. CRA doesn't like that. They expect rentals to have positive cash flow at some point. They also don't like reduced rent situations in non-arm's length transactions (which is what you have since your tenants will be relatives). 

I have never been in your situation, but I have known investors who have run into difficulties with CRA because their rental expenses consistently exceed their rental income. 

Berubeland might have more insight into this...


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## FrugalTrader (Oct 13, 2008)

the-royal-mail said:


> I am still a bit surprised by this. My acct told me the same thing. But can this be right?? So, MG can hand royal $50K in cash or cheque, call it a gift and no one will bat an eyelash?? Or can this only be among family members? If this is true, the potential for fraud here is enormous.
> 
> And what if these "gifts" come regularly? Surely that would attract attention? Will someone ever need to justify these payments?
> 
> This seems too good to be true.


There is no gift tax in Canada.


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## MoneyGal (Apr 24, 2009)

http://www.canadianmoneyforum.com/showthread.php?t=266


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## the-royal-mail (Dec 11, 2009)

MoneyGal said:


> http://www.canadianmoneyforum.com/showthread.php?t=266


Yikes.

I guess maybe cost sharing would be more representative of what's happening. But then I wouldn't be able to claim the mortgage interest, property taxes and other upkeep costs.

If I charge them rent and this is declared to CRA, the rent will have to be realistic. Since it would be based on 50% it will NOT be realistic. If I charged them the market rate for rent then they might be better off to buy the house themselves.


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## MoneyGal (Apr 24, 2009)

FrugalTrader said:


> There is no gift tax in Canada.


Yes, but there is a complex set of attribution rules which apply if you are transferring money or property and certain conditions apply. The situation TRM has described, generally speaking, would not attract the attribution rules. But it isn't as clear-cut to say "there's no gift tax." Gifts *are* taxable in lots of different situations.

Editing to clarify: it is more accurate to say not that "gifts are taxable" but that _property cannot be transferred between owners without tax consequences in many, if not most, situations_. Depending on the gifter's relationship to the recipient, the age of the recipient, the kind and value of the property and (in some cases) the financial situation of the gifter, there may be tax consequences.


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## OhGreatGuru (May 24, 2009)

_And if (as discussed above) I get married...good way to break an engagement is to ask your fiancee to sign a prenup lol._

Wake up and smell the coffee. With more and more partners entering relationships with significant assets and/or liabilities co-habitation agreements, pre-nups, & marriage contracts are becoming increasingly common. It's not the matrimonial home, and you have good reasons for not sharing ownership of your parent's home. If a fiancee thinks you should, you should drop the gold-digger anyway.


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## the-royal-mail (Dec 11, 2009)

Alright, here is the plan.

-we find suitable and I purchase 100% on my name.
-they place a down payment equal to 50% of purchase price (do they pay bank directly?)
-mortgage for remainder goes against my name and I pay as I would any other mortgage
-if I get married I obtain a prenup through an attorney stating that this house is off-limits
-they live in house exclusively and pay all costs to maintain (subject to revision at some point in future if desired)

Seems to be bulletproof. Only risks seem to be if I die or lose job for extended period.

Any objections?


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## Dana (Nov 17, 2009)

the-royal-mail said:


> they place a down payment equal to 50% of purchase price (do they pay bank directly?)


Since you will be the one applying for the mortgage, you are the one who has to provide proof of downpayment to the lender. Your parents should put their share of the downpayment in an account in your name so you can prove that you have the downpayment available to the lender. 

The downpayment is brought to your lawyer along with the rest of the legal fees upon closing. 

If you pre-decease your parents, you will need to stipulate in your will that the property is bequeathed to them. You may also want to consider a term life insurance policy (paid by your parents as a cost of running the property?) to cover the remaining mortgage balance and capital gains taxes that will be due upon deemed disposition of the property if you die. 

Sounds like a good plan.


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## the-royal-mail (Dec 11, 2009)

Terrific advice, thanks Dana!

I guess I'll have to draw up a will, then. Might as well throw all my financials in there as well, though my mom has already been designated beneficiary on those things if something happens to me.


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## MoneyGal (Apr 24, 2009)

Conceptually it doesn't make that much sense to insure the son's life so he can pass the asset to the parents...just looking at the survival probabilities for both cohorts. Although it would be relatively cheap to do so.


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## the-royal-mail (Dec 11, 2009)

MoneyGal said:


> Conceptually it doesn't make that much sense to insure the son's life so he can pass the asset to the parents...just looking at the survival probabilities for both cohorts. Although it would be relatively cheap to do so.


Are you saying you don't feel the risk is worth the bother of taking out a life ins policy??

Not doing so seems like a terrible risk for my parents to take. They would lose their equity and the house if something happens to me. I would hate for them to have to take that risk.


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## MoneyGal (Apr 24, 2009)

If insuring your life means that they would be able to stay in the house and not insuring your life means that they would not, of course you should go ahead and buy insurance! 

I was just thinking about the relative probabilities of survival. However, because of your much higher survival probability, insurance for you will be cheaper...this is why I said it doesn't necessarily make that much sense "conceptually." In practice, it may make a lot of sense!


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## Dana (Nov 17, 2009)

The insurance option should probably be left up to the parents. Since you would be dead, it wouldn't matter to you either way. If they are fine not insuring you, they are the one's affected. Suppose you die next year (sorry to be so morbid) the mortgage would become due and your estate/parents would have to pay it off or your parents would have to qualify to carry the mortgage on their own...are they in a position to do that? 

Also, if the property increases in value and the deemed disposition results in a capital gain who will pay for that? Your parents? Your other assets? How would your potential spouse feel about that? 

I don't know a lot about estate planning (I have been an executor twice for two relatively uncomplicated estates) but I know that these things can become a huge headache.


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## the-royal-mail (Dec 11, 2009)

Consider a $120K house. If right now they place $60K in my bank account for me to apply to the downpayment, is that considered a gift in all eyes? * If so, then I'm home free since the mortgage and title would go 100% against my name. I'll create a will such that if I die next week, I bequeathe the house to them. My life insurance policy, paid by them, would be setup in a way to pay the mortgage costs in my death. 

Dana, are you saying that if the house is worth $150K at the time of transfer to them upon my death, that they would have to pay capital gains tax on $30K?

*yesterday we discussed the idea of having a paper on file with a lawyer that would spell out that the $60K is given to me as inheritance. I admit I don't fully understand the need to do this. Anyone here know if there's any benefit to doing this? If there's no gift tax then I don't see the need to explain the $60K any further. The legal intention of this $60K is parents helping out son in a home purchase. Once the money is in my account it has transferred ownership and no one has to account for it any longer. At least that's how I understand it.


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## MoneyGal (Apr 24, 2009)

TRM - *you or your estate* has to pay any capital gains on the house when you sell, or if you die (there's a deemed disposition at death) - even if you will the house to your parents. 

The life insurance would cover any outstanding mortgage balance (if you want to pay off their mortgage) plus the cost of the taxes.


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## cardhu (May 26, 2009)

the-royal-mail said:


> yesterday we discussed the idea of having a paper on file with a lawyer that would spell out that the $60K is given to me as inheritance.


Its not an inheritance as long as they're still alive ... however, if you have siblings (or others) who would share in your parents' future estate, perhaps the intention is to make it clear that this amount is an advance against your eventual inheritance, and is to be deducted from your share of the eventual estate ... if you have no siblings and stand to inherit everything anyway, it seems rather pointless to do that.


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## Dana (Nov 17, 2009)

the-royal-mail said:


> Dana, are you saying that if the house is worth $150K at the time of transfer to them upon my death, that they would have to pay capital gains tax on $30K?


Your estate would have to pay capital gains taxes on the difference between the fair market value of the property on the date of your death and the purchase value of the property, as MoneyGal stated. If, as in your example, the capital gain is $30k, $15k of that would be taxable and would be paid by your estate before title is transferred to your parents. This is why life insurance can be a good idea. You need enough insurance to cover any renmaining mortgage balance as well as potential tax on captial gains. 

I am torn about whether is would be better to designate your parents as beneficiaries of the policy, or your estate? If you designate your parents, the life insurance payout flows directly to them and does not trigger a taxable event, but it is your estate that would need the proceeds to pay the mortgage and tax bill. Anyone have any thoughts on this?


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## MoneyGal (Apr 24, 2009)

Designating the parents as beneficiaries means the $ can be paid out without going through probate....which is a consideration. There are so many hypotheticals in this situation now that I am getting increasingly twitchy, though.


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## cardhu (May 26, 2009)

Dana said:


> Your estate would have to pay capital gains taxes on the difference between the fair market value of the property on the date of your death and the purchase value of the property


To clarify ... your estate wouldn't owe any taxes, but it would administer the clearing of your debts, one of which is your final tax bill, out of the value of the estate. If there was no cash available in the estate to pay those taxes, then something would have to be liquidated.

If the estate were distributed without clearing your final tax bill, then CRA could go after whoever was the recipient of the estate.


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