I have a couple of clients who made the conscious choice to buy an investment property with an eye to the future. With the booming Canadian real estate market and favourable mortgage rates, my clients purchased a 2-bedroom condo and have rented it out until their own children are ready to move out.
Was this a good use of their savings?
I’d say yes. When mortgage rates are low, savings interest rates tend to be as well. The rate of return on the condo will be better over the long term. An investment property can be a long term investment with a solid rate of return. It’s a clever way to manage our children needing financial help in order to enter the market.
Rather than save money in an account, it might be a good idea to use your money for a down payment on an investment property. You can have a tenant covering all the expenses while you collect the passive income. Once you’ve built some equity on this investment property, you can use that to borrow money to acquire another property.
If we already know our children will need our financial help, it’s prudent to put our money to work before they need it. According to a recent report by CIBC deputy chief economist Benjamin Tal, parents gifted their children just over $10 million in the last year (2020-2021) to purchase homes. This money was spread across first time buyers and others who the report refers to as mover-uppers. Gifted dollars accounted for more than 10% of the down payments made across Canada.
So where is this money coming from? While the story tends to be that parents are putting themselves into debt to help their children, information CIBC acquired from Equifax shows only 5.5% of parents are using debt to finance gifting. The highest share of gifted down payments appears to be coming from savings, which have grown notably over the course of the pandemic.
The bank of mom and dad has ramped up in value, enabling young people to enter the market, get a mortgage they can afford and start building their own future.
If you would like to start a conversation about how to find the right investment property, please call or text me anytime.