Real estate prices have been rising steadily since 1996 with minor downward blips every few years, usually caused by government regulations in an effort to slow down the housing market, as happened most recently in 2017.
Rising real estate prices also raise parents’ anxiety about where their kids will live when they move out of their family home. We know this because we hear it from the many parents who call us weekly and ask, “Will my kids ever be able to afford to buy a condo, a house, or for that matter, even to rent in the city”?
It’s a very difficult reality to come to terms with, especially for many parents who want to “do” for their kids. And although as parents we are all in the same boat, I have a few pieces of advice for parents, myself included, and millennials who are looking to get their foot in the real estate door, whether it be to buy property or rent their own place.
First and foremost, the responsibility for our kids to get their foot in the real estate door should lie mostly with them and not with us as parents.
As my husband and I have repeatedly said to our four kids, “your life will be what you make it”, “when you move out of our house you will be taking all your bills with you”.
As parents, we always want to do for our kids. But are they helping you help them? Remind them always, “it’s not what you earn, it’s what you save.”
For starters, how about foregoing the daily Starbucks latte? How about taking the bus or riding a bike and foregoing Uber? How about learning to cook – and put a stop to Uber Eats delivery to your doorstep? Have you stopped buying the latest and greatest electronic gadgets? Doing this conscientiously, day in and day out, could save you thousands of dollars which could be put towards a down payment in the future.
How about getting a part time job? Babysitting, mowing lawns, working at a retail store etc. and saving for a down payment or other future goals which really should be our kids’ responsibility?
Also, have your kids started contributing to an RRSP at the appropriate time? Did you know you can save tax when you contribute, and then take out up to $25,000 (a new budget proposal will increase the limit to $35,000) via the Home Buyers Plan?
Essentially, you are borrowing money from your RRSP – with no immediate tax consequences – to buy a first house – with the caveat that you must pay your RRSP back within 15 years.
I am a strong believer that giving too much to our kids, without them doing their share in return, does not build character and frankly, robs them of the necessary grit to build resilience – and certainly doesn’t prepare them for the “real world”.
So, before WE start to worry about where our kids will live considering the high cost of real estate prices, ask yourself “what is my son/daughter doing to help me help them?” Let’s ask ourselves “Have I fostered a mindset of saving?
To prove that it can be done, a few months ago, I received a phone call from a client who I had sold a property to 25 years ago when she was pregnant with her son. Fast forward to today and her grown son is now looking to get his foot in the real estate door. He is 25 years old and his parent’s lifelong example of saving money resulted in him personally saving $80,000 of his own money for a down payment. When I asked him how he did it he said, “even as a young child, I rarely spent money on frivolous things.” Of course, not everyone is capable of saving this kind of money, but everyone is capable of cutting back and making a few sacrifices from a very young age to contribute to their future.
This incredibly responsible young man bought a condo in an older building in an up and coming area and will be renting one room to a friend. Good for him!
Once you’ve established a plan for saving for the down payment, there are a number of ways your kids can get their foot in the real estate door:
- Buy a two-bedroom condo and rent one of the rooms to a friend.
- Buy a condo in an older building where prices are cheaper, and spaces are larger.
- Buy a property located in a less popular neighborhood in the city. At some point in the future, this area will become more established and more desirable, making your investment pay off.
- Buy a condo or small house with a basement apartment with a friend and share the cost of carrying it.
- Buy a small building with a few rental units that your kids can live in and rent rooms to their student friends. This allows your child to learn the responsibility that comes with home ownership and builds character.
The reality is, that many of our children will need our financial assistance to buy or rent in crazy expensive Toronto. Nevertheless, we need to help our kids establish a lifelong mindset of saving and sacrifice and remind them that they are ultimately responsible for their own lives.