This is one of the biggest concerns I get from friends, family and clients. With the prices having escalated as quickly as they have, I understand the concern. There are options. Whether you have teens or adult children, there is always the option of purchasing a pre-sale condo, buying a property with your children or helping them enter the market (Bank of Mom & Dad).
Pre-Construction: Essentially, you are entering into a contract with a developer. You will need to put a deposit down (usually between 10-20%) and then wait until the project is complete before you pay the down payment and incur a mortgage. This is FANTASTIC for people who need a little more time to get their finances in order.
If the developer allows you to ‘assign’ your contract to another buyer (you are selling your contract), there may be an assignment fee (a % of the price) that you pay to the developer. If you chose to go this route, you won’t be paying PTT (Property Transfer Tax) or incurring a mortgage. If the property has increased in value, you would profit (the current price less the original contract price). This could be used as a down payment for another home or cash in pocket. One of the risks involved with this is that if the property was to decrease in value versus when you bought it, you would lose money. You might be subject to financial penalties, such as capital gains. It is always best to consult with an accountant before jumping in. As it isn’t always easy to predict the future of real estate and of interest rates, and most projects take between 3-4 years to complete, this may not be right for everyone.
Alternatively, you can purchase the assignment from someone else and not have to wait as long to move in versus if you had purchased the pre-construction condo.
Bank of Mom & Dad: I hear from many downsizers that they gave some of the profits, from the sale of their home, to their kids so that they could ‘get into the market’. Other parents have pulled out some of the equity in their current home to gift their children a deposit. Many lenders will help you find a strategy that works for you and your family. I suggest checking out Reverse Annuity Mortgages (RAMs). These seem to be growing in popularity with the way the current market is. I work closely with several lenders.
If you need a few recommendations, I’m happy to help!
Want to know more? Thinking about selling your investment property? I’d love to be interviewed!
*disclaimer- Information is always changing. Please consult with your lawyer, accountant and financial advisor before purchasing a property.