Are you thinking about buying with the help of mom and dad? Buying your first home, be it a house or condo can seem like an impossible goal. Especially if you live in one of the major cities across Canada like Toronto or Vancouver. With rents soaring and daily life expenses adding up, it’s hard to imagine how you could save for a down payment that will get you into homeownership. But there are ways.
A recent study conducted by Teranet, Canada’s largest land registry operator, noted that 1 in 7 first-time homebuyers are tapping into the bank of mom and dad to make that purchase. First-time buyers scoring a place on their own is declining. Most aggressively taking its place, is buying with a second owner at least 20 years older. The firm believes this may confirm what you already know – more people need help from mom and dad to get into the real estate market.
Buying with A Partner is On the Rise
According to Teranet, first-time buyers with at least one other owner on title, with a less than 20-year age gap, saw a modest increase. In 2012, 33.4% of condo titles had several owners on title, within 20 years of each other. By 2018, that number jumped to 37.1% – an increase of 11.07% over six years. The total for all segments of housing went from 50.1% to 51.6% over the same period. Buying with peers is a little more popular – whether with a spouse or pursuing co-ownership.
What about the rest? Teranet says, more people are also turning to the bank of mom and dad. First-time buyers with at least one person 20 years older made the biggest change. Condo apartments, with at least one other owner 20 years or older, jumped from 9% in 2012 to 14.4% of titles by 2018.
How to Pitch Your Parents
Buying with the help of mom and dad can make you feel all sorts of ways. How will they react? Will they take you seriously? How do you even bring it up? If you’re looking for ideas on how to make this work, here are some suggestions.
Do Your Research
If you’re thinking about making your first move in Real Estate, don’t just start the conversation with your parents by saying “hey, can I borrow some money? A lot of money”, without having anything else to say.
Do research on real estate in your market. Read articles and blogs to familiarize yourself with the industry and what’s currently happening. Educate yourself. Then, go find an expert and talk to them. Interview brokers who specialize in first-time-buyers.
Ask about the best neighbourhoods to buy in that provide a good return on investment. Go to those neighbourhoods and determine what you like and don’t like, so you can speak with authority when you pitch mom and dad.
Know Your Numbers
How much will it cost you to actually purchase a house or condo on your own? In Toronto, if you’re looking for an entry-level home, you’re likely going to be looking at condos. So investigate pre-construction as an option and find out how it works.
Seek out an agent that specializes in pre-construction and learn about deposit structures, how much money you’ll need out of pocket at signing, and within the next few months/years before the building is complete. Learn about interim occupancy and registration so you can have an informational conversation with your parents about this option.
Also, seek out a great mortgage broker who has experience with first-time buyers and those buying with the help of mom and dad. Get pre-approved – find out how much you can afford on your own, and with help from mom and dad. If you’ve got a number in mind, and are able to state that number confidently, they’ll see that you did your research and are serious about this undertaking.
Buying with the Help of Mom and Dad: Structuring the Deal
Think about various ways you can structure the loan. There are many ways to make your parents feel involved versus just you asking for a handout. Pitch them on the benefits of getting involved in your first real estate transaction and how that can benefit them, and their bank account in the long run.
- It’s a secure investment because, well, real estate.
- They’ll have a reliable, secure tenant (you).
- They can be on title for security in knowing their investment is safe, and you’re not planning to run away to Europe with their money.
- If they prefer to simply loan you the money, you can do a loan agreement that you both sign, with payback details, interest, etc. This loan can be “forgiven” later on should they decide to simply give you the money.
- Once you decide to sell your first home and move into your second, you can decide to either sell and split the profits accordingly, or for an even better return, keep it and rent it out, creating passive income for you both.
Many successful parents that have the ability to offer financial assistance to their children have fulfilling business careers, so if you approach them with that in mind, they’ll see how smart you are and how you’ve thought this through to benefit you both.
Asking the bank of mom and dad isn’t easy, but when you think of them as partners, not parents, they’ll see that you’re approaching this with a business mind and likely feel more comfortable with offering help.
If you’d like to set up a meeting to discuss the market and how you can approach your parents, simply fill out the form below. We’ve helped many clients partner with their parents to get into the Toronto Real Estate market with ease and understanding.
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