Grad Gifts – Have you ever thought of an investment condo as a grad gift? It might not be the glamorous grad gift of a car, a months-long trip to Europe, or even the gift of cash, but we’re seeing this trend take off among parents who want to set their kids up for success, for many, many years to come.
A pre-construction condo can many times be the best entryway into the Toronto real estate market. Many first-time buyers use the deposit structure as a way to put money aside for their purchase and use this as a way to plan for their future.
Pre-construction condos usually take anywhere from three to five years to build, and as time passes, purchasers can see their investment grow as the market grows. This increase in value is profit into their pockets, giving a solid return on their investment dollars before they even set foot in the door.
How to Help Your Kids Buy an Investment Condo
Now we’re not saying that any parent should be paying $500k + for their kids to move into a condo without paying any of the costs.
But there are ways to help your young adult children set themselves up for success when the time comes to move out on their own as they undertake their first professional job.
Make Sure You Can Afford This Grad Gift
Before you can make a decision on if this is even an option, you’ll first need to make sure you can afford it. Speak to your financial advisor and ask questions. Speak with your children to determine what they need and when they will need it. The last thing anyone should do is sacrifice their retirement savings to help their child purchase a house.
The Best Way to Buy an Investment Condo as a Grad Gift
One of the most common ways we’ve seen parents help their children purchase a pre-construction condo is by covering the deposit.
Typically, with pre-construction condos, the deposit structure is anywhere from 15% to 20%, spread out in increments over a three-year period.
With this structure, the initial outlay of cash isn’t so hefty, making this manageable for some parents.
Once the deposit is paid, parents can think about ways to help with closing costs that come into play when the building is complete and it’s time to take occupancy.
And once this is all complete, then is the best time for your child to get a mortgage (likely with your help) and start paying the monthly costs of living in the new condo. Mortgage, insurance, condo fees – all of the usual fees associated with owning your own condo.
Investment Condo Grad Gifts by the Numbers
We recently had two clients who did this exact thing for their children as they are just starting university, and upon the completion of each project, they’ll be ready to jump into the workforce and will have a place to call home, thanks to mom and dad.
Let’s take a look at an example with some general numbers of what this kind of investment would look like.
Suite Type: 1-Bedroom, 1-Bathroom
Price: $550,000.00
Deposit Structure & Costs
$5,000 on signing
Balance to 5% in 30 days = $22,500
5% in 90 days = $27,500
5% in 370 days = $27,500
5% on occupancy = $27,500
Total Deposit: $110,000.00
Mortgage Balance: $440,000
Mortgage Payment: $1,839.92 ( 25 year amortization, 5 year term, 1.89%)
Condo Fees: $300
Property Tax: $250
Insurance fees:$50
Total: 2,439.92 / month
So when we look at the initial deposit as the “grad gift” investment from mom and dad, and then the “monthly costs” to be undertaken by the child, you’re usually looking at under $2,500 a month. With the prices of rents increasing now that we’re nearly post-pandemic, it makes absolute sense to be putting the money back into your own investment rather than someone else’s.
The Grad Gift that Keeps on Giving
This is certainly a monumental investment for most, but there is also one key thing to remember. With pre-construction, your deposit and investment earn money as the market grows, as you wait for the project to be built.
The condo will be worth more money when you take possession than what you paid for it, so parents have an option here. It’s possible to refinance, take the equity out and pay themselves back. Now, this takes a little of the joy out of the “gift” aspect of this idea, but if you even think about retaining some ownership in the project and only taking back some of the equity if needed, it’s ok.
There is also the option to split profits when it comes time to sell, making this a win-win for everyone involved.
Overall, this concept is a good idea all around, IF you can afford it. Again, this is one of the best ways to set your kids up for success and get their foot in the real estate door. No renting or paying off someone else’s mortgage, and it’s something they’ll thank you for, for an entire lifetime to come.
Want to learn more about how you can make this happen for your kids? Fill out our form below and we’ll be in touch right away to walk you through any details you would like.