Pooling Financial Resources to Buy a Home

Q My wife and I would like to purchase a condo but the initial downpayment is an issue. My mother and uncle are new immigrants to Canada and have approached us to buy a condo together. What do you think of buying a condo with family members? Tse, Scarborough

A The pride of home ownership is a dream for most Canadians. Unfortunately, this may only be a dream for many and may never become a reality.
Some individuals may have difficulty qualifying for a mortgage, even with the creativity of many financial lenders. Rule number 1: Buy what you can afford, not what you can borrow. Price increases in the Toronto real estate market easily outpace the marginal increases in salaries of the average Toronto household.
Pooling the financial resources of several family members can be an excellent opportunity for first-time buyers to get into a home. Eventually, you can save sufficient equity to have your own dream home. Obviously, this does not come without making sacrifices and concessions. A dream home can quickly become a nightmare, particularly when your mother-in-law may not be your first choice in roommates.
Extended family arrangements are not uncommon for many immigrant families that have three generations under one roof. For some cultures, this is the norm. However, this form of living arrangement is not for everyone. Most couples marry to start a family, not to inherit two generations of families.

Food for thought that may help you make a decision:
›› Discuss the financial arrangements with your family member(s) before making a commitment. Are the downpayments equal? How will the equity of the condo be divided in the event of a sale? Are the mortgage payments divided equally? What about condo fees? What happens if one partner wants out? Whose names goes on title?
›› Does the extended family get along? Family relations can deteriorate faster than an old home with termites! Discuss these arrangements thoroughly with your spouse.
›› A meeting with a lawyer beforehand can ease tension later. Sometimes, it’s good to write things down and not have regrets later. Make no mistake, this is a business relationship.
›› Family financial resource pooling can be very successful for real estate and stock investments. Some of Canada’s wealthiest owners of real estate and public companies are family owned. It sometimes pays to keep it “all in the family.”
›› Your tax adviser can explain some pros and cons of pooling from a tax perspective. Compare the tax advantages of having extended families under one roof, with the loss of other tax credits and government programs.
›› How is the credit rating of the other family members? Pooling can help family members with less than excellent credit re-establish themselves.

Family dynamics are an important ingredient when families pool their financial resources. Real estate prices will always rise and fall, but families are priceless.

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