Family Formation & Housing

For young couples starting families, buying their first home and/or other real estate. Covers mortgages, credit cards, interest rates, children’s education savings plans, joint accounts for couples and the like.

An innovative way to solve your family cottage dilemma

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By Jason Kinnear, CPA, CA, CBV

(Sponsored Content)

Sipping your morning coffee on the dock with your spouse; teaching your children to waterski; and roasting marshmallows with your grandchildren. These are just some of the treasured memories you’ve created at your family cottage. But times change and those memories can sometimes be replaced with concerns about how to deal with your family cottage dilemma:

You enjoy spending time at the family cottage, but the time, cost and stress associated with it are turning a pleasant summer pastime into an ongoing headache.

To illustrate this dilemma, let’s consider Doug and Barb’s situation. Barb inherited their cottage from her mother just after they got married. They now have three adult children and six grandchildren, and are recently retired. While they’re looking forward to spending more time at the family cottage, they see a number of issues on the horizon:

  • Two of Doug and Barb’s adult children are professionals, while the third owns her own growing company. These time demands mean none of the children are able to visit the family cottage as often as they’d like.
  • There are several steep sections of stairs between the family cottage and the dock on the lake below. While Doug and Barb can navigate these stairs now, they’re concerned they won’t be able to as they get older.
  • Doug and Barb do not know who they will leave the family cottage to.

Time commitment

The most pressing issue for Doug and Barb is the time commitment for maintaining the cottage. They’re the only family members with the time to open and close the property, and maintain it throughout the summer months. While they’re both healthy enough to do this now, they’re concerned that they may no longer be able to as they grow older and their physical health declines.

Costs

There’s also the issue of costs related to maintaining the cottage. The cost of repairs and improvements to host their growing family and their friends means the simple family cottage they inherited from Barb’s mother a generation ago has morphed into a monster home on a lake!

Additionally, there’s the question of how these capital improvements and the maintenance costs will be shared amongst family members. Should Doug and Barb continue to pay for the upkeep? Or should that be split amongst the adult members of the family? How would they split these costs: evenly, or based on actual cottage usage?

Succession planning

Finally, there are the succession and estate planning issues to consider. Which of the adult children will get the cottage? Do any of them really want it? What about the personal taxes triggered when the cottage is transferred, or the probate fees (Estate Administration Tax in Ontario) if they both should pass away unexpectedly?

As you can see, Doug and Barb have a number of issues to contend with. They continue to enjoy the family cottage experience, but need a solution to address these issues.

Consider establishing a Family Vacation Trust

One solution for Doug and Barb to consider is establishing a Family Vacation Trust to pay for their family’s future summer vacations. A Family Vacation Trust would allow their family to continue to enjoy the annual cottage experience without the responsibility and costs of maintaining one.

Here’s an example of how their Family Vacation Trust might work:

1.) Let’s assume the value of the cottage when Barb took possession was $100,000 and it’s currently worth $800,000. Selling expenses will be 5% of the sale price and the resulting capital gain will be taxed at the highest personal marginal tax rate in Ontario*. This situation would result in Doug and Barb receiving approximately $580,000 on the sale of their cottage. Continue Reading…

”Lucky 5” ways to prepare for a post-Divorce financial future

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By Meggie Nahatakyan

Special to the Financial Independence Hub

Divorce is not the end of the world. Well, not for you. Being newly divorced signals the beginning of a brand new life and the opportunity for you to redesign and fine tune your life, now as a single person, living under your own terms: the way you want it.

Studies show that many newly divorced women are often left off facing worse financial issues right after divorce. Many are struggling to cope with the demands of being able to provide for themselves and their families, single parenthood, and suffering low self-esteem as well as feeling emotionally battered.

Take stock of your life

Instead of focusing on all the negativity a divorce brings, it is crucial that you take stock of your entire life and place yourself in a positive frame of mind by being grateful for all the great things in your life: like your career, health, family, children, friends, and other support systems you have. After that, make a firm decision to make today the very ‘first’ day of a brand new and better life, looking forward to the future and achieve your fullest potentials in a way that fortifies your core values and beliefs.

Take your time

Take the time out of your usual routine and set your mind free. Relax. Think about how you want your life to look 3 to 5 years from now and what you really need in your life. What if you no longer have to work? What will financial freedom, abundance, wealth, and stability really mean to you?

To bounce back from your past broken relationship and face the future with confidence, you need to be financially stable. You can do this by starting a business that you can juggle while working at home and tending to the kids.

Here are 5 business ideas you can start post-divorce to start empowering yourself:

1.) Start Freelancing

There are websites like People Per Hour or Fiverr that allow you to sell your services for a price. If you are a good writer, bookkeeper, transcriber, or you have specific skill sets that can be outsourced, you can always telecommute and work online. The positive side of freelancing is the work time flexibility; you can work in the given timeframe but the exact hours of work will be up to you.

2.) Start a YouTube Channel

With videos booming these days, people are glued to YouTube and social media. There’s no denying that the future is video. Why not start your own YouTube video channel? Are you a good cook? Start a cooking channel. Are you an expert home DIY hobbyist? Then, let the world know through your very own video channel. There are no limits to what you can do so as long as your channel offers interesting and useful content, you are sure to get viewers and subscribers. Join the bandwagon! Continue Reading…

Just how steep is housing affordability in Toronto and Vancouver?

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By Penelope Graham, Zoocasa

Special to the Financial Independence Hub

It’s no secret that in order to purchase a house in Toronto or Vancouver, you’ll need to have considerable financial assets; however, a new study from Zoocasa reveals just how elite income earners need to be in order to afford the benchmark single-family home in these cities.

According to the data, which is based on benchmark home prices sourced from the Canadian Real Estate Association as well as income tax filings from Statistics Canada, a Torontonian buyer must be within the top 10% of earners to afford a house priced at $873,100, while only Vancouverites within the top 2.5% could do so for a home priced at $1,441,000.

The numbers also show that prices for entry-level housing, such as condos, remain out of reach for many; buyers must be within the top 25% of income earners to afford the benchmark unit, which costs $656,900 in Vancouver and $522,300 in Toronto, respectively.

Affordability is greater in Southern Ontario, Prairies

However, the study also highlights the comparative affordability in other cities; several of the secondary markets in Ontario, as well as in the Prairie provinces, are much more accessible in terms of housing prices.

For example, those interested in markets within proximity of the GTA, such as Waterloo real estate, need only be within the top 50% to purchase a condo priced at $320,857, though houses are still only in reach for those within the top 25%, at a benchmark of $523,720.

London is also a reasonable alternative for first-time buyers; those looking to purchase a house priced at $426,236 must be within the top 25%, though condos for sale in London are accessible to the top 50%, at $307,359.

Regina takes top spot for affordable Real Estate

Continue Reading…

Should you rent a home or buy a home? That is the question

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By Dale Roberts

Special to the Financial Independence Hub

It’s a tough question, especially if you live in one of the major cities where home prices are skyrocketing. Or let’s say the home prices have skyrocketed over the last couple of decades. For many potential homeowners it’s a race against the clock. The price of entry might keep increasing at a rate that is faster than you can amass that initial down payment.

On that front the government agencies are working hard to help first time home buyers with greater access to RRSP home buyer’s plan funds and even down payment monies from the CMHC. Please have a read of Cream and sugar and tens of thousands of dollars for first time home buyers.

Trying to raise enough cash for that initial deposit is more than challenging, and discouraging, when you see home prices increase by several percent or more per year.  We’ll use Toronto area real estate prices to demonstrate the recent history.

Over the last decade average Toronto home prices have more than doubled. Of course, in certain desirable pockets the price increases have been outrageous. And if we head out to the west coast we’ll see periods when the Vancouver area market had rates of increase over several years that is nothing short of silliness.

You don’t have to own a home or property to build wealth

While home ownership is a wonderful goal, and it can help build that more than important total net worth, it’s not the only route to finding a wonderful place to live and growing your long-term wealth. You can rent and invest the monies that would ‘normally’ go to pay that mortgage and surprising list of costs that come with home ownership.

I recently had a question from a reader on the very subject of renting vs home ownership. For an answer I turned to John Robertson the author of The Value of Simple. John also operates the blog Blessed by the potato. And on that site here is the go-to post for Rent vs Buy. On that page you can click on a rent vs buy spreadsheet.

In an email reply to the reader and me John framed the proposition quite succinctly …

In some cases it can make sense to invest your money and rent instead. Indeed, I’m a renter myself in Toronto. It’s a bit more complicated than the scenario you paint, though. Remember that keeping that house is not just about your mortgage payment, you also have to pay property tax, maintenance, insurance, and somewhere account for the transaction costs for your eventual move — expenses that a renter doesn’t face (or are implicit in the rent). So when you do the math, you’ll have to back those costs out, meaning you need less of a return from your investments to help offset the rent. And exactly what (after-tax) return you use when estimating your investment performance will matter to the decision, too.

The main takeaway from John’s opening remarks is that home ownership (or condo with fees and such) is much more expensive than one might think. Beyond the mortgage and property taxes the additional costs of home ownership is quite surprising.

Check out this home ownership mortgage calculator on ratehub.ca. There are some incredible tools on that site that will help you determine affordability and the expected costs. You’ll discover that you have to add at least several hundred dollars per month in costs above your mortgage.

The Price To Rent Ratio

Continue Reading…

Women, Wealth and Retirement

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One of my very first financial planning clients was a single woman in her late 40s named Rachel who lived in Toronto and worked as a self-employed consultant to the not-for-profit sector. She made good money but lacked the confidence to manage her day-to-day finances and save for the long term.

Moreover, Rachel provided care for her aging parents and was under a tremendous amount of stress: enough for her to worry about her own health and whether she could maintain her current workload.

We worked together to establish a budget and cash flow projections for the next 12 months. During that time, we checked in monthly to ensure her income and expenses were on track and updated her plan accordingly.

Having always come from a place of fear about her financial future, Rachel quickly realized the path was not as bad as she once made it out to be. Most importantly, I never made her feel bad for things she didn’t understand: I just offered support and encouragement, along with tools that were easy to understand and implement.

After just one year she felt empowered about her finances and confident about her financial future. This new-found confidence also shone through her consulting business as she managed three straight years of record revenue growth to help further strengthen her financial position.

Meanwhile, her parents’ health continued to decline, so Rachel decided to scale back her workload and spend more time with her mom and dad. Now she only works on enough projects throughout the year to reach a specific annual income target that meets her monthly spending and savings goals. She has enough confidence in her financial plan to turn away other business opportunities to focus on her well-being and spend more time with her parents.

Rachel now joins a growing list of financially well-prepared Canadian women. Earlier this year, RBC Insurance conducted a survey of Canadian women over the age of 45 with household income of $60K+. The survey found that women are relatively well-prepared financially, but still express varying degrees of confidence when it comes to their financial future.

Highlights include:

  • The majority of women over 45 have a very clear idea of what they would do with a sudden lump sum of money, with only a quarter worry about being able to manage the money properly.
  • Canadian women have also mastered the household money matters. More than nine in 10 (92 per cent) agree they have a strong understanding of their finances.
  • Yet despite this, 24 per cent say they won’t be able to maintain their household’s financial situation if their spouse or partner were to pass away and one-third are not confident that they will be able to afford the lifestyle they want to live through retirement.
  • Interestingly, single women were only slightly more likely than married women (36 vs. 34 per cent) to cite a lack of confidence in their ability to afford their lifestyle in retirement.

Retirement planning is a challenge in any household, let alone one in which a spouse dies early. If that spouse happens to be the household’s chief financial officer, what’s the surviving partner to do?

Even though I manage our day-to-day finances and retirement savings I do want my wife to have an understanding of our financial position:  both current and future. I want to set up our finances in a way that’s easy for her to manage in the event of my untimely demise. I also want to ensure that she can maintain a comfortable lifestyle in retirement.

I’ve made sure to include my wife as the beneficiary on my RRSP. That way, if I died, she could have my RRSP assets transferred to her RRSP through a tax-deferred rollover.

I have a term life insurance policy in place that will be enough to pay off our existing mortgage and provide another $300,000 or so to live on.

I also have a defined benefit pension through my current employer. If I died, she would receive 2/3 of the pension I was receiving for the rest of her life.

Annuities: A Missing Piece of the Retirement Puzzle?

The idea of guaranteed income for life is appealing to me as a way to simplify our finances in retirement. Continue Reading…