Audrey*, 35 and the head of a single-parent family, dreams of buying one of these tiny houses that have been growing in popularity for a few years. How to ensure that this project sees the light of day in nine years?
Posted at 7:00 a.m.
Numbers
Salary: $51,500 (83.3% of gross salary until April 2023)
RRSP: $3,000
TFSA: $2,000
RESP: $2,300
Retirement fund: RREGOP
Debts
2012 PCR: $8,500
Student loan: $120 per month until 2025
Monthly cost of living: $2325
Unused RRSP rights: $35,516
The situation
“Despite my 35th birthday, I have very little savings,” she wrote by email. I believe I have about $3,000 in RRSPs. »
Audrey also has a student loan to repay of $120 per month until 2025 and a HBP (home buyers’ plan) of $8,500.
The young woman knows that she must plan ahead to succeed in buying her tiny house. That’s what she had done for her other project, a trip around the world with her son. In order to finance the adventure, she took deferred leave from April 2018 to April 2023.
The great journey began in July 2019, but had to end abruptly in March 2020, she says. Caught off guard, she therefore returned to live with her mother in the suburbs for more than a year and a half. Then, last December, she miraculously found an apartment in Montreal at $1,125 per month.
“I have a 7-year-old boy and we have a fairly simplistic lifestyle,” she says. I travel by bike or on foot 90% of the time and by bus 10% of the time. I don’t have a big margin at the end of the month. When I know big spending splurges are coming, I work overtime. »
As an executive assistant in the public network, she has reached the top salary step and earns $51,500.
Audrey estimates the tiny house will cost $125,000 if it’s on a foundation or $75,000 on wheels. As she must install it in a municipality that allows it, she is looking for land in Sherbrooke, the price of which will be around $150,000.
“We don’t know anyone in Sherbrooke, but I’ve always been interested in this city which seems vibrant for families and for students, as well as a good compromise for the city girl that I am, who will never be able to afford a house in Montreal. »
At age 54, Audrey will have 35 years of service and will be able to retire. However, when she leaves Montreal, she will have to find a new employer.
“Is the project feasible in nine years? If so, what should I put in place to achieve this? »
Analysis
Pierre-Raphaël Comeau, expert advisor in wealth management for Laurentian Bank’s private management, analyzed the tiny house project in detail.
First of all, there is the choice of the tiny house which has consequences on the financing and the National Building Code of Quebec. “When the area is less than 700 sq.2, the rules of the Code do not apply, explains Pierre-Raphaël Comeau. A larger tiny home must meet all electrical and plumbing safety standards. »
If Audrey chooses a tiny house on wheels, she will not have access to a mortgage, nor a second HBP with RRSPs, nor the TFSA** (tax-free savings account for the purchase of a first home ).
PHOTO ANDRÉ PICHETTE, LA PRESSE ARCHIVES
Pierre-Raphaël Comeau, Expert Advisor in Wealth Management for Laurentian Bank Private Management
“Some financial institutions accept to offer a mortgage loan to a tiny house owner provided that it is built on a foundation, supports the planner. The mortgage is on real estate that will still be there in 50 years. »
TFSA, RESP and HBP
There is no point in making an aggressive plan in order to accumulate a down payment, if Audrey does not have an emergency fund. “At the first hard blow, she will be tempted to use her credit cards,” says Pierre-Raphaël Comeau. In 2022, she must therefore succeed in setting aside $200 per month.
While she still has lower incomes, she should also take the opportunity to get the additional Canada Education Savings Grant. By putting $500 into the RESP this year, she will get a $100 gift from the government.
But it is above all essential that Audrey reimburses her HBP at the rate of $567 per year, insists the financial planner.
“Each time she doesn’t repay it, she pays tax on the $567 and, in addition, she deprives herself of tax credits and family allowances. »
Strategy
It is in 2023 that the plan for the tiny house project can begin when Audrey regains her full salary.
“In a perfect world, she would have to save the entire difference in salary, i.e. $600 for HBP repayment and $8,000 in an RRSP or TFSAPP in order to maintain her current level of social programs. . »
If this challenge is too great, Audrey could aim for $5,200 per year, or $200 per pay, placed at 3%. Thus, in January 2029, she would have accumulated $ 42,200 for her down payment, estimates Pierre-Raphaël Comeau. She could therefore buy the tiny house sooner than expected, with mortgage payments of $1,500 per month.
Saving $200 per pay would also be a good test, raises the planner, because when she finally becomes a homeowner, Audrey will have a higher mortgage than her current rent, in addition to other costs (property and school taxes, maintenance, etc. ).
“His retirement plan is based solely on his RREGOP retirement fund and the last few years have been the most profitable in this type of fund. If she has to change jobs by moving to Sherbrooke, she should choose a job that will allow her to keep this retirement fund,” advises Mr. Comeau.
* Although the case highlighted in this section is real, the first name used is fictitious.
** TFSAPP: For Canadians 18 years and older who have not been homeowners in the previous four calendar years.