Train of life | Buy a plex in town

With the meteoric rise in the real estate market, a young family wonders how they could manage to buy a plex in Montreal.

The situation

Daniel * and Rebecca * have just entered the workforce after completing a long university education. Both 35 years old, they are the parents of a 2 month old baby and a 2 year old girl.

Since Daniel * has a physical disability, he has benefited from various tax advantages and has contributed the maximum to a Registered Disability Savings Plan (RDSP) in recent years.

The couple’s new jobs, however, are stable, well-paying and with excellent defined-benefit pension funds. Rebecca even predicts that her salary will increase by 15-20% in 2024 if she obtains a management position.

These positions also led the family to leave their triplex in the region to rent an apartment in Montreal in a family neighborhood near a metro station and parks. Rent costs $ 1350 per month.

Daniel and Rebecca now dream of buying a triplex or a quadruplex in Montreal. The quadruplex would be an ideal format to later accommodate their parents or children studying.

The building must also be in good condition to live there without major work.

However, prices have increased so much that they estimate this future purchase at $ 1.2 million. Is this a reasonable project for 2023?

“Indeed, it’s ambitious, agrees Rebecca, but we are able to make compromises to stay in a family neighborhood near public transport, services and schools. So we hope that it is achievable. ”

“Otherwise we will have to limit ourselves to the price range that will be possible,” she continues. The challenges will be the down payment and the debt ratio. ”

The idea of ​​selling Daniel’s triplex, located in the region, is an option. Purchased in 2018 for $ 188,000, plus the $ 100,000 invested in renovations, the building is now worth $ 300,000. The mortgage term expires in June 2023.

Unless you remortgage the triplex? Because they would also like to buy a chalet in the region when the children are older.

“What would be the best strategy to successfully buy the plex?” », Asks the couple.

The answer

Charles Rioux Rousseau, senior financial planning analyst at RGP Wealth Management, immediately notices the cost of living of this family.

“Compared to their income, $ 60,000 a year is not high. But this is often typical of those who have been students for a long time, he argues. However, I would take the time to verify that it is indeed this amount, because it is decisive for what follows. ”

The RDSP and the tax credit

Having a disability, Daniel benefits from the tax credit for disabled people. However, the net value of this credit is estimated at $ 1,600.

The Registered Disability Savings Plan (RDSP), on the other hand, allows him to obtain attractive grants from both governments. This plan ensures his financial security and that of his family in the long term. The RDSP could later be used to fund future measures for her well-being with her disability and to protect her children’s future.

“The goal is that when you retire, a person with a disability has one more cushion. ”

The finding

“With their current salaries, rental income from their building, contributions to pension funds, RDSPs and RESPs, I come up with disposable income of about $ 105,000 per year less cost of living of $ 60,000. $. There is therefore flexibility to generate liquidity each year, ”calculates Charles Rioux Rousseau.

“By remaining conservative, I believe they are able to accumulate $ 40,000 in 2022 and 2023. This $ 80,000 could be added to the $ 57,200 in their savings account. ”

While the $ 140,000 is a good start, it’s not enough to buy a $ 1.2 million building with a 20% down payment.

“Of course, we will have to find money somewhere,” says the expert. The amounts in TFSAs and RRSPs are not high enough to be considered. ”

Choices

The couple had suggested two options, either to sell the triplex in the region or to remortgage it.

“Of course, by selling it, they collect the amount, pay off the mortgage and have what it takes to put the building down to 1.2 million. ”

If they decide to sell, Daniel and Rebecca could consider the triplex in the region as their main residence and benefit from an exemption. They have a four-year deadline.

“Obviously, there are several criteria to be met and certain formalities to be fulfilled, in particular not to claim depreciation deduction on the building and of course not to designate another residence as the main residence during the same period. ”

The other option: check the equity available on the triplex in the region and borrow it to make the down payment on the plex in the city. The triplex has appreciated in value since 2018. It is possible to obtain up to 80% of the available equity.

“There would possibly be $ 100,000 to be fetched from this building,” says the expert, “on the other hand, we must not forget that they will have to pay interest. And it remains to be seen whether they will get the funding as well. Of course, they have good income, but you have to validate before making an offer to purchase. ”

Daniel and Rebecca also have to determine if they really want to keep the triplex. “It’s not always a question of numbers,” recalls Charles Rioux Rousseau.

Is the building too far away? Does it have sentimental value?

Can the family make their dream come true? “Yes and without compromising retirement at 65, assures the expert, unless there is a sharp rise in interest rates.” ”

Suggestions

To optimize their investments, Charles Rioux Rousseau suggests dividing the amount of the savings account in two and putting them in their two respective TFSAs. “The returns would not be taxable. ”

As for the chalet, the senior financial planning analyst would reassess the situation in 10 or 20 years after years of living and experiencing in their plex in town.

* Although the case highlighted in this section is real, the first names used are fictitious.