The real estate market has gotten more complex over the last few years. As the population keeps growing, property values are shooting up. As a result, downsizing is no longer as simple as selling your family home and moving to a smaller house or condo.
For investment-minded homeowners, the right downsizing strategy can significantly impact your entire family. With the market as hot as it is, there are a few things to consider before you downsize, and the right timing is crucial. Here is a short guide to help you navigate the new realities of the real estate market.
How Downsizing Impacts Your Generational Wealth
Current homeowners with their mortgage paid (or mostly paid off) are in an enviable position. However, your children may struggle when it’s time to buy their first house. As property values go up, rent prices also increase. It can be very difficult for someone just starting out to save up for a down payment on a new home. The new stress test and fluctuating interest rates make it almost impossible for some younger people to qualify for a mortgage. This problem becomes a neverending cycle that can feel like a trap. The longer you rent, the harder it becomes to buy a house. Without the possibility of homeownership, there are few ways for the younger generation to grow their investments and wealth.
The solution, whenever possible, is to get into the market as soon as possible. And more and more young people need their parents’ help to make their first purchase.
Downsizing Strategies that Help the Whole Family
You may consider gifting a home to your child, especially if you own multiple properties. Obviously, this option has drawbacks when it comes to taxes. Under attrition laws, if you gift a house to a child under 18, any income will be considered yours and added to your yearly income tax. Transferring ownership of a property to a family member under market value can trigger double taxation, meaning both you and your child will get hit with capital gains at some point.
Gifting a property can be an option worth looking into, even with the tax implications. However, it may be better to give your child cash to help fund a down payment for their own home. Your real estate agent can guide you through the best methods that result in the lowest possible penalty for you and your child.
Are you concerned about how much capital gains will affect you when you sell your home? Here’s some information that will help.
When Downsizing Early is Better
The fear of not being able to get back into the market is a significant reason why some people wait longer than they want to downsize. As the market gets more competitive, you will not likely have any difficulty selling your home. However, buying your next property might be a challenge, especially if you want to stay in Toronto.
No matter your circumstance, a little out-of-the-box thinking can help you plan your next move. It helps to know what lifestyle you want to achieve after selling your home.
Here are some questions to ask yourself to help you determine your downsizing strategy.
Where do you want to spend most of your time?
If you wish to remain close to your children or grandchildren, consider setting up a secondary suite. If your house is large enough or has a basement, you can convert the space into a separate apartment. However, this isn’t your only option. As of February 2, 2022, garden suites are now allowed on residential properties in Toronto. In fact, the Affordable Laneway and Garden Suite Program may even provide up to $50,000 in forgivable loans to help you construct one. Another benefit of a secondary suite is that you can use it to generate rental income until you’re ready to move.
Do you want to spend a lot of time travelling?
If you plan to move somewhere warm for the winter or travel the world, it’s important to have a place where you can pack up and leave without worrying about home maintenance. In this case, a small condo in the city can be the perfect option.
Are you counting on the proceeds from your sale to fund your retirement?
With housing prices quickly rising in Toronto, you might consider selling your home here and moving just outside of the city. You’ll still be a close drive to Toronto, but your dollar will stretch much further, allowing you a higher quality of life during your retirement years.
Do you own an investment property that you can move into?
Homeowners with a secondary property have a wealth of options on their side. You can sell your primary residence whenever the market conditions favour you the most, without worrying about where you will go when your closing date arrives.
Are you thinking about selling your home or downsizing in the near future?Here are some other informative resources to guide you:
- Moving From a House to a Condo: Five Things to Know
- Have You Received an Emotional Letter From a Buyer
- Should You Sell Your Home Before Buying a New One
Want to talk with a live person about your next steps? For over 36 years, our clients have trusted us to minimize risk, offer unbiased opinions, and ensure their best interests are served. Contact us today to talk about your needs by emailing us at info@christensengroup.ca or calling us at 416-441-2888.
