It was recently revealed that real estate investors may represent up to 25% of the red hot market at the moment, taking advantage of sky high demand, low real estate supply, and a consistently in-demand rental market. New information shows that in addition to real estate investors, parents could also be fueling the dramatic rise in real estate around the province.
As the cost of real estate continues to grow and supply remains at historic lows, parents are seemingly giving their adult children money to help with the purchase of a home. A recent report found that nearly $10 billion has been given to adult children over the last year in support of a real estate purchase.
Huge amount of first-time home buyers receiving help from parents
The report revealed that a significant amount of recent first-time home buyers have received financial assistance from their parents – up to 30% of all first-time buyers and 9% of existing homeowners have received help from parents in the last year. According to the survey by IG Wealth Management and Pollara, the average financial gift size from parents to their adult children was approximately $82,000 for first-time buyers. Existing homeowners looking to upgrade to a bigger or better house received slightly more, peaking at an average of $128,000 in September.
This amount given by parents has risen dramatically in recent years – in 2015, slightly under 20% of first-time buyers received assistance from parents, with an average of $52,000 being gifted to adult children. Benjamin Tal, Deputy Chief Economist of CIBC World Markets estimated that over $10 billion has been gifted in the last year, accounting for 10% of total down payments in the market.
The idea that parents were aiding their adult children initially sparked speculation about parents going into debt to help their adult children, but the data doesn’t actually support this theory – just 5.5% of parents who gifted money to their children for real estate purposes went into debt in order to do so.
Most of the financial gifts appear to have been generated from savings, which may have increased due to the pandemic. This, in addition to rising real estate costs and record high demand for housing, likely accounts for the increase in financial gifts and the prevalence of parents helping their adult children become homeowners.
When should parents help adult children with a real estate purchase?
Helping adult children become first-time homeowners isn’t for everybody, especially if it means having to go into debt in order to do so. Most of the generous gifts being given to first-time homebuyers have been given by high net-worth parents, and obviously not everybody fits into this description.
Oftentimes, parents purchase a home for their adult children when they’re in post-secondary school, allowing them to rent out rooms in the house (or the entire house) once their adult children graduate, or even while they’re occupying the residence. This easily offsets the cost of purchasing a home for your child, ensuring that the mortgage and utilities can be reliably paid and that you as a parent can rest easy knowing that your investment is going to pay for itself while providing security for your loved one(s).
It only makes sense for parents to help their adult children with a real estate purchase when everything else is in order – if your retirement will not be jeopardized by the gift, if it doesn’t get you into debt, and if you will remain financially stable even after the gift has been given. When everything lines up nicely, you’ll soon find that a real estate investment can continue to provide a secondary source of income even after your adult child has moved on or graduated school, especially if you don’t mind becoming a landlord.
For parents wishing to purchase a home for their adult children but who aren’t ready to take on the responsibilities of becoming a landlord, consider enlisting the services of a property management professional to shoulder the burden. A property management company will handle things like maintenance and repairs and tenant screening so you can be free to take care of the more important things in your life while still allowing you to sleep soundly at night knowing your loved one and your investment are taken care of.
HighGate Properties is a premier provider of Toronto property management services, allowing real estate investors to tend to the more important parts of their life without being bogged down by the time consuming aspects of being a landlord. We provide services including tenant screening, inspections, maintenance, repairs and upgrades, and have done so for more than 30 years. To find out more about the residential property management services offered by HighGate, get in touch with us today.
