Question Family Rent/Own Vacation property

Leveraging, renting vs owning, making an investment or buying a home?
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Londoncalling
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Question Family Rent/Own Vacation property

Post by Londoncalling »

My father in law recently expressed interest in relocating to move closer to his children/grandchildren. His primary and only residence is at a village resort. He would like to leave this property to his 3 children as his legacy. With his current retirement income CPP/OAS/GIC he would not be able to afford to do so. After some discussion with his children and their spouses a few ideas were debated.

1) Sell his current residence and buy an annuity. This sale could either be on the open market or to his children at a fair price. This would provide a steady stream of income for life. He could easily purchase a guarantee period annuity in case he were to pass prematurely.

2) His children upon mutual agreement could rent to own his property, thus supplementing his income so he could afford to live in a more expensive market. This would also provide a source of steady income to him and upon his death the property would go to his children as he has intended.

3) He sells the property outright and live off the proceeds from the sale.

My sister and her husband purchased some land from my mother using arrangement number 2 and it seemed to work out alright. However, my mother did not have to worry about GIS clawback. There was also only one purchaser and my mother had asked the other children if they had any objections. Not a requirement but definitely a good idea in the decision process. Having multiple owners to the property can create a lot of potential concerns. As a result a lot of extra provisions in the rental/purchase agreement would need to be made. Same would apply to an outright sale.

Here are some concerns that were discussed should an arrangement take place involving the children.

What if one child decides later they no longer want to be part of the arrangement?
What if one child cannot afford the payments?
What if one child wants to sell their share?
What if one child wants to buyout the others?
What if one child goes through a divorce?
What if one child passes away?


Does anybody have any similar experience or expertise they could share on the matter? I am sure there are more concerns than the questions above. Is there anything else to consider regarding the above?
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AltaRed
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Re: Question Family Rent/Own Vacation property

Post by AltaRed »

I only have anecdotal information on arrangements whereby a cottage goes to multiple children, and it is mostly negative....because of the issues that arise from your very valid questions. I really don't understand why parents think the children want to take on a boat anchor other than for perceived sentimental reasons.

Personally, I'd never be part of a multiple ownership arrangement. When my father left my brother and I a piece of raw land in the mountains, it took less than 5 years for us to recognize one of us had to buy the other out....or to sell the property. I wanted to develop the property while my bro did not. Those issues will definitely arise in any multiple ownership.... disagreement on repair, maintenance, upgrades

But if you insist, put clauses in the contract on how the 3 children solves disaagreements. Also, to me, it is important to have a tenants-in-common title (divided interest) so that there is no question what happens when one person dies.

Finally on 2), if the father can no longer claim this cottage as a principal residence, there will presumably be capital gains on this property and the estate (or someone else) will have to pay the cap gains taxes.
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OhGreatGuru
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Re: Question Family Rent/Own Vacation property

Post by OhGreatGuru »

The pitfalls of a joint ownership have been pointed out. It can be done, and there are ways to write up legal agreements to cover how to resolve some issues. But anecdotally not too many people recommend it. It is too hard to predict what each party's wants, needs, and financial circumstances will be in the future to tie everybody together in such an agreement for decades.

Another "have my cake and eat it too" problem. Can't afford to maintain it, but wants to keep it available for family (and himself?). Why can he not rent out the property at market rates immediately? But then the children would have the problem of deciding how to divvy it up after he's gone.

PS: Whether under "buyout" or "rent-to-own", I presume none of these children would be making it their primary residence, at least for a number of years. So they are going to be saddled with long-range property management and possibly rental management. So what's the point?

PPS. He doesn't have a legacy he can afford to leave his children. If his only income is CPP/OAS/GIS, then that home is his retirement fund. Sell the property on the open market. If he dies before his money runs out, or before the guarantee period of his annuity runs out, the remainder will be his children's "legacy".

PPPS: IMHO his children should tell him "Dad, it was a very kind thought, but you need to look after yourself first. Sell the unit; use the proceeds to supplement your income so you can live closer to us and your grandchildren; splurge a little on yourself if you can; if you find your income still exceeds your expenses, cash is always an acceptable Christmas present."
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