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The hassle with hassle-free tenant strategy

elyor

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Joined
Sep 6, 2007
Messages
1
Hello all,
Sorry my first post is a request for help and not an informed opinion to assist others, but I am running into a few problems.

Currently, my wife and I are riding the Alberta wave and have done fairly well, and now we`d like to assist some people in accomplishing some of their goals such as extra income in one case and a first home purchase for another. Currently, my aunt is living in one of my houses. I have been talking with her about where she sees herself in the future as she has been talking about 55+ complexes, except that she doesn`t know how she`d afford it and besides, she says that is a long time off. However, my wife and I are expecting a baby and looking to sell the house she is in, in the spring to cover some of the costs we have coming.

Anyway, my aunt decided that maybe she should buy the house. It hadn`t occured to me, and my wife suggested maybe the hassle-free tenant strategy might work, something my aunt was very interested in since she has no downpayment, but knows Edmonton real estate has a ways to go. So we figured, we`d leave enough money in the house to satisfy the loan to value ratio the lenders want, and my aunt could get a mortgage to pay out the existing one and provide us with some extra money to buy the stuff we need for our new addition. My aunt would own 50% of the house and my wife and myself would each get 25%. My aunt becomes a homeowner, and we get to ease some financial stress.

But that is as far as we can get.

Turns out, she can`t get a mortgage in her name only and have us remain on title, on top of this lending institutions all want us to write gift letters to my aunt for the downpayment amount!?!? Another suggestion was that we just go ahead and gift the portion of the house to her and then 2 months down the road add ourselves back on title...some problems with that include her son, who has numerous fraud convictions and who in the event of his mother coming into money might go after it so losing control like that is a little dangerous, as well to do so would trigger a 100% capital gain, despite the fact we would not be recieving that much from proceeds and might not be able to pay the tax bill and have anything left over since much of the amount would be gifted.

It seems like such a good idea but the mechanism sure isn`t working. Any concrete suggestions would be helpful, also an opportunity to talk to someone who has managed to create a situation where one brought in money and another the mortgage and both were on title would be great.

Thanks,
Ian

Ian, I edited this to read easier.
 

Anonymous

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Dec 16, 2008
Messages
1,005
Ian,

I think this is a great thing you are doing for your aunt! Don`t back down now - there is a way to make this happen, I am sure of that. While I have not personally completed a transaction, I would suggest three things.
[list type=decimal][*]Contact Peter Kinch`s office for assistance on the mortgage for your aunt (You may want to put your aunt on the current mortgage, then look to refinance the property)[*]Contact your lawyer`s office or Barry McGuire`s office for assistance. When you talk about gifting funds etc., this is both a tax and a legal issue. In addition, given your cousin`s concern for her financial future, I would have the 4 of you all sit down with the lawyer so your cousin is fully onside and understands that you are trying to help your aunt.Contact your accountant and understand the tax issues associated with this transaction.[/list type=decimal]
My initial thinking is that you don`t want to "Sell" this to her since you most definitely will trigger a capital gains event. I think the best thing would be is to add her to the mortgage... demonstrate she has been living there for x number of years and has been paying rent successfully to help build her case for financial stability. Then I would refinance the property to create a tax free equity withdrawal and finally, place an RRSP 2nd on to maximize your equity withdrawal.

Hope that helps?
 
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