Making the leap from basement apartment to home—with a little help from Mom and Dad
The Buyers: Hélène Furlotte-Bois and her boyfriend, Rory Hayes.
The Story: Hélène (at far right) and Rory, who are both 24 and work at a student travel agency, wanted an upgrade from their basement rental. Hélène’s mom, Lise Bois (at right), came up with the home ownership scheme. “I didn’t want to see them throw away $1,500 in rent every month,” Lise says. She and her husband, Darrel Furlotte, who run a home daycare, offered to loan the couple $150,000 for a down payment on a house with rental space—the extra income would pay off the loan and mortgage. Lise searched, mostly near the family home at Clinton and College, and made a short list for Hélène. Then Rory checked out Hélène’s top pick. The search took less than two weeks. “My mom gets pretty determined when she wants to do something,” Hélène says.
OPTION 1Manning Avenue, between College and Harbord. Listed at $699,000, sold for $660,000.
Split into three apartments, this two-and-a-half-storey home was cramped and filthy, and would need a complete overhaul to attract the kind of tenants Hélène wanted. “It smelled like lobster, and not in a good way,” she says. Her mother was also appalled, and they quickly left.
OPTION 2Ulster Street, near College and Bathurst. Listed at and sold for $729,999.
At first they were lured by the hardwood floors, bay windows and second-floor balcony. But the only full bathroom for a first-floor tenant was in the unfinished basement. An odd, tunnel-like layout, combined with a cheaply renovated kitchen, convinced them to keep looking.
THE BUYCrawford Street, between College and Dundas. Listed at $689,000, sold for $655,000.
As soon as they saw the high ceilings, original hardwood and big backyard (they have two dogs), they knew this was it. The house was already split into two apartments, and the upstairs unit was bright and airy enough to attract a substantial rent. It’s a great location (near two streetcar routes, a grocery store and Trinity Bellwoods park) and a 10-minute walk from Hélène’s parents’ place. “The kitchen is large and sunny. Since Rory’s the cook, that was the sell for him,” says Hélène. Their first offer—$655,000—was accepted, and after a month of renos (they gutted the basement and made some minor improvements to the kitchen), they moved in.
(Bois and Furlotte-Bois by John Cullen; Houses by Kevin Meikle)
As a fellow 24 year old with a good job and financial security, I wouldn’t DREAM of buying a home right now… especially not one for up to 3/4 of a million dollars!! What is this Mom thinking?
This couple will not have an easy start as they are fixed into their 100 year (or equivalent) mortgage to pay this thing off. Is renting for $1500 a month a waste?? Not if your plan is to buy a big honking house you can’t really afford that you will be house-poor in. Becasue this couple works in the travel industry, I would assume they have a passion for travel. The only travelling they will doing is from one room to another around their out-of-touch-with-reality home that they just signed on the dotted line for.
Based on the general rule of being able to afford 3 times your gross income on a home, for this couple to spend $655,000, they would have to make a combined income of approx $220,000 a year. This couple would have to make make a whopping $110,000 each at their student travel agency jobs. WOW! Maybe I’m in the wrong industry.
I personally wouldn’t have done this on a bet. Shame on you Mom for encouraging your daughter and future son-in-law into this financial hole.
Better you than me.
February 23, 2011 at 9:23 am | by DBAs someone who is 24 and working a good job with financial security. I WISH I had parents who would loan me the money to put a downpayment on a condo or house. This sounds like the perfect situation. Tenants to help pay off the mortage and expenses. And you are not throwing away over $12,000 a year by paying off someone elses mortage.
I despise the fact that my landlord is living rent free off my dollar and would love to be able to put my money into something that will and can return it to me one day.
Jealous!
February 23, 2011 at 9:38 am | by LPMy x and I lived together in a rented house for 2 years until we split- We forked out $48,000 in rent not including bills like hydro etc. At the end we had nothing except the knowledge we paid almost $50,000 on someone else’s mortgage-
February 23, 2011 at 10:52 am | by Joe DI think what they did was smart- using their $ they would spend on rent to build home equity and have a tenant who helps pay off loan/morgage
good luck
DB, their mom helped them buy the house. The house has a rental unit. From this unit, they will be able to recoup their mortgage payments. Great situation to be in, that’s for sure. I suspect you could do something like this for yourself, if you learned to read.
February 23, 2011 at 12:26 pm | by MP655,000 was the price and with the down payment, that came down to $505,000. Since the unit they would be renting is an upstairs unit, they can easily get upwards of 1800-2000 depending on layout/bedrooms. so that covers they’re mortgage….good for them!
They’re completely lucky to have their parents help with the down payment…..
anyone who is renting from 1,000 to 2,000 should really stop and buy because you’re basically paying for someone elses mortage when in fact you could clearly be paying for your own!!
…I’m still on a hunt for my condo
February 23, 2011 at 12:38 pm | by LLHmmm. It is certainly not a deal I would have done, but they’ll likely be ok thanks to the downpayment from the Bank of Mom and Dad.
E.g. 500 000$ owed over 25-years, 5-year fixed rate: after tenant’s rent (1400$?) monthly payment evens out around 1100$ plus taxes (350$?) and upkeep. Comparable to most 2-bed apartment tower rentals in the core. After 5years they’ll owe about 430 000$, which translates to a post-rental income payment of about 1700$ (plus tax and upkeep) if rates are at 7%. More than I would risk but not out of range of rental prices.
That being said, I bet they’ll be renting out that other apartment for a lot longer than they anticipate – it is unlikely that they’ll be able to afford to get rid of the tenant for a long, long time.
(PS – What is the general rule? I’ve heard it stated at 2, 3 and 3.5 times income…some gross, some net…some mortgage:income, some house-price:income. Who knows, it’s always changing.)
February 23, 2011 at 12:43 pm | by jeff316MP, yes her Mom helped her buy the house, but they were given the money on loan. Therefore, they still owe the bank and the Bank of Mom & Dad $655,000 + a whopping load of interest (+ property taxes + financial responsibilities of being a landlord +++) and it’s unlikely that their current positions can afford them this much of a home comfortably. Especially with interest rates on the rise, all I’m saying is that I would have purchased a home with a lesser debt load, where I wouldn’t feel a prisoner to the bank and my mortgage for the next 20-30 years.
February 23, 2011 at 8:25 pm | by DBThis idea that rent is “thrown away” money is absurd. You’re paying for a place to live. The reason the US housing crisis was so acute and awful is precisely because of our cultural obsession with home ownership (which is unique to North America, and for that matter, North America in the last few decades.)
Given the costs of owning (taxes, maintenance, mortgage, furnishings, upgrading and renovations to maintain resale value) buying a home is not always the more financially stable option, especially in the uncertain real estate market of today. (Look at the list prices and then the sale prices on the houses above, for example.)
And yes, I do feel a certain annoyance when 24-year-olds who’ve barely had to work for anything (I’m 25, by the way) get a $655,000 house in a high-priced, ultra-desirable neighbourhood. I hope they realize just how astonishingly privileged they are. A parent trying to instill some actual sense of personal responsibility would have told them to rent for a few more years and make a down payment by themselves, in a less exclusive part of town. What happened to the concept of a starter home? These kids have leapfrogged into the dream house. Greed.
February 24, 2011 at 11:20 am | by AdamBuying a home on mortgage doesn’t mean you’re automatically a prisoner. As long as you’re a little real estate savvy, you can always sell when the time is right. A light renovation, and the house can easily go for $700G+ in the near future. And since it’s the couple’s first home, they won’t have to pay taxes on their profit.
At 19, I decided there must be a better way to spend $1400/mo. on other than rent, so I convinced my parents for months before they gave in and helped me with down payment on my first 1+den condo for $280,000. I had a roommate who used the bedroom for $1000/mo. and I took care of the rest.
At 24, I sold the unit for $450,000, paid off the mortgage, paid my parents back with interest, and I now have enough money to make my own down payment on my next home. At the end of the day for me, buying my first home did exactly the opposite of confining me to the bank.
February 24, 2011 at 11:47 am | by ANMP, I think you’re missing DB’s point here. DB has some very valid points but maybe you’re only seeing the cynicism of the message’s delivery. This is a HUGE burden for two 24-year-olds who clearly do not have an exhorbitant income (wild guess) but I’m sure mama didn’t go into this expecting that she can’t get in and save them if the need arises. It’s a great lesson for two young people to learn (how to be responsible) and if nothing else, hey, at least mom’s will end up with a new piece of property. Personally I think it’s a bit absurd–MP you might think having that one unit to help pay the mortgage will do it but who knows what the outcome will be? IE, who’s to say what kind of rent they’ll have to charge and these days with rent being what it is, so many people are looking to simply buy. It’s not like there is a shortage of condos out there, with new listings and buildings popping up by the dozen so frequently.
February 25, 2011 at 1:07 am | by nellyWondering if the boyfriend will be laughing to the bank after his common-law status kicks in!
February 25, 2011 at 10:38 am | by js97@ JS97 – common law marriags do not include property rights the same way legal marriages do. He shoudln’t laugh. He should have had his lawyer review it. It’s a common misconception that common law and legally married people have the same property rights, but that’s actually not the case. Bing it.
I think the bigger risk to this scheme is more the fact that their relationship is only boyfriend/girlfriend than it is that the real estate market might go down in 2 years. when I was 24 I went through a girlfriend every 5 months or so.
February 25, 2011 at 1:44 pm | by GeoffThis is f’n ridiculous… “wasting” $1500/month on rent vs. buying a $655k house requiring major renos?
Let’s do the math on that:
$150,000 down payment (which, officially is being called a “loan”, so you would assume there is some interest rate being applied there?)
$50,000 (let’s say) on renos… and it’s not clear if this was cash on hand or a loan?
Anyway – that’s $200,000 right there, which invested @ 5% would yield $10,000/yr in income ($800/month).
Then, the $500,000 mortgage costs say $2500/month (@3.5% / 25-yr amort.). Property Taxes are probably $400/month, and other costs would put the total monthly costs up well over $3000.
All-in, the lost investment income on the $200,000 plus the mortgage and property costs adds up to probably $4000/month!
So — how much rent are they getting for this place?
Even if they get $2500/month back for the rental suite (which is unlikely), they would be *EXACTLY EVEN* to where they are now — spending $1500/month.
If you consider all of the costs, they are in fact LOSING MONEY vs. renting, and they have the risk of a giant $500,000 mortgage (reseting in 5 years, probably at a higher rate) and potential losses from a housing market that is slowing significantly!
February 26, 2011 at 3:54 pm | by Reality CheckI realize that I excluded the approx. $65k in equity (principal repayment) that they’d be getting over 5 years… but, minus any commissions etc. on the eventual sale, and the land transfer tax on the intitial buy, that might be $25k that they end up with after 5 years.
So, that is about $5k/year they are making, or $400/month… but, I also over-stated the rental income ($2500/month is unlikely — $1800/month is probably more realistic), so I still don’t see this as an “investment” of any sort.
February 26, 2011 at 4:21 pm | by Reality Checktotes agree w andrew . spoiled much ?
February 26, 2011 at 7:26 pm | by ya