May 24, 2024 • 5 mins
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EPISODE DESCRIPTION
In this episode, Brandon shares the reasons why you should be charging your adult kids rent, the lessons it will teach them, and how it can set up their financial future.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Hey, it's Brandon Love from theCanadian Mortgage Guide, and maybe
you're a student who's returnedhome to your parents' house after
finishing college or university,or you're a parent listening to
this video.
And in today's video, I'm going to
share with you why you should bepaying your parents' rent, and by
the end, you'll understand whyyou'll be happy to do so.
So let's dive right into it.
so here's the scenario.
You can see here me as a young gungraduating from McGill University.
(00:25):
And like many of you, I went homewith the intention of earning as
much money as I could, livingthere in the meantime and keeping
my bills low, and kind of forgingahead for the next step, finding
that job, getting a home, youknow, all the goals we look for.
And this is the dream.
We all want to have this house.
We all want to move on from ourparents' house and achieve home
(00:46):
ownership.
But it's no mystery to anyone that
in the Canadian market, this isquite a complex task.
And it's a tall order to come upwith those funds.
So the problem that I see is youmove home, you get your summer
job, maybe you get your firstcareer started if you're lucky,
and your parents don't charge yourent, you don't pay for groceries,
you have no strategy for savings,and you spend a lot of money on
(01:11):
frivolous things.
I know I spent a lot of money
going out for beers with mybuddies, buying stupid clothing
items, taking trips that Icouldn't necessarily afford if I
were out on my own, but having theroof over my head and the luxury
of being safe at home reallyafforded me these luxuries that I
didn't necessarily need.
The other key piece here is that
it doesn't prepare you for therealities of the real world.
Once you do find that house, inaddition to the costs of running a
(01:32):
household like your hydro andother water bills and any repairs
you might need, you're going tohave a mortgage payment each month
where a certain amount isallocated to principal and a
certain amount is allocated tointerest.
So while parents out there feellike they're doing us a service
and we're certainly grateful forit, it really doesn't set us up
for long-term success and itforces us to learn lessons the
hard way.
So here's my solution and I think
(01:53):
it's going to work out wonderfullyfor you.
Take a number that works for youbased on the amount of income you
earn and a reasonable rent in thearea and then apply the Pareto
principle or 80-20 rule.
So let's take a number of a
thousand dollars a month.
Let's say 20% of that goes to your
parents.
It covers utilities.
It covers some form of aquote-unquote rent.
Really it's just there as a bufferand it is reflective of the
(02:14):
interest portion of a loan thatyou would pay.
The other $800 represents a forcedsavings and that goes in another
account.
Some recommendations there would
be a first home savings account,an RRSP.
Start with those and then ifyou've already maxed those out
with other resources, then go toyour high interest savings
account.
Like I mentioned, that $1,000, 200
goes to cover the basics, 800 goesto the savings account.
(02:35):
Okay, so pretty crystal clearthere.
What we're trying to do isestablish this pattern where a
certain amount is going to be lostper se to the interest that's paid
out.
But a certain amount is reflective
of the principle that you wouldpay down on a regular mortgage
payment.
So how it shakes out is quite
nice.
So $1,000 costs, 804 savings.
Now put this on a three-year timehorizon.
Let's say when I finisheduniversity, I was 21 years old.
(02:58):
This time horizon would put me toage 24.
So looking at it, you have 36months in that three-year window.
So $1,000 a month equals $36,000.
Of that, $7,200 is going to go to
the operational costs.
The remaining $28,800 goes in as
for savings for you.
So that goes into the first home
savings account, RSP, whatever youdesignate.
The beauty of that is you'll getsome tax benefits there and the
(03:21):
interest will also grow and accruewithin those accounts.
This is how it works outwonderfully.
So I can tell you that after threeyears, when I was 24, I did not
have the money set aside for adown payment.
I did not have the savings set up.
I still actually had my student
loan there that was sitting aroundbecause I just wasn't deploying my
(03:49):
funds properly.
But if you did this and followed
the strategy, you would have$28,800 and that's enough to put a
5% down payment on a $500,000 homeas well as have funds for the
closing costs.
And a lot of borrowers might say,
okay, well, maybe I won't qualifyfor a $500,000 home or maybe I
need more.
Well, in the process of doing
this, you as a parent or you asthe child will also be proving
that you can stick to a savingsplan and that establishes some
(04:10):
credibility with you as partnersas well.
So it gives a bit of confidence ifa parent were to step in as a
cosigner to give you the littleextra bit you need.
So ultimately, it's a win for you,the child.
You get a home at the end of theday.
And for the parent, you've taughtyour kid a valuable lesson that
can be learned in a challengingworld and you've set them up for
long-term success.
So you remember that $7,200 you
(04:32):
collected, maybe you needed it andby all means you've earned it.
So keep it if you're the parent.
But you could also give this to
your child to increase the size oftheir down payment and have a
smaller mortgage, or you couldhelp them offset some of the
closing costs that way as well.
So it's a fun way to give back.
After all, they did follow yourplan and stick to your beautiful
strategy.
If you have questions about this
(04:53):
or you wanna see how it plays outfor your scenario, maybe your goal
is a $750,000 home and you want toreverse engineer that, book a call
with myself and Tom.
We'll map out this strategy for
you and set up long-term successfor you.
If you enjoyed this video, pleasehit subscribe.
We're going to share lots moremortgage knowledge with you to
make sure you earn the most, paythe least and have your happiest
journey as a Canadian homeowner.
Have an awesome day.
Hey, it's Brandon Love from theCanadian Mortgage Guide, and maybe
you're a student who's returnedhome to your parents' house after
finishing college or university,or you're a parent listening to
this video.
And in today's video, I'm going to
share with you why you should bepaying your parents' rent, and by
the end, you'll understand whyyou'll be happy to do so.
So let's dive right into it.
so here's the scenario.
You can see here me as a young gungraduating from McGill University.
(00:25):
And like many of you, I went homewith the intention of earning as
much money as I could, livingthere in the meantime and keeping
my bills low, and kind of forgingahead for the next step, finding
that job, getting a home, youknow, all the goals we look for.
And this is the dream.
We all want to have this house.
We all want to move on from ourparents' house and achieve home
(00:46):
ownership.
But it's no mystery to anyone that
in the Canadian market, this isquite a complex task.
And it's a tall order to come upwith those funds.
So the problem that I see is youmove home, you get your summer
job, maybe you get your firstcareer started if you're lucky,
and your parents don't charge yourent, you don't pay for groceries,
you have no strategy for savings,and you spend a lot of money on
(01:11):
frivolous things.
I know I spent a lot of money
going out for beers with mybuddies, buying stupid clothing
items, taking trips that Icouldn't necessarily afford if I
were out on my own, but having theroof over my head and the luxury
of being safe at home reallyafforded me these luxuries that I
didn't necessarily need.
The other key piece here is that
it doesn't prepare you for therealities of the real world.
Once you do find that house, inaddition to the costs of running a
(01:32):
household like your hydro andother water bills and any repairs
you might need, you're going tohave a mortgage payment each month
where a certain amount isallocated to principal and a
certain amount is allocated tointerest.
So while parents out there feellike they're doing us a service
and we're certainly grateful forit, it really doesn't set us up
for long-term success and itforces us to learn lessons the
hard way.
So here's my solution and I think
(01:53):
it's going to work out wonderfullyfor you.
Take a number that works for youbased on the amount of income you
earn and a reasonable rent in thearea and then apply the Pareto
principle or 80-20 rule.
So let's take a number of a
thousand dollars a month.
Let's say 20% of that goes to your
parents.
It covers utilities.
It covers some form of aquote-unquote rent.
Really it's just there as a bufferand it is reflective of the
(02:14):
interest portion of a loan thatyou would pay.
The other $800 represents a forcedsavings and that goes in another
account.
Some recommendations there would
be a first home savings account,an RRSP.
Start with those and then ifyou've already maxed those out
with other resources, then go toyour high interest savings
account.
Like I mentioned, that $1,000, 200
goes to cover the basics, 800 goesto the savings account.
(02:35):
Okay, so pretty crystal clearthere.
What we're trying to do isestablish this pattern where a
certain amount is going to be lostper se to the interest that's paid
out.
But a certain amount is reflective
of the principle that you wouldpay down on a regular mortgage
payment.
So how it shakes out is quite
nice.
So $1,000 costs, 804 savings.
Now put this on a three-year timehorizon.
Let's say when I finisheduniversity, I was 21 years old.
(02:58):
This time horizon would put me toage 24.
So looking at it, you have 36months in that three-year window.
So $1,000 a month equals $36,000.
Of that, $7,200 is going to go to
the operational costs.
The remaining $28,800 goes in as
for savings for you.
So that goes into the first home
savings account, RSP, whatever youdesignate.
The beauty of that is you'll getsome tax benefits there and the
(03:21):
interest will also grow and accruewithin those accounts.
This is how it works outwonderfully.
So I can tell you that after threeyears, when I was 24, I did not
have the money set aside for adown payment.
I did not have the savings set up.
I still actually had my student
loan there that was sitting aroundbecause I just wasn't deploying my
(03:49):
funds properly.
But if you did this and followed
the strategy, you would have$28,800 and that's enough to put a
5% down payment on a $500,000 homeas well as have funds for the
closing costs.
And a lot of borrowers might say,
okay, well, maybe I won't qualifyfor a $500,000 home or maybe I
need more.
Well, in the process of doing
this, you as a parent or you asthe child will also be proving
that you can stick to a savingsplan and that establishes some
(04:10):
credibility with you as partnersas well.
So it gives a bit of confidence ifa parent were to step in as a
cosigner to give you the littleextra bit you need.
So ultimately, it's a win for you,the child.
You get a home at the end of theday.
And for the parent, you've taughtyour kid a valuable lesson that
can be learned in a challengingworld and you've set them up for
long-term success.
So you remember that $7,200 you
(04:32):
collected, maybe you needed it andby all means you've earned it.
So keep it if you're the parent.
But you could also give this to
your child to increase the size oftheir down payment and have a
smaller mortgage, or you couldhelp them offset some of the
closing costs that way as well.
So it's a fun way to give back.
After all, they did follow yourplan and stick to your beautiful
strategy.
If you have questions about this
(04:53):
or you wanna see how it plays outfor your scenario, maybe your goal
is a $750,000 home and you want toreverse engineer that, book a call
with myself and Tom.
We'll map out this strategy for
you and set up long-term successfor you.
If you enjoyed this video, pleasehit subscribe.
We're going to share lots moremortgage knowledge with you to
make sure you earn the most, paythe least and have your happiest
journey as a Canadian homeowner.
Have an awesome day.
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