-----Origina
My question is: Canadian-specific
QUESTION: I am in the process of buying a house (in my name) for my son who
will be attending university. I plan on allowing him to stay for free, while
renting out to 4 others, and selling after 5 yrs. I should be able to just
break even on the expenses or make a small profit. When setting up the
mortgage, would it be better to amortize over a long term (lower bi-weekly
payments) or a short term (higher bi-weekly payments)? What else should I
consider?
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david ingram replies:
As described, any gains in value would be taxed at full rates and not as a
capital gain because your intent is to buy and sell within a specific time
zone and it has been bought for a specific short term purpose and not for
the long time rental at a profit.
Also, any rental losses in the meantime would NOT be a deduction because of
the free rent to your son.
You should be financing for cash flow. I would likely suggest a HELOC (Home
Equity Line of Credit) from Manulife bank (as an example) where you only pay
interest and no principal.
That leaves more money in your pocket.
If you happen to have assets (mutual funds, GIC’s, etc.) that you could sell
to pay cash for the house, it would be wise to do so. Then, within thirty
days, use the house as security to buy back the income producing assets and
the interest will be deductible.
The first time I saw this done was back in 1959 to 64 when five parents
bought a house just outside the University of Saskatchewan. The end result
was free tuition for the five years for their children (all sons - nothing
co-ed about this deal),
If you can not find a local person, call Stu Rodger at 604 351-6133 or write
him at stuart_rodger at manulife.com. You can also hear him most Sunday
mornings with Fred Snyder on www.600am.com at 9AM stuart_rodger at manulife.com
Vancouver time. From your email address, I think you are in Ontario which
would mean 12 noon your time.
To get an idea about making all of your interest deductible (not just
mortgage interest) goto www.centa.com and click on the November 2001
Newsletter in the top left hand box.
------------------------
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