Can I sell my home to my children?

Yes, when I heard this question I was also astonished just like you. Most of us like to leave a legacy for our kids and a family home is usually stays on top of that list. We never really think of selling our legacy to our children.

Mr. & Mrs. Raneja, 69 and 66 retired now, have done everything within their power to provide for their kids and family. To the extent that both of them had to dip into their retirement savings to help their kids get married and pay for their education loans. Mr. & Mrs. Raneja are receiving $3900 dollars taxable income every month from work and government pension. The house is worth $750k with a mortgage of $350k. Aside from this house, this couple does not have much saved up and they constantly worry about financial constraints. A few of their credit cards are maxed out on limits.  Their son, Sam moved to the States after getting married and continues to live their with his 3 year old son. Their daughter, Shasha at the age of 31 is living at home and plans to stay with them forever.  She is concerned about her parents living alone and takes good care of their affairs. Shasha is an accountant and earns $95,000 per year.  Shasha is worried about buying a home in this market where buying a decent home requires 20-25% down-payment.  She has been saving for her home while living with her parents.  She has accumulated about $40,000 in her RRSP and $10,000 in her TFSA.  Three years ago when Sam wanted to buy a condo, his parents refinanced their home and gave $150,000 to their son and paid off Shasha's student loan of $40,000. With $3900 per month and having to pay for a mortgage and expenses, the couple is not able to travel or enjoy their retirement as they had planned to do for many years. Mr. & Mrs. Raneja had planned to spend a few months in India, do some charity work in their hometown in India, which they have not been able to do with all the ongoing expenses and responsibilities.

Let's face it, with super high prices of properties and competitive digital lifestyle, the young generation does not have it easy. Like I mentioned in my previous articles, more and more children are living at home even after an university/collage or finding a job. 

When I suggested that they sell their home to their daughter and live with her as long as she plans to live alone with her them, their initial reaction from all three of them was a sceptical one however, all of us set down and worked out a plan.

1. Sell the house to Shasha for $750k which is the fair market value of the property.
2. Mortgage paid off for $350k. 
3. $400k was left over from which parents had to help Shasha pay for down payment with $110,000.  They wanted to be fair to both the kids by equalizing their share of inheritance.
4. $200k was used to by a Condo by Mr. & Mrs. Raneja to which was rented out for $1650/month. $1650 per month gave Mr. & Mrs. Raneja an additional income of $600 dollars after paying for a small mortgage, tax and maintenance fee.  They wanted to have this condo so that if Shasha decided to have a family and live on her own, they would not have to look for a place. This would be an affordable option for them.
5. Mr. & Mrs. Raneja now have an income of $4500 ($3500 after paying $1000 rent) per month, from this income they are able to travel, do some charity work in their home town back in India, and even travel every six months to visit their grandson in the States.
6. Mr. Raneja likes to pay $1000 dollars per month in rent to his daughter to support her mortgage and expenses. His daughter has an income of $850 coming from the basement and $1000 from her parents which she does not want to depend on.
7. Finally a will was drafted to protect what the Raneja family has and how it should be distributed amongst the two children and their grand children. 
8. $80,000 was tucked away in conservative investments for Mr. & Mrs. Raneja as an emergency fund. 

I find this family to be happier, secure and finally free of debts.  Shasha is happy that she has a home of her own and feels really proud of keeping her parents in the house with her. Sam is very happy that his parents can come and visit often with no financial pressures and really enjoy their life.

So, sometimes things that seem a bit shocking on the surface can actually make a lot of  sense if planned and assessed properly.