Lintott Law
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Gifts from parents toward residential real estate can backfire

Many parents today are gifting money to their children to help with their first down payment. While this can be incredibly helpful for some young people looking to purchase residential real estate in Alberta, others who are not ready for home ownership might find this "gift" to be a burden. If a young person ends up with a home that he or she cannot comfortably afford to pay off, other financial priorities could suffer due to the mountain of mortgage debt.

Many young people who purchase a home in the current real estate and economic climate end up forgoing other investments to make this purchase. With little left for savings after making mortgage payments, their can mean a person or family's net worth is completely wrapped up in the home. This can be a dangerous situation as the only way to liquidate that investment is to sell the home, something that isn't always easy.

Ideally, people will have liquid investments to complement their housing wealth. These investments can be kept in tax free savings accounts or registered retirement savings plans. Young adults who own homes may not be able to contribute to either of these accounts. 

Having all wealth wrapped up in a single asset can be risky. While real estate historically increases in value, a market decline has happened before. Those who are considering giving their children a gift toward buying residential real estate should carefully discuss their children's plans and ability to pay off the home. They should also get a lawyer involved in the purchase of the home so the transaction is conducted properly under Alberta real estate law. 

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