Live Frugally, or sell ownership?

I'm in a unique situation. I don't make a lot of money (I make enough for a single guy to live and have sufficient fun), but my dad does. He's an accountant working for a large firm, and we've always been very well off ( 2 family cars, grew up in a house, vacations, basically just about everything I could want).

Last December, with the assistance of my father, I purchased a co-op apartment. The down payment was made with with Bar Mitzvah gift money I received 13 years ago, and has since increased in value through investment. I borrowed $85,000 of it from the bank, and my dad financed the rest (+ renovations).

So currently I own (once it is paid off) 2/3rds of the apartment, and my dad owns 1/3rd. (i.e. if we ever sell, he gets 1/3rd, I get 2/3rds).

My co-op fees are very high, as the building is very upscale, has a modern gym, outdoor pool, and 24 hour doormen. As a result, the monthly mortgage + co-op fees works out to 60% of my monthly income. I've worked out a budget, but it leaves basically 0 room for savings or RRSP contribution (until such time as I get a raise etc).

As well, I am not debt free...I managed to run up $2000 on a line of credit with my bank, despite years of my dad hammering into me to live within my means and never get credit (other than a credit card for convenience purposes).

My dad has offered to pay off a chunk more of my loan, and in return he would own a greater % of the property...I want to try and make it on my own first because in the long run I would ideally like to "buy him out" so the place is 100% mine. However if he owned 50% instead of 33%, my monthly payments woudl be lower.

Any suggestions?

Aren't co-op fees supposed to be based on your income?

Your mortgage should cost you about $450-550 depending on the term and interest rate you got. Not sure how much your condo fees are, but to hold 60% of your monthly income than you must be making less than $1000/month.

Anyway... If you think that in the future your revenue will be higher, you could temporarily sell a part to your father and then when your income is higher buy it back.

My co-op fees are $590 a month, but they include property taxes, heat, air conditioning, etc, as well as maintenance, 24 hour doorman, pool, gym, etc.

The building also has a board room and party room for free rental.

My mortgage is (currently) $575 a month. I pay prime + 1%. (co-ops are harder to get mortgages for because you don't "Own" the unit, you own shares in the corporation that owns the building).

It's not based on income (mine is around $2000 a month after tax), it's based on sq. footage of that you own.

Originally Posted by Saint

My co-op fees are $590 a month, but they include property taxes, heat, air conditioning, etc, as well as maintenance, 24 hour doorman, pool, gym, etc.

The building also has a board room and party room for free rental.

My mortgage is (currently) $575 a month. I pay prime + 1%. (co-ops are harder to get mortgages for because you don't "Own" the unit, you own shares in the corporation that owns the building).

It's not based on income (mine is around $2000 a month after tax), it's based on sq. footage of that you own.

Can you rent your apartment? This must be a luxuous unit if the co-op fees are that high with the service you're speaking of.

Originally Posted by Saint

So currently I own (once it is paid off) 2/3rds of the apartment, and my dad owns 1/3rd. (i.e. if we ever sell, he gets 1/3rd, I get 2/3rds).

My dad has offered to pay off a chunk more of my loan, and in return he would own a greater % of the property...I want to try and make it on my own first because in the long run I would ideally like to "buy him out" so the place is 100% mine. However if he owned 50% instead of 33%, my monthly payments woudl be lower.

Any suggestions?

I don't know if this is unique to white people... but it sure sounds so petty to me. Why the hell would the dad want to own more of the co-op? Why doesn't he just help out the son if he could? IT doesn't sound like he's teaching you a lesson about being responsible. If he's well off, does it matter if he own's 30 or 50% of the co-op. Wouldn't he just eventually inherit the co-op anyways?
Does he consider his involvement as helping his son or an actual investment?

I would say to try and make it on your own. Get your dad of the picture. Is he a cheapskate? Why would you try to squeeze your son out of the property? This is family, man.. I don't get it.

Blunt:

Your don't understand. He wants what's best for me. He's giving me the option. If he had the spare cash he'd gladly pay for the whole thing and let me pay it off over time at a lower interest.

And yes, eventually assuming he dies before I do (which is likely) I will inherit his share anyway.

Seems to me that you can't aford where you are living in the lifestyle you may want/are accustomed to.

My advice... Either sell the unit (or rent it) and move to a different area that is more affordable (leaves you with cash flow at the end of the day) ,

or move in with your dad and save some more money till you can get out on your own comfortably.

Nice to see your Dad wanting to help you out!

Good Luck

Bite the bullet - live at home for awhile, rent out the unit and save some money so that you can afford to buy your dad's share down the line. If your dad is willing to let you live rent free (you can show him you are saving up money), then more power to you! Too bad it's not a two bedroom unit, otherwise you could rent out the other room to help pay your share.

Originally Posted by Blunt

I don't know if this is unique to white people... but it sure sounds so petty to me. Why the hell would the dad want to own more of the co-op? Why doesn't he just help out the son if he could? IT doesn't sound like he's teaching you a lesson about being responsible. If he's well off, does it matter if he own's 30 or 50% of the co-op. Wouldn't he just eventually inherit the co-op anyways?
Does he consider his involvement as helping his son or an actual investment?

I would say to try and make it on your own. Get your dad of the picture. Is he a cheapskate? Why would you try to squeeze your son out of the property? This is family, man.. I don't get it.

Unique to white people....!? I'll ignore that.

What you're missing is that his father is forcing him to make decisions that he'll be making for the rest of his life. When you start handing over money to your kids on a whim, they never learn the value of it and they start to expect it. I grew up with my mother in a single parent household and we were living on next to nothing. I had a small allowance that I got weekly, but it wasn't just handed over to me, I had to earn it. It's a similar situation on a smaller scale. It's about teaching your kids to make smart decisions with their finances.

If this guy were ever in serious trouble with money or anything else you can bet your ass that his dad, like most other parents, would do anything he could to help.

Just want to put another perspective out there....

Perhaps you should just consider that your house is your current investment..

According to the http://www.cigm.qc.ca/uploads/document/03-05-A.pdf
... Average cost of a home went up 10% last year, and average cost of a home in Montreal is 302K

I am going to make some assumptions..(Plug in your own numbers)

1. Your share of the co-op is worth 150k
2. You net about 5% growth on your house. (Apprication of property - mortgage interest on 85k)

That works out to be 7.5K (non taxable due to primary resident) a year gain.

What investment can you get in to that will yield you 7.5K a year? Plus put a roof over your head?

If you move out of the co-op you are still going to have to pay utilities......Your co-op cost doesn't seem too high, because it does cover your AC heat and Property tax. How much of your co-op do you think is non-utility related? About $150.00 or $200?

Hangon, your dad is an accountant...so he knows a thing or two about finances. Have him or a tax planner examine the options.

I am curious: since you just found out that you are unable to keep up paying for the property, how da heck did the bank approve the mortgage???
What is your contingency plan in the event that mortgage rates rise significantly in the next 2-5 years???

The past is no predictor of future performance ---

Here's what I think could cause you some problems:
If interest rates rise (your mortgage is prime-linked, not locked in?) a few things will happen:

1. Your interest expense will go up (putting more pressure on you fiscally)
2. Higher interest rates will put pressure on housing prices -- they cannot rise as quickly as in the past unless incomes rise (or bubble mentality really breaks out).
3. A co-op is cheaper than a comparable condo because of a number of reasons in addition to the fact that it is an interest in a corporation rather than real property -- they are less liquid than condos (harder to buy and sell) and (some) co-op boards have the power to approve or deny your prospective buyer entry into their building. This makes banks nervous and thus forces you to put up 25% (or more in some cases) of downpayment. which limits the potential market, again driving down liquidity.
4. Transaction costs -- a short period of time between buying and selling a place will costs you in terms of the fees you pay to lawyers, real estate agents and land transfer taxes -- you should factor the selling costs into your analysis before you decide.

In an environment with rising interest rates, you may find it difficult to sell your condo or maintain the value at the time of your purchase. These factors should also be considered before making your decision.

Originally Posted by Saint

I'm in a unique situation. I don't make a lot of money (I make enough for a single guy to live and have sufficient fun), but my dad does. He's an accountant working for a large firm, and we've always been very well off ( 2 family cars, grew up in a house, vacations, basically just about everything I could want).

Last December, with the assistance of my father, I purchased a co-op apartment. The down payment was made with with Bar Mitzvah gift money I received 13 years ago, and has since increased in value through investment. I borrowed $85,000 of it from the bank, and my dad financed the rest (+ renovations).

So currently I own (once it is paid off) 2/3rds of the apartment, and my dad owns 1/3rd. (i.e. if we ever sell, he gets 1/3rd, I get 2/3rds).

My co-op fees are very high, as the building is very upscale, has a modern gym, outdoor pool, and 24 hour doormen. As a result, the monthly mortgage + co-op fees works out to 60% of my monthly income. I've worked out a budget, but it leaves basically 0 room for savings or RRSP contribution (until such time as I get a raise etc).

As well, I am not debt free...I managed to run up $2000 on a line of credit with my bank, despite years of my dad hammering into me to live within my means and never get credit (other than a credit card for convenience purposes).

My dad has offered to pay off a chunk more of my loan, and in return he would own a greater % of the property...I want to try and make it on my own first because in the long run I would ideally like to "buy him out" so the place is 100% mine. However if he owned 50% instead of 33%, my monthly payments woudl be lower.

Any suggestions?

Your expenses are fixed with no room for changes, they only go up. 60% is way to high. If you want to keep the place get a roommate, if not sell it and buy another when you can afford it.