Marketing – Another Product? #91
CATEGORY: Legally Speaking
TAGS: Marketing Mortgages Taxes
By Gerry Neely
For some years Victoria has had double the average population of Canadians over the age of 65 years, the result, of course, of its incomparable beauty and moderate climate.
Over the next 30 to 40 years, Canada overall is expected to see a doubling of its population over this age. New alternatives to traditional housing are being developed to meet the needs of this enlarging group. The ingenuity of an experienced real estate licensee or an academic with time to spend, might provide the solution for the following problem.
For the third time in the last two years, I have had a client discuss the opposite consequences of inflation upon the value of his home, and the purchasing power of his pension. His pension, through inflation, currency devaluation and other factors, no longer allows him and his wife to travel or to enjoy the other percs that it provided at the time of his retirement.
In the meantime, inflation has substantially increased the value of his home to the point where, if he sold, the income earned from the proceeds of sale would provide him with extra income even after payment of rent and payment of income tax on the investment income. Mortgaging the house to provide the capital appears to be impractical. On the other hand, he and his wife like their home and want to live there during their lifetimes.
The question then is, what price might someone pay to purchase their home at a value discounted to reflect the life expectancies of both the husband and wife? In return for a discounted price, the husband and his wife would remain in possession by receiving a life interest in their property.
How many factors, apart from present market value and life expectancy, would decide the discounted price? The principal risk for the investor is that our clients might live longer than their expected lifetimes. The benefit, as macabre as it sounds, is that they might die in a plane crash a year from now, since the purpose of getting capital now is to enable them to travel later. Secondary risks include the failure to keep the premises in repair, or a failure to pay taxes and insurance. Those risks, of course, can be dealt with by providing for the termination of the life estate for default by the life tenant with appropriate provision for notice and rectification of default.
On the question of repair, the best risk would be a piece of land that might be a key to a future development in which the value of the building would be zero. A medium risk for repair would be the condominium in a steel and concrete building.
Perhaps there is a market here to be explored. More older people are now willing to defer municipal taxes from year to year than they were when this opportunity was first provided by legislation. This indicates that more people are taking the view that the assets are for themselves to enjoy rather than to accumulate for their heirs.
The following alternatives may help to define the circumstances that clients in this position would consider:
- They are able to live in the premises until both are deceased, or until they are no longer able physically to live in their home, whichever first occurs.
- They are able to live or to enjoy the use of the premises until the death of both of them, which would mean that they could, if they wished, sublet the premises in the event that they had to enter a personal care home.
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