Leveraging Gen-Z into real estate market
Dear
Money Lady Readers,
I was surprised to learn how very little some new Gen-Z’s really know about money ..... nothing! Okay, I realize that most young adults are feeling stressed and worried that they will never be able to buy a home, never make enough money to have a huge retirement portfolio, and generally feel that the economy now is set to keep them as the working poor for the rest of their lives. STOP. This is not true. You are the most educated and socially accepting demographic of all time. And you are the ones that will change the world for the better. I know this because, your parents and the rest of the world are counting on you to evoke change and we know you are more than capable of really doing it.
First question: Do you have school debt? If so, great!
Did you apply for all the extra government school grants and assistance? If you did, another step in the right direction!
Are you living on your own, renting, and paying your own bills and expenses? Well done!!
I know you are feeling overwhelmed and unsure of your future; this is natural. Stop beating yourself up all the time. You are supposed to feel unsure and stressed about the future. And you are supposed to have a lot of debt at this age. The reality is, you can still carve out a great financial life for yourself, buy a home and a cottage and do everything else you want to do as you age. So, let me give you some pointers.
First of all, the school debt. I don’t want you to pay this off – yes, I said keep it. I know your parents are going to say that is not right, but to get ahead you are going to do what we bankers call: leverage lending. I want you to get all the school loans you can, get all the grant money you can, and pay off all your credit card debt, your car loan and start using some of this money (whatever is left over from your school expenses) towards saving in a TFSA (tax free savings account), a Home Buyers’ Account (gives you an auto tax credit of $1,500), sign up for a HBP (Home Buyers’ Plan) and also a FHSA (First Home Savings Account). Once you start wrapping your mind around the idea of saving for your first home through these government incentive programs you will start to gain real inner power towards the idea of home ownership, because let’s face it, you must get into the real estate market.
All Canadian banks and major financial institutions view school loans differently than consumer credit. It has been this way for decades and a well contained secret in the lending industry. You see, when a banker adjudicates a mortgage deal, they plug in all the numbers and are given a GDS score (gross debt servicing score) which mitigates the risk on the deal. But having this number (especially if it is too high) does not strike out the deal. Banks want to lend – and they want to lend to young professionals that have potential to earn and invest. They are greedy and have an ulterior motive to build a relationship with young professionals so they can eventually get the “full wallet” (your line of credit, accounts, investments, etc). Your deal will be positioned perfectly, because you have no consumer debt or car loan, which means you are credit responsible and a good potential risk for a high-ratio mortgage with only 5-10% as a down payment. And if you have a low CB (credit bureau score) probably because you had too much credit in the past, as long as all balances show $0, we mitigate it as being someone “young and just starting out.” VOILA – approved!
Oh, and that school debt you are hanging on to and just paying the minimum payments: just keep doing that. Never have this debt payment late or in any delinquent state. Once you purchase a home or condo and after it goes up in value (which it will) in the next two to three years, you refinance it into a new mortgage and eliminate the debt. That is the leverage lending piece, and you’re in – you made it into the real estate market. Okay, it might be at the bottom of the market in the cheapest thing you could find, but who cares, you are a property owner and now an owner of an appreciating asset that will grow as you do, growing your career and making more money over time. Good job!
Christine Ibbotson is a radio host and author of the Canadian best-selling book “How to Retire Debt Free & Wealthy” Send your questions through her website at askthemoneylady.ca