ACCIDENTAL MILLIONAIRES

Vancouver homeowners face prospect of sudden wealth as real estate values surge

Earlier this year, Amanda Goldrick-Jones and Herbert Rosengarten sold the Kitsilano townhouse they had owned for 20 years and moved into a new condo at UniverCity, near Simon Fraser University.

Cashing in on Vancouver’s rocketing real estate market was not their primary motive for moving, but like thousands of other homeowners across the Lower Mainland, Goldrick-Jones and Rosengarten were left with a sizeable capital gain when they sold.

In fact, in Vancouver alone, realestate values have risen so high that many of the city’s 47,500 detached homeowners are now sitting on real estate that has appreciated in value so much that they have become ‘accidental millionaires.’

According to the Real Estate Board of Greater Vancouver, the benchmark price of a typical detached home on Vancouver’s west side was $3,591,200 in July, up 73.4percent since July2013. On the east side, the price was $1,528,200, an increase of 81 per centsince 2013. The price of a typical townhouse on the west side was just over $1-million.

While large mortgages and the need to buy another place to live usually means owners who sell won’t necessarily see a million dollars or more flow into their bank accounts, nearly 30 per cent of Vancouver’s 603,500 residents are aged 55-69 according to 2011 census data.

A significant number probably own detached homes and are likely to downsize to a smaller home if they decide to sell – and will end up as ‘accidental millionaires.’

Frank Danielson, a Senior Financial Planner with Danielson Group Wealth Management at Assante Capital Management Ltd. in Vancouver, says a windfall of a million dollars or more can be a blessing for people who are prepared, but a potential curse for those who are not.

He says it’s likely that many of Vancouver’s newly- minted millionaires bought their homes years ago, worked in mid-level jobs with average incomes and lived relatively modest lives. They may have some savings, butno financial plan and likely little financial advice. Sudden wealth could come as a shock.

“For some, it starts out with joy, elation and a grand vision,” says Danielson. “Then it moves into fear and sometimes guilt. Money brings with it a lot of different emotions.”

Goldrick-Jones and Rosengarten believe they made the right decision with their extra cash. The couple had worked with Ray Glicksohn, Danielson’s partner of 10 years. They had a financial plan and knew what they wanted to do with the capital they took out of their Kitsilano home.

“We were discussing our options with Ray even before the sale went through,” says Rosengarten. “He knows our situation and our investment objectives and showed us various options and helped us choose the right one.”

But decisions about fi- nance are not the only challenges facing Vancouver’s accidental million aires. Jonathan Mackenzie’ s company, Estate Property Services, provides a comprehensive service to help people downsize. He says the first hurdle is often whether to downsize at all.

“Most of my clients have been in their homes for a long time and don’t really know where to start,” he says. “A lot has to happen to get someone from a 3,500 sq. ft. house in Dunbar into a 1,200 sq. ft. condo or to a retirement community where the suite may be no more than 500 to 700 sq. ft.”

Of course, not all Vancouver’s ‘accidental millionaires’ are downsizing homeowners. Some are heirs to estates that include multi-million dollar homes. But if the estate hasn’t been well planned, there can be problems, and Ken Friesen, a partner with the Vancouver law firm, Friesen & Epp has seen his fair share.

Friesen deals with troubled estates that can occur when families fall out over inheritances, and says a large percentage have a real estate component.

“Involving children in estate planning decisions helps avoid disputes,” says Friesen. “It doesn’t inoculate someone against potential challenges, but it is the best way of creating a scenario where everybody is on board and decisions get vetted in advance. It doesn’t leave questions about the deceased’s intention, or whether the deceased was subject to undue influence.”

Danielson says there’s no doubt that people who have financial plans and seek professional counsel tend to cope best with sudden wealth. They are aware of what’s going to happen and prepare in advance.

“My advice to people who are not prepared is to pause and consider their situation,” he says. “Don’t make quick decisions, a few small impulse buys are fine, but don’t proceed without a framework. For many families, this is a once-ina-lifetime generational opportunity.

“It’s important to invest some time with a financial planner to discuss options.”