Buying a second manshon

[mighty58]

You say this place is overpriced, but how overpriced? Assuming the decision to buy something is fixed, the question becomes one of lowering the cost and structuring it right.

Could you, say, buy a non-renovated place for cheap and get it reno'd yourself (you can put the reno cost on the mortgage if you want). Is your building big enough that there is a good chance another place will come on the market in the next few months? Or, casting the net a bit wider, does it have to be in the same building, or could you consider buildings in the immediate vicinity? The flip side is, how pleased with the quality of the reno on this currently listed place are you?...ie. did they use good quality materials, what grade were their choices for kitchens/bathrooms/toilets etc., how is their sense of design etc etc? Is it all satisfactory for you? If you're going to overpay, at least be completely satisfied with what you're buying.

Having said all that, if this is the only place you can buy, and you must buy it, then getting a residential mortgage is the best option of the three. Negotiate to get the price down as well, if you feel there's insufficient demand at the asking price point. All in all, you'll need to pull the trigger within 3-4 months at the latest as these things take time and you don't want some unforseen delay potentially scuppering your deal if it runs beyond your employment time.

[captainspoke]

Since your contract is ending, don't do it at all.

What's your thinking here? This is probably our last chance to get a loan, as we'll both be self-employed after next March. If we decide this is a good idea, we have a strict time limit in place

This may sound like a know-it-all, I'm not. My general theme is caution.

*

One those adages as old as the sun--don't mix family and money. Perhaps this is not really that, but 'intangible benefits to family' seems to set off that sort of radar signal.

It turns out the unit is in the same building? Don't put your real estate eggs in the same basket. If you had other real estate, then maybe, but I don't think you do, so this (to me) is a strong red flag. Is there some external factor about the building that makes it good enough to merit buying two units in it? And compared to buying just one unit, buying two?--I hope it's a really really good building.

Not when I said the above, but in later posts it seems you're thinking of selling investments to do this. @Beaglehound does well on this point, and so maybe follow that rationale. And I stubbornly/grudgingly accept that rationale, but still... I don't. One of those things that look good on paper, not sure I'd put many chips down on it.

Last-chance-to-get-a-loan is not really a reason to get a loan. It looks that way, but on down the road 3-5 years or more, there may be another chance, for more things than just a loan, those things are simply not visible now.

But as I said, you/wife are the ones who will be judging the intangible benefits. I'm just a very distant, minor observer.

[fools_gold]

Have you thought about renting instead? it might make more financial sense and if you're financially supporting them you could get the dependent tax deduction.

[JapaneseMike]

Have you thought about renting instead? it might make more financial sense and if you're financially supporting them you could get the dependent tax deduction.

This seems like the wiser choice if you're expecting to sell it later, likely at a loss. You'd tie up a lot of capital into buying it.

Not sure if it's viable, but could you rent the second place, move your juumin into it, have your company pay the rent via a corporate housing agreement to reduce your tax burden by paying rent from pre-tax earnings?

[RetireJapan]

You say this place is overpriced, but how overpriced? Assuming the decision to buy something is fixed, the question becomes one of lowering the cost and structuring it right.

Could you, say, buy a non-renovated place for cheap and get it reno'd yourself (you can put the reno cost on the mortgage if you want). Is your building big enough that there is a good chance another place will come on the market in the next few months? Or, casting the net a bit wider, does it have to be in the same building, or could you consider buildings in the immediate vicinity? The flip side is, how pleased with the quality of the reno on this currently listed place are you?...ie. did they use good quality materials, what grade were their choices for kitchens/bathrooms/toilets etc., how is their sense of design etc etc? Is it all satisfactory for you? If you're going to overpay, at least be completely satisfied with what you're buying.

Having said all that, if this is the only place you can buy, and you must buy it, then getting a residential mortgage is the best option of the three. Negotiate to get the price down as well, if you feel there's insufficient demand at the asking price point. All in all, you'll need to pull the trigger within 3-4 months at the latest as these things take time and you don't want some unforseen delay potentially scuppering your deal if it runs beyond your employment time.

Very good points there. We viewed it yesterday, and the renovation was better than I was expecting. We don't want a unit in another building, or even on another floor. This one is two doors down so it's this or nothing

[RetireJapan]

Thanks for all the thoughts and suggestions in this thread. It's been very helpful as I try to figure out what to do.

As far as I can tell, we have three options:
1) pay off the mortgage on our place, and buy the new place with a residential mortgage
2) keep our current mortgage, and buy the new place with a commercial mortgage. Rent it out to our family, and use it as a way to reduce taxes (depreciation, etc.). Eventually sell it, possibly at a loss.
3) liquidate some investments and just buy it with cash. Possibly rent it out to family, as above.

We have figured out how we want to proceed, and the answer was of course secret option 4) which came to light as I really didn't like options 1) to 3)

Instead of buying the new place (long term members may have noticed that I don't like real estate) we decided to give my daughter and her husband some money to sweeten the deal so they can buy it. They can get a mortgage for 15m and we'll pay the rest in cash (need to look into tax treatment, but I believe one off gifts to buy real estate are still exempt).

If/when they decide to move out and sell it, they should be able to make a profit based on the amount they took out the loan for. We spend some money to (subjectively) make our family happier. I think it's a win-win-win.

[beanhead]

Option 4 sounds like a good plan. Also fits in with your strategy of giving some money to relatives when they need it, rather than making them wait to inherit it.
We have a wealthy family member who occasionally sends us money to treat ourselves. Even if not strictly needed, it is always nice to receive.

[Tokyo]

Viva option 4! You get to help out your child when she needs it most, plus it will be so much more convenient to visit.

In the NYTimes today, Stephen Pinker was answering questions about rationality. He was asked: What about love?
His response: “There’s nothing irrational about love. Ultimately our values are neither rational nor irrational. They’re our values; they’re our goals.”