The Birth of a Child, Life Insurance and Moving into a New Home: How to Plan for the Near Future

By the time you read this post, hopefully our new baby will have been born.

He’s our second child.

I still remember how busy we were trying to get ready for Robin’s arrival, our first child.

This time we are much calmer.

The first time around, we rushed to get insurance for our lives. We weren’t concerned about getting any type of insurance when we didn’t have kids. When we knew that we were having kids, first thing we did was get life insurance.

I am no insurance expert, but some of us would think that the insurance you get from work is sufficient. The reality is that most corporations that I worked for only provide life insurance up to 2 to 3 times of your annual salary. If you make $100K annually, the coverage is only $200K to $300K. Is that enough for your family if anything happens to you?

Insurance is like tax planning, it is very personal. Only you know how much is enough.

We are lucky enough to be eligible for a group plan offered to the members of our professional body. Chartered Accountants live long lives. Some of the members who have been in the policies have got money back! We signed up immediately for their term life insurance policy that would cover us up to age 85.

Unfortunately, most life insurance policies are not eligible for tax deduction. (If you are self employed and have a loan from the bank requiring a life insurance policy, you may qualify to deduct the insurance expense. Small businesses do have quite a bit of flexibility in terms of tax deduction. Consult us when you setup a life insurance policy.)

Second thing we did to get ready for Robin was to sell our 120 year old Victorian style home in west Hamilton and buy the biggest house we could afford for our family.

The Hamilton house was nice for family without children. We could walk downtown in less than ten minutes. All the amenities are close by and within reach. It’s just that there were too many cars parked on the street. The way we renovated our Victorian home wasn’t baby friendly.

With my 6 month old belly and some help from our assistants, we packed everything away. We made the house spotless and we took off for a baby moon trip for 7 days. When we got home, we sold our house for $55K over asking. We thought the Hamilton market was crazy then. Hamilton real estate market is crazier now!

As soon as our house was sold firm, we were officially homeless.

Again, dragging along my 7 month old belly, I saw over 100 houses in 3 days in the suburbs from Ancaster to north Burlington. We couldn’t seem to find anything we liked within our budget.

We spoke to our long time mentor, who also bought a new place at the time to get ready for his second baby.   He advised us to get as big a house as we could afford. He was regretted not having done that in the first place. He now had to pay for a premium to get an extra bedroom.

Keeping that advice in mind, we booked an appointment to see a four bedroom house that just came on the market. Asking price was $50K above our budget.

The house was well maintained, located on a cul de sac with a pie-shaped lot, big enough to accommodate a swimming pool. It also came with a separate entrance to a basement apartment. We felt that this was the house that we could grow into as a family. We knew this was the right house. We were right!

It was the second day of the listing. As we were leaving the house, we saw the listing agent waiting by the front door for the owners to come home to present an offer.

Great houses don’t last with the right price!

With the help of my belly, we told the sellers that we would do anything for Robin and we ended up getting the house.

Fast forward to today, 19 months ahead, the identical house down the street, not at the end of the cul de sac and not with a pie shape lot, was sold $80K above our purchased price.

It is more than 10% of appreciation in less than 2 years.

It’s all tax free!

And we are generating some cash flow from our separate entrance basement apartment unit!

Robin, who’s now 18 months old, is playing with other kids on the street everyday.

One of my best friends, who’s also a first time expecting mom, asked me when it would be the best time for her to move from her semi detached home in Brampton to a detached house in Burlington. I told her that the best timing is now.

It’s about the time in the market, not timing the market. Yes. Her house would get a decent amount of appreciation too, but unfortunately she would also need to pay for appreciation on the premium of having a detached house with one or more bedrooms.

And this appreciation is all tax free.

If we were to earn the $80K after tax money somewhere else, how many more hours do we have to work to get there?

And of course, this time around, we don’t have to move again for our second son. We already got a house big enough to accommodate our growth.

Until next time, happy real estate investing!

Cherry Chan, CPA, CA

The Real Estate Accountant

This site provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisors in respect of their particular situation.
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