This fired bartender in Toronto has just received an inheritance of $ 600,000. Should she buy an apartment?

Millennial Money is a weekly submission-based series that provides financial advice to millennials. Read the full series here.

The past two years have been “hell” for this 29-year-old bartender who lives in Toronto.

Between restaurant closures, harassment by customers over security protocols and more, Jodie survives on a federal benefit of about $ 270 a week.

“The benefit is not enough at all to live in Toronto,” she said, adding that she paid $ 800 to share a basement with a roommate near the Annex. “That’s why I’ve just been completely demoralized, turning to takeaways and wine purchases.”

In addition to losing her job several times, by the end of 2021, she and her mother were dealing with more rough news: COVID-19 claimed the lives of her grandparents.

“I’m their only grandchild,” Jodie said. “It was difficult not to see them.”

Just days ago, she learned that her mother had sold her grandparents’ Newmarket home. They instructed her mother to give Jodie the profit as an investment.

“I earn $ 12.50 an hour and rely on tips. “I was going to leave this industry all together,” she said. “I feel a little guilty about suddenly getting into all this money, but I know they will want me to invest well.”

This is why she is considering buying an apartment in the city center in which she can live on her own, with the option to sublet for a few months when she wants to stay with her mother.

“My mother wants me to invest it in an apartment, and I would like to live alone after being underground for so long. Is this the right move?” asked Jodie.

Jodie currently has $ 5,000 in credit card debt, and wonders what her priorities should be.

We asked her to share a week’s spending to get a better idea.

The expert: Jason Heath, Managing Director at Objective Financial Partners Inc., on Jodie’s inheritance.

Jodie struggles, like many, as the pandemic drags on. As a bartender, her income was affected by closures and capacity constraints. Servers, bartenders and others in the service industry who rely on complete restaurants and customer tips got a pay cut while the cost of living rose.

I’m sorry to hear of Jodie’s loss. Losing grandparents is difficult and more so during the pandemic, when it’s harder to grieve in ways we may have had in the past. I appreciate her mother’s advice to invest in an apartment, but I have some reservations.

I can imagine living in a shared basement apartment for the past nine years may not have been what she had in mind when she moved from the suburbs to the city. It might be nicer to live in an apartment. But an apartment is not going to solve her problems with work.

I would consider investing in herself first. She can benefit from professional help, such as a life coach. She hopes to leave the bar industry altogether, so she may consider building on her training to prepare herself for another profession. She may want to prioritize these investments over an apartment.

Furthermore, the compound house price in Greater Toronto rose by 31 percent in 2021. I do not have a crystal ball, but I think it is unlikely that property prices will rise by 31 percent per year for the next few years. If they did, a $ 600,000 one-bedroom apartment would be worth about $ 2.5 million over five years.

If Jodie had bought an apartment, she might have some problems with mortgage financing without a job, but her $ 600,000 inheritance might be enough for a modest purchase. My advice to potential home buyers is to consider renting if you do not expect to live somewhere for at least three to five years. The transaction cost of buying and selling a $ 600,000 apartment is significant in Toronto. Land transfer tax will be $ 16,950, although Jodie will be the first time a home buyer can qualify for a $ 8,475 rebate and cut costs in half. But if she changes plans based on a new job or some other reason, and sells over three years and the apartment is worth $ 650,000 at the time, she will pay about $ 35,000 in property commissions to sell, taking into account her land transfer tax. taken, legal costs and miscellaneous costs, she can have more than $ 50,000 in transaction costs in just three years. Her $ 50,000 valuation would be completely wiped out.

If I were Jodie, I would first use the inheritance to pay off her debt. I would open a tax-free savings account (TFSA) and put the money into a very conservative investment, which can only be a savings account with a weak interest rate, to get started. The rest of the money should go into a savings account. I would then take time to reflect and avoid the urge to act quickly. Jodie needs to consider her mental health, education, career and other priorities over the next three to six months, and if the result of that reflection is to buy an apartment, it should be so. No matter what her decision is, I’m sure she will make her grandparents proud.

Results: She spent less. Week Expenditure 1: $ 1,208.49 Week Expenditure 2: $ 292.49

How she thinks she did: “This week I was looking at apartments with my mom,” Jodie said, adding that they would see five to six apartments a day.

“There were some impulsive purchases after being stressed over the weekend, but nothing out of the ordinary.”

Takeaways: After receiving the advice, Jodie admits that she needs to consider a lot. After spending time going from apartment to apartment, she fell in love with the chase, but now questions it all together.

“I do not have a career in line, that’s true. “An apartment is not an instant solution, because I still have to find out what I want to do,” she said. This includes finding out if she wants to go back to school for a new career, which will cost money.

“I just see everywhere everywhere that prices are rising like crazy. “I wanted to jump on it earlier, but every place I looked, the lists were not accurate,” she said. “I will have to plan for tens of thousands more.”

She plans to pay off her debt immediately. “It’s just something I can get out of the way, so I will not continue to lose money,” she added.

With the advice to open a TFSA, she is now considering doing so, but wants to talk to her mother first.

“We were really set on this new life situation, but may have to go back to the drawing board.”