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Old 08-12-2020, 09:49 AM   #41
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That's cool because as much as one may wish to generalize about how, in many circumstances, putting a low wage person in a mid wage neighborhood "causes" that person to spend more than they would have if they bought a house they could afford independently (as Millionaire Next Door posits), those are still generalizations.

I wouldn't do it for my kids, not because I think they'd spend more / save less by trying to keep up with the Joneses (they're both level-headed about spending and saving), but because I believe that it would be difficult to keep from comparing themselves to their better-off neighbors. Day in, day out, seeing little things that make them realize they've got a little less than their neighbors seems like it's not a healthy way to live.

This assumes your neighbors are all wealthy. In HCOL areas, thatís not always the case. I know in my area, many home owners bought when prices were much lower. They may have a lot of equity in their home, but otherwise thereís little difference in income/spending (excluding housing costs).

I think about how to (safely) help my kids too, even though they are younger (still in college). For DS and his girlfriend, Iím letting them live with me rent free so they can save for a down payment. We live in a HCOL area and instead of paying a lot of money for rent, Iíd rather see them save this money and eventually buy a place of their own. I have no idea how this will work out, but I figure itís an easy way for me to help them get started financially.
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Old 08-12-2020, 09:50 AM   #42
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Our younger son just closed on his first home at the end of July. He probably had enough money to do it on his own, but it would have taken nearly every dollar he had, with nothing left for any needed improvements.

I offered him a gift of $10k toward his closing costs, which he at first declined, then wanted only as a loan, but eventually accepted as a gift.

One cautionary note about loaning money to a child for their down payment. The mortgage company wanted to know the source of the $10k that they saw was deposited into his account. I had to sign paperwork stating that it was a gift and not a loan. They donít want their borrowers taking out side loans for the down payment.
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Old 08-12-2020, 09:58 AM   #43
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Our younger son just closed on his first home at the end of July. He probably had enough money to do it on his own, but it would have taken nearly every dollar he had, with nothing left for any needed improvements.

I offered him a gift of $10k toward his closing costs, which he at first declined, then wanted only as a loan, but eventually accepted as a gift.

One cautionary note about loaning money to a child for their down payment. The mortgage company wanted to know the source of the $10k that they saw was deposited into his account. I had to sign paperwork stating that it was a gift and not a loan. They donít want their borrowers taking out side loans for the down payment.
Good point. A gift, is a gift. My ole man and the in laws have both given substantial 10k gifts in our lives. Its allowed me to live a better quality of life, get away from the city and now raise my own family in a neighborhood I otherwise would not have ended up in. Yay Gifters! Yay me! Some do question if I have financial 'sense' in my family but sometimes jealousy can come in an ugly disguise.
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Old 08-12-2020, 10:05 AM   #44
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OK, I did not read all the comments.

However, NEVER NEVER NEVER, lend money to family!!!!! Yes it may work out, but there is an even greater chance at sometime or another things will turn south, and you loose your money and your family. I speak from experience.

Give them the money, but don't lend to family ever.
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Old 08-12-2020, 11:53 AM   #45
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I can't resist posting, as this topic hit home for me.
First, you can not buy and then rent a property to your child to take deductions against the rental. I believe the IRS considers that a self rental and its disallowed, just as you can not use a vacation property and rent it only a few weeks.
Second, if you loan the money the interest is required to be per the gov published rate and must be declared as income.
Now, in retrospect, I might have not done what we did for our two daughters, but as the point was made, I would rather have 20 years left with my grand-kids raised in a nice home rather than dropping millions on them late in life. I guess that is selfish of us. But then, I guess we will still have that problem.

If you gift it slowly, they use it for the best. If it ends up as a trust distribution they may not know how to spend it wisely.

Our youngest daughter finally got married on Sunday after 3 cancellations by our Governor. 2 years ago we chose to provide her and her fiance' the same that we provided her sister as a DP, but we then also financed the whole home purchase.

Her sister, a few years prior, and her husband were given a large DP but they had to go finance on their own. They were able to buy a repo in a high end neighborhood at that time. It is worth 2 hundred thousand more. They otherwise would have missed that opportunity.

I made a mistake and gave them the job to manage one rental and collect income as they now were short of cash due to both house payments and daycare. At first they did their best, but they placed a nightmare tenant (drugs, homeless, criminals, violence, destruction) and of course there was no rent. The socialist state of WA allows the homeless and drug dealers to use your property for several months (currently indefinitely due to Covid).

Point is, they did try, but it was beyond them to manage a property, their own home and work and perhaps too soon for them to own a home directly. My expectations were too high, but our attorney took care of the eviction mess. Perhaps they were just unfortunate in selecting the tenant.

I do have to say that with all the learning curve required for home ownership, they have really come a lot farther than continue to rent.

We have no regrets, but we are getting a little wiser on how we provide support. The youngest has now saved a substantial amount and I am encouraging them to consider renting their home and buying another!
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Old 08-12-2020, 01:05 PM   #46
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Ours was a gift and not a loan. We did sign a paper saying as much.

College was another story. 2 of my 3 are finished with college. Our deal with them was if they started out at a community college for 2 years and then went on to state school we would pay for their Bachelors Degree. If they went away for the four years, we told them they would have to have some skin in the game. That way if they partied to hard and failed any classes, the class they fail would be one they are paying for and they could foot the bill again.

They both went away to state schools for 4 years, so both came out with student loans of about 25K. And happy to say neither failed a class.

Now graduate school was all theirs.
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Old 08-12-2020, 07:24 PM   #47
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I vote with the people who say don't lend money to family. Options 2 and 3 strike me as troublesome, especially if the kids later change their mind and don't wan to live there, or if they lose their jobs and can't pay the agreed amounts. This can also affect the relationship with the son/daughter in law who may feel uncomfortable living in a house they rent from an in law.



If you have the money to give them a gift, maybe match their down payment so they have shown they can save for a purpose and they have some "skin" in the game. But if you can't afford, or don't want to make it, a gift - I'd stay out of their house purchase.
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Old 08-13-2020, 04:32 AM   #48
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You canít buy investment real estate with 401k funds but you can with an IRA. You could rollover the 401k into an IRA. One caveat you canít actively manage the property so you would need a property management company to collect the rent and pay the bills.

From an investment point of view Real Estate has been very good for me!
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Old 08-13-2020, 05:21 AM   #49
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Iím in the camp of helping with the down payment as a gift, but I think thatís because we have one exceedingly well behaved only child who is frugal to a fault. If he were a spendthrift or partier we would feel differently.

It seems that the best use of generational wealth is teaching money management, helping getting started in responsible adult life through a better education, getting started in a home, and helping fund retirement accounts, than a sink or swim method followed by inheriting money late in life, and not being able to handle the money well.
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Old 08-13-2020, 03:26 PM   #50
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In similar situation. Option 3. You become landlord. Check out IRS rules, when renting to relative. You must charge going "rate", (less 10-20%) if you want to claim rental deductions. ie, mortgage, property tax, depreciation.

Thought, use "gift tax", rule to get around. Again, read IRS rule. Not allowed.
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Old 08-13-2020, 04:03 PM   #51
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I wouldn't do it for my kids ... because I believe that it would be difficult to keep from comparing themselves to their better-off neighbors. Day in, day out, seeing little things that make them realize they've got a little less than their neighbors seems like it's not a healthy way to live.
My first house (paid for entirely myself) was a cute little shack on a great lot in an upscale neighborhood. It would have been a tear down for most buyers, but it was a perfect starter home for me (1930s Sears home; 2 BD 1 BA). I spent basically zero time comparing myself to my presumably wealthier neighbors. It was what I could afford at that time - deal with it.

P.S. A quick look at Zillow shows that the market value of this house in suburban Cook County, IL has only increased by $10k but property taxes have tripled since I sold it 20 years ago. Even if the Zillow estimate is way off, that's still gotta be discouraging for some suburban Chicago homeowners.
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Old 08-13-2020, 04:21 PM   #52
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" Our granddaughter is a single mother, and there's a state program that meets her 50/50 on cash down payments. We're going to give her $5K and the state's going to match that with $5K for a down payment.

That's very reasonable in our eyes. We also have a bunch of furniture to give.

Do yourself a favor and just give them what you can afford to give the couple. Then, let them handle the rest of the purchase.

Sometimes it's time to stand on your own two feet as a young adult. "

Great comment Bamaman

I had a sitdown with my two daughters a few years ago. I told them what funds I had available for them. They could either take it early as long as it was for a house/business
or wait and inherit it. At the time they were really upset as they didn't want to deal with my passing. They didn't want to talk about it later. But then years later my one daughter wanted to buy a house and asked if the offer was still available. I said yes and she used it for her down payment. She is paying ahead on her mortgage and has reduced the mortgage from $230k to 165k in one year. I think that was money well spent.

My other daughter is a school teacher and can't afford a house. In her case I am giving her her full Roth contribution each year. This allows her to save what she was contributing (not full amount) plus she can always redeem the Roth if she wants a house later. She was going to buy a house previously, and I cashed in my Roth's to cover her down payment, but the inspection found many expensive issues. Since my former Roth's are now taxable, I wanted to transfer to her as her own Roth. She wants to retire early and the Roth will help with that.

In this case it works out for both of them. And I get to know they are enjoying the benefit now, rather than when they are 65 or 70.
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