Possibly helping only child with first home purchase

JohnDoe

Recycles dryer sheets
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In our area, 225k doesn't really get you anything nice. The wife and I talked about giving our daughter 50k as a down payment which would boost her price point to around 275k.

Another option would be to not 'give' her anything but to take an equity stake in a house of a certain percentage and then let her take a mortgage out on the rest. By doing this, I might feel better about purchasing a nicer more expensive house.

Has anyone done this and can comment on the good and the bad?

Also, the funds we would ultimately use are from our retirement portfolio (1.8mm). Since I am not 59.5 yet, I think my options are to use after tax funds or possibly w/d some of our Roth contributions. I did move some things around to start a house fund which would accumulate from cash flow at about 4k a month while she is looking.

The only pain we would feel is that we have been building up our after tax account, but cash flow could replace that quickly and the wife isn't interest in retiring any time soon. We have about 400k in tax free accounts and a 350k line of credit to use for a possible cash sale. No debt on the books.

Were just kicking ideas around now. Thoughts? Thanks.
 
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I have decided to help my children buy their first home. I view it as giving them part of their inheritance early. Helping them today will be a lot more useful to them and the grandkids now, and will position them better for the future.
 
What about just giving your DD $50k from your $350k line of credit, and having her reimburse you for the interest charges you'd incur? That way, you don't have to take any money out of your equity/market investments. Just a thought...
 
I have decided to help my children buy their first home. I view it as giving them part of their inheritance early. Helping them today will be a lot more useful to them and the grandkids now, and will position them better for the future.
That was our thought, too!
 
What do you mean when you say taking some equity in her home would make you feel better about a house upgrade? Sounds as though you aren't certain you want to do this.
 
We just helped DD buy her first home, but in a HCOL area. DH disclaimed part of his inheritance from his mother's estate in favor of DD, and that plus savings got her 3/4 of the way there. We hold the mortgage on the remaining 1/4. She pays interest at the federal funds rate (legally required, but much lower than the market rate) but we didn't record a lien against the property.

She's our only heir, and realistically even in the unlikely event that she defaults on the loan, we aren't going to foreclose or disinherit her. She'll just end up with a smaller inheritance if she doesn't pay us back, so there wasn't much point in a lien. The loan is mainly so that she has some skin in the game and is used to budgeting and making payments if and when she wants to move up to something larger.
 
What about just giving your DD $50k from your $350k line of credit, and having her reimburse you for the interest charges you'd incur? That way, you don't have to take any money out of your equity/market investments. Just a thought...
That's a possibility but I think the interest would make it really tight for her in the beginning, but there is no reason why we couldn't cover the interest, too. What's another 2-3k over the year it would take to pay it off.
 
What do you mean when you say taking some equity in her home would make you feel better about a house upgrade? Sounds as though you aren't certain you want to do this.
Good question. What I meant by that is I would rather see her buy a nicer house with our help than buy something cheaper, smaller and older.

We're committed to the 50k, we're kicking around the idea of how to take an equity stake from a funds and legal standpoint. Seeing if anyone has done that and the pros/cons and what to look out for.
 
Gave 2 of 3 kids a $30K gift to help them with downpayments on homes purchased this year. Gave the third kid an equal amount for a possible future down payment. All were very appreciative of the help.
 
Good question. What I meant by that is I would rather see her buy a nicer house with our help than buy something cheaper, smaller and older.

We're committed to the 50k, we're kicking around the idea of how to take an equity stake from a funds and legal standpoint. Seeing if anyone has done that and the pros/cons and what to look out for.
Have you considered adding your names to the deed, or using an LLC?

Something my wife and I are discussing for our children, and is mentioned above by another member, is to buy the house outright, and hold the mortgage with them paying a discounted interest only rate. We plan to buy the houses in LLC's to protect from potentially bad marriages. We get a nominal income to replace the investment income we'd have normally received and they will get nicer homes that they typically could afford and will inherit them when we go. They are going to get the money anyway, so why wait.
 
We gifted 100K used the tax form 709 lifetime gift inheritance. Not a big fan of just handing out money to our one kid, but he had a home and was getting married and they needed a different home that worked for both of them.
He couldn't swing having both homes and needed to sell so we pitched in.
 
My question is, "Can you afford to do this, without imperiling your retirement?" If you're FIRED, and have only $1.8M in assets, and spend more than 4%, then I'd more than likely say you shouldn't do this. If you're far from ER or have a large income stream other than the $1.8M, you might easily be able to afford this.
 
I have decided to help my children buy their first home. I view it as giving them part of their inheritance early. Helping them today will be a lot more useful to them and the grandkids now, and will position them better for the future.
That was our thinking in helping all our kids with down payments.
 
Have you considered adding your names to the deed, or using an LLC?

Something my wife and I are discussing for our children, and is mentioned above by another member, is to buy the house outright, and hold the mortgage with them paying a discounted interest only rate. We plan to buy the houses in LLC's to protect from potentially bad marriages. We get a nominal income to replace the investment income we'd have normally received and they will get nicer homes that they typically could afford and will inherit them when we go. They are going to get the money anyway, so why wait.
What happens when they sell the house in 20 or 30 years, I don't think (but don't know) that the LLC will get any of the sale tax free.
 
That's a possibility but I think the interest would make it really tight for her in the beginning, but there is no reason why we couldn't cover the interest, too. What's another 2-3k over the year it would take to pay it off.
You could loan her 100K and the interest you charge can be very low ( I don't know the IRS rates right now) but could be for example a 2% mortgage. Registering the mortgage on the house) will protect you and her in case of divorce , lawsuit against her, etc.
You could even gift her yearly the interest she pays so it become interest free ( you still have to declare it as income).
Later she could re-mortgage an extra $50K to pay you back some of the $$$.
 
What happens when they sell the house in 20 or 30 years, I don't think (but don't know) that the LLC will get any of the sale tax free.
Valid question that I haven't considered fully, but first thing that comes to mine is a 1031 exchange? Granted, not a tax free option, but kicks the can down the road.

Now you have me thinking. Would a trust be a better vehicle? Again, trying to protect against bad marriage for one thing. We are a few years away from this situation so time to think on it.
 
Valid question that I haven't considered fully, but first thing that comes to mine is a 1031 exchange? Granted, not a tax free option, but kicks the can down the road.

Now you have me thinking. Would a trust be a better vehicle? Again, trying to protect against bad marriage for one thing. We are a few years away from this situation so time to think on it.
You can't do a 1031 exchange on your primary residence. If your child is a member of the LLC or a grantor of the trust and also living in the house prior to its sale, I think that would preclude the 1031 exchange.

I'm not seeing how an LLC helps in the case of divorce. The house can be separate property without need for an LLC, and appreciation in value can be community property even if there is an LLC. It depends on your state laws. Maybe a trust would work if it were the right type of trust.

Either a trust or LLC could help avoid probate in the case of the death of an owner.
 
My question is, "Can you afford to do this, without imperiling your retirement?" If you're FIRED, and have only $1.8M in assets, and spend more than 4%, then I'd more than likely say you shouldn't do this. If you're far from ER or have a large income stream other than the $1.8M, you might easily be able to afford this.
We're both still working at age 55 and 60 with no debt so cash flow is pretty good right now and incomes at all-time highs.
 
You could loan her 100K and the interest you charge can be very low ( I don't know the IRS rates right now) but could be for example a 2% mortgage. Registering the mortgage on the house) will protect you and her in case of divorce , lawsuit against her, etc.
You could even gift her yearly the interest she pays so it become interest free ( you still have to declare it as income).
Later she could re-mortgage an extra $50K to pay you back some of the $$$.
If we owned 50% and were on the deed, would that protect our value from divorce but not a lawsuit? (she's single right now anyway)
 
I have decided to help my children buy their first home. I view it as giving them part of their inheritance early. Helping them today will be a lot more useful to them and the grandkids now, and will position them better for the future.

That would be my feeling. I also have an only child, very responsible. He bought a starter home using what was left in his UGTMA account his Aunt set up (the remainder had paid for half his college). After he married and they needed a bigger house since Baby #3 was in planning stages, he asked for $10-$15K so that their out-of-pocket housing expenses would remain unchanged. He was OK with a gift or a loan but I just gave him $15,000.

You might want to talk with your daughter about implications if she marries. If she has substantial equity in the house at that point she might want a prenup or might want to be careful about using his income to make improvements. No one expects divorce (and DS and DDIL look like they're in it for the long run) but it's best to have the conversation before she has a fiance, who might consider it a personal attack if you bring it up then.
 
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My kids aren't to that stage of life yet, so take my comments with grain of salt. I do have wherewithal to help my kids financially into adulthood, have some plans in place, and think about this topic a lot. I prefer not to help them borrow more money. That's helping someone over spend. I'll be more inclined to help with $$ gift towards down payment as long as the purchase makes sense.
 
If she can't afford the house outright, but you can, buy the house and rent it to her with an option to purchase at some future reduced price. You'd be taking on the investment risk, but she would not be throwing rent to an anonymous landlord, and your cash flow would be up. It might take some word smithing and a lawyer to craft the lease to everyone's liking.
 
My single and only child had to move out and buy his own home when we sold ours after we retired and moved out of state. He bought a small home that cost about $300K. He had saved $100K and I simply wrote a check for $200K so that he did not need to get a mortgage. I filed a form with the IRS indicating that I gifted him $200K. End of story.
 
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