Increasingly, parents are helping their adult children buy homes by co-signing a mortgage, giving money for a down payment or buying the property outright, according to anecdotal evidence from real estate agents across the country.
Parents Buying Homes With or For Adult Children
According to Becki Damchik, a broker with Coldwell Banker Warburg, more parents are buying homes for or with their adult children than ever in her 15 years as a real estate broker. Damchik said, “It has a lot to do with rental prices being so high. They (Mom and Dad) feel it’s a waste to be throwing away money on rent when they can capitalize on the sales market right now.”
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Increasingly, buying real estate is being seen as a hedge against inflation with rent and home prices being sky-high and +5% mortgage rates only to increase over the short- and possibly long-term.
Decision to Buy Already Panning Out
A 48-year-old businesswoman decided to help her 24-year-old daughter buy a three-bedroom townhouse in Denver priced at $330,000 last year.
Before the townhouse purchase, the daughter had been renting a one-bedroom for $1,400/month until the landlord hiked the rent to $1,600/month.
The mother provided approximately $30,000 for the down payment and closing costs and co-signed her daughter’s mortgage so the daughter could qualify for the loan. Boom – one year later, the value of the townhouse property increased nearly $100,000.
The mother said, “The amount she was paying was about the same amount as a house payment: it no longer made sense financially. She (the daughter) has already made back enough money to pay back the down payment and made a profit…now she can leverage that money for something else at some point down the road.”
Hard to Estimate How Many Adult Children Getting Help from Parents for Home Purchases
Because few buyers are willing to discuss how they’re paying for a new home, it’s hard to quantify how many buyers are receiving help from their parents in order to buy a home. What we do know, however, is that homeownership among Millennials falls behind other generations. At age 40, 60% of Millennials are homeowners whereas 64% of Gen Xers and 68% of Boomers were homeowners at that same age, according to ApartmentList. Why? Ballooning student debt, stagnant incomes and astronomical home prices.
However, financial advisors indicate that they have seen an uptick of wealthy parents wanting advice on home buying for their adult children because of increased gift and estate tax exemptions. These increased exemptions stem from the Tax Cuts and Jobs Act which doubled the amount parents can pass on to their heirs tax-free (some $12M for individuals and some $24M to couples in 2022 – this provision is set to sunset at the end of 2025 when this exemption is scheduled to be cut in half.)
Buying Homes for Adult Children Common with Foreign Investors
Mina Bevan, an agent with Douglas Elliman, said, “I work with a lot of foreign investors, and they tend to buy properties for their kids.
“They don’t want them (their adult children) to waste their money on rentals.”
Such estate planning makes sense for parents (foreign investors and domestic parents alike) who can afford to help their help their adult children buy a house. After all, according to CoreLogic, average rent prices in the US increased almost +75% in the past decade.
Word to the wise real estate agents – pay attention to the parents.
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Thanks to Bloomberg.
