Issue 91 – The Gift That Keeps on Giving

Issue 91 – The Gift That Keeps on Giving

Once again, the holidays are fast approaching. Not only is this a time to give thanks, but it’s also an opportunity to show those who are important to you just how much you care through meaningful gifts.

Not to sound too much like a commercial, but I truly believe that the gift of stability is at the top of everyone’s list of things they value. Virtually nothing makes one feel more secure than homeownership.

This holiday season, many parents are looking to bestow upon their children something memorable that will significantly impact their loved ones’ lives and the lives of future generations. What better way to show family members – children, in particular – how much you care about them than purchasing a property where they can experience all of life’s most special moments? It is literally a gift that keeps on giving. Not only is it something the recipient will use daily, but it is also a great investment for the purchaser, which could yield gains over time. That’d certainly be a win-win! In addition to a property purchase going hand-in-hand with the holiday season, it coincides with the upcoming bonus season. Sinking money into something that will accrue value over time is a smart long-term game plan.

As some parents are considering the best ways to set their children up for success and financial freedom, they are looking to get their kids cemented in one of the most opportunistic markets on the planet.

It’s not lost on me – with the current astronomical rents and even higher mortgage rates – that, in many cases, the only way some people can actually secure a starter apartment in NYC or other major metropolitan areas (where the top schools and job opportunities are most often located) is from generous parents assisting their children with a purchase.

And they are not alone. Many deals taking place right now are on behalf of specific segments of the market that cannot close a deal on their own and need support from their parents, who value owning equity versus paying for overpriced rentals. According to NBC News, we are seeing a spike in parents buying for their children, and I anticipate this playing out over the next year.

Additionally, according to a National Association of Realtors report this year, almost 25% of homebuyers ages 22 to 30 reported that cash gifts from family and friends were a source of their down payments. Now consider others who were gifted properties that were purchased outright in all-cash deals, and the percentage is even higher!

Whether it is offering up a down payment or buying a property outright, there is much to gain and little to lose for all involved. The property can be a long-term investment that might ultimately help the parent break even or turn a profit, with the expenses being tax-deductible and potentially paid by the child as they come into their own financially.

Young adults face many obstacles to owning outright at a young age, such as student debt and steep mortgage rates. In fact, 35% of younger millennials reported having student loan debt with a median loan balance of $30,000, compared to 30% of older millennials with a median of $40,000, according to the National Association of Realtors. Only 3% of older baby boomers had student loan debt with a median balance of $9,000. Eliminating these stressors for the current generation? Invaluable, and the ultimate boon!

Other benefits of buying and owning a home for your child include showing your young adult how to invest in future growth and wealth, manage equity, and handle the responsibilities of property maintenance while helping them avoid predatory loans and garnering inheritance tax benefits. This can also lead to greater independence if they build equity at a younger age and aren’t forced into a cycle of renting.

Pro tips: Before considering purchasing a home for your child, ensure you have your financial investments in order. Create a detailed agreement of what you expect from your child regarding possible additional monthly charges like maintenance fees, future renovations, reselling, etc. (Fun Fact: According to The Elliman Report for Q3, median resale prices expanded for the tenth time in 11 quarters! So, your gift today could be even more valuable years from now should you and/or your child choose to sell and upgrade to a bigger home as their own family expands.) Also, be sure to help them understand the value and importance of the location and neighborhood and to discern whether they want full-service or basic amenities. Understanding the value of amenities is especially important in the context of resale. Explore tax implications with an accounting pro as well.

You should always expect your real estate agent to have a strong understanding of each market’s nuances – in this case, understanding the pros and cons of buying in a cooperative versus a condominium, and sharing which properties allow purchases for children. Additionally, offering counsel on multi-family purchases, in which you can set aside a unit for your child, is paramount. To wit: 14% of home buyers purchased a multi-generational home to care for and spend time with aging parents, as children over 18 were moving back due to cost savings, according to this year’s NAR report on generational buying trends.

As parents, some of the most meaningful gifts we can give a child are shelter and opportunity. The bottom line is that owning one’s own home is a smart building block that opens many opportunities for growth and long-term financial possibilities.

I would like to take a moment and genuinely thank all my clients – current, past, and future. May we go through this year with grace and kindness.

Wishing you all a safe and fulfilling holiday season.