Helping our Adult Child Buy a Home

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poolshark
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Helping our Adult Child Buy a Home

Post by poolshark »

Long time Boglehead.org observer and just joined. Here’s my first question/situation:

Our daughter (26) will be married shortly. She and her fiancé (28) live in Boston and are looking to buy their first home/condo. They both have tech positions and their jobs are pretty secure. My wife and I are retired and can well afford to help them out financially. All parties have outstanding credit scores, zero debt, good emergency funds etc. Just trying to optimize the funding options (and as an example, let’s use a home price of $1.5M with 20% down and a mortgage of $1.2M)...
1) They could get a jumbo mortgage for 30 years at say 4% but Homeowners can now only deduct interest expenses on up to $750,000 of mortgage debt... my wife and I could gift them say $50k per year to help them afford the mortgage/taxes etc
2) we could co-sign and purchase the house jointly 50/50 and get a jumbo loan ....they own 50% and we own 50%... they pay 50% of the mortgage/taxes etc and we pay the other 50%...when they sell, we’d garner 50% of the gain/loss, so it could be considered a real estate investment for us.
3) we could draw up a legal agreement whereby we’d own 50% of the house. I’d be more than ok to get a cash-out Mortgage on our home for say $600k and use that to buy our 50% of the house upfront plus another $150k for our down payment... they would get a conventional mortgage for $600k at say 3% and 30 years and be able to write-off the interest since they would then be able to itemize... With my cash-out mortgage and the new TCJA rules, I’m unsure if I could write off the interest that is secured by my present home as a payment on “our collective” home (their first, our second home)...I’m hoping “yes” but I think “not”...

Just to make it interesting, there is a variant where we would collectively buy a duplex whereby they would live on the top floors and we’d rent out the bottom floor to tenants...then we’d have rental income on 50% of the house... And be able to write off depreciation/expenses on the rental unit...

We are in the very early stages of our thought process. We’d certainly ensure a tight legal agreement on whatever the option and we are aware and accepting of the potential “emotional cost” of such a deal with family...

What are you thoughts? What are the various pros/cons? What are other potential options that we should consider?
Thx!
vanpan
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Re: Helping our Adult Child Buy a Home

Post by vanpan »

Often finance and loans break relationships. Keeping things simple makes relationships better. My suggestion would be to gift your daughter whatever you can ( may be for the down payment) and they buy a house that they can afford. Having 50% ownership and gifting yearly for mortgage makes things complex. I went through. similar situation where my dad helped me buy our first home. He gifted us our downpayment and we made sure we bought a house well within our income limits. Our relationship is great and finances very straightforward.
KlangFool
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Re: Helping our Adult Child Buy a Home

Post by KlangFool »

vanpan wrote: Tue Jul 14, 2020 6:06 pm Often finance and loans break relationships. Keeping things simple makes relationships better. My suggestion would be to gift your daughter whatever you can ( may be for the down payment) and they buy a house that they can afford. Having 50% ownership and gifting yearly for mortgage makes things complex. I went through. similar situation where my dad helped me buy our first home. He gifted us our downpayment and we made sure we bought a house well within our income limits. Our relationship is great and finances very straightforward.
+1,000.

KlangFool
Normchad
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Re: Helping our Adult Child Buy a Home

Post by Normchad »

KlangFool wrote: Tue Jul 14, 2020 6:09 pm
vanpan wrote: Tue Jul 14, 2020 6:06 pm Often finance and loans break relationships. Keeping things simple makes relationships better. My suggestion would be to gift your daughter whatever you can ( may be for the down payment) and they buy a house that they can afford. Having 50% ownership and gifting yearly for mortgage makes things complex. I went through. similar situation where my dad helped me buy our first home. He gifted us our downpayment and we made sure we bought a house well within our income limits. Our relationship is great and finances very straightforward.
+1,000.

KlangFool
+1000. Perfect advice.
Ferdinand2014
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Re: Helping our Adult Child Buy a Home

Post by Ferdinand2014 »

Gift. Do not make financial arrangement if you value the relationship.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett
KlangFool
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Re: Helping our Adult Child Buy a Home

Post by KlangFool »

OP,

1) Can you afford to give/lose 600K?

2) What happened if they choose not to get married or divorce later? Are you okay to lose 300K to your son-in-law?

3) It is generally a bad idea for an unmarried couple to buy a house together.

KlangFool
Broken Man 1999
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Re: Helping our Adult Child Buy a Home

Post by Broken Man 1999 »

IF a DD ever is at risk of becoming homeless, I would have no problems helping with housing.

Other than such a need, I would not want to entangle my finances with a DD. And, frankly I don't think they would want me to do so.

I did give each DD a gift of $10,000 after they had bought their first homes. That way the gift did not incent them to spend more on their home.

And, I also paid for non-carpet flooring in their first home living room so I could visit them and not be worried about messing up their carpet with my power wheelchair.

Every other home purchased by DDs did not have carpet, and one DD even put in a paver walk so I could join them on their screen porch to enjoy BBQs.

OP, I believe such an idea might work out well for both. But, I also believe it could just as easily work out horribly.

Me, I just would not do it.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain
oldfort
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Re: Helping our Adult Child Buy a Home

Post by oldfort »

Let's assume they get married in the near future. Depending on what statistics you want to believe, 40-50% of marriages end in divorce in the long run. How much do you want to give your daughter now, knowing 50% of it could go to her husband in a divorce.
tashnewbie
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Re: Helping our Adult Child Buy a Home

Post by tashnewbie »

Can I be frank? Please excuse me if this seems insensitive or out of touch, but it seems like you’re subsidizing your daughter and future SIL’s financial irresponsibility by enabling them to buy a house they can’t afford. Are there no houses within their budget in the area? Ultimately it’s your money, but I wouldn’t want to mix business with family. Consider whatever money you decide to give them a gift. As others have said, a single lump sum would be simplest. Good luck!
oldfatguy
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Re: Helping our Adult Child Buy a Home

Post by oldfatguy »

Do not enable them to buy a house that they cannot afford on their own.
HeartinAK
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Re: Helping our Adult Child Buy a Home

Post by HeartinAK »

vanpan wrote: Tue Jul 14, 2020 6:06 pm Often finance and loans break relationships. Keeping things simple makes relationships better. My suggestion would be to gift your daughter whatever you can ( may be for the down payment) and they buy a house that they can afford. Having 50% ownership and gifting yearly for mortgage makes things complex. I went through. similar situation where my dad helped me buy our first home. He gifted us our downpayment and we made sure we bought a house well within our income limits. Our relationship is great and finances very straightforward.
I give another vote for the advice above. Great to help them with down but don't help them take on more than they can afford.
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birnhamwood
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Re: Helping our Adult Child Buy a Home

Post by birnhamwood »

Not a good idea, shark.

Have your daughter pick out a home you can pay cash for and gift it to HER.

That way she's always got a home. Come D I V O R C E or high water.
bampf
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Re: Helping our Adult Child Buy a Home

Post by bampf »

poolshark wrote: Tue Jul 14, 2020 5:40 pm
1) They could get a jumbo mortgage for 30 years at say 4% but Homeowners can now only deduct interest expenses on up to $750,000 of mortgage debt... my wife and I could gift them say $50k per year to help them afford the mortgage/taxes etc
This. Give a gift, wish them well. Be in their lives, not in their pocketbooks. I will never willingly entangle my finances with anyone but my wife.
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Raymond
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Re: Helping our Adult Child Buy a Home

Post by Raymond »

OP, I know you and your wife mean well, and want to help your daughter and her fiancé as they start their lives together, but, like others have already said, this isn't something I would do.

Look up the concept of "Economic Outpatient Care" from The Millionaire Next Door:

https://en.m.wikipedia.org/wiki/The_Mil ... tient_Care

Have you discussed this idea with your daughter?

Have you discussed this idea with your future son-in-law?

Is there a possibility that they might not feel great living in "their" house, but rather in a house half-owned by Mom and Dad/MIL and FIL?

If I were her fiancé, I might start wondering how much you and your wife are going to be running their lives. Are you going to have a say in their choice of house and it's location? How they decorate and maintain it?

And taking out a cash-out mortgage for $600,000 on your own house to help them buy one? No. Please. Don't.

My suggestion? Don't say anything to them about gifts or subsidies (so they don't buy more house than they can afford), wait until they're married, let them pick their own place and get their own financing. Then surprise them with a gift of whatever you and your wife deem suitable, without contracts, co-signing, tenants or whatever.
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VoiceOfReason
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Re: Helping our Adult Child Buy a Home

Post by VoiceOfReason »

The road to hell is paved with good intentions.

I echo what others are saying.

Although I do not know your specific relationship with your daughter or SIL or your overall financial picture. But there are implications from this arrangement that you may not have considered.

How will your daughter and husband feel about this huge financial assistance to live beyond their means? I would submit even they do not fully grasp the answer to that question. Today it probably seems great to them, but how will they feel in 5-10 years when the house isn’t theirs? Will they be resentful? Unfulfilled?

As a 50% owner or someone contributing $50k per year to a mortgage will you have opinions on how the house/condo should be kept up? Improvements? How does it play out if your daughter SIL disagree with you.

What if the kids start spending their money differently? Start going on extravagant vacations or buy a second vacation property while you fund their primary residence?

None of this may be relevant any or likely to your situation but I would think about these scenarios. I agree it’s so much easier on relationships to simply gift money and be done with any expectations. You can help them financially in other ways too that wouldn’t jeopardize the relationship. Agree to find 529 plans for their kids so they can take that expense off the table and afford more house.

There is a lot of risk with not letting the kids just get out of the nest.
bikesandbeers
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Re: Helping our Adult Child Buy a Home

Post by bikesandbeers »

My granparents helped my parents, my parents helped me, but that was on order of 50k worth of downpayment, not 50k per year or half of a 1.5 million home.

Whatever you do they need to be able to make reasonable monthly payments.
Dottie57
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Re: Helping our Adult Child Buy a Home

Post by Dottie57 »

Normchad wrote: Tue Jul 14, 2020 6:11 pm
KlangFool wrote: Tue Jul 14, 2020 6:09 pm
vanpan wrote: Tue Jul 14, 2020 6:06 pm Often finance and loans break relationships. Keeping things simple makes relationships better. My suggestion would be to gift your daughter whatever you can ( may be for the down payment) and they buy a house that they can afford. Having 50% ownership and gifting yearly for mortgage makes things complex. I went through. similar situation where my dad helped me buy our first home. He gifted us our downpayment and we made sure we bought a house well within our income limits. Our relationship is great and finances very straightforward.
+1,000.

KlangFool
+1000. Perfect advice.
Absolutely.
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Brianmcg321
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Re: Helping our Adult Child Buy a Home

Post by Brianmcg321 »

I think it’s a terrible idea. They should buy a house or apartment they can afford.
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runner540
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Re: Helping our Adult Child Buy a Home

Post by runner540 »

Wow, look at the consensus here! Pretty rare, and I agree with the other posters: Onetime gift if you want toward down payment or after for furnishings but not ongoing outpatient care. What a mess that would be.
ZMonet
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Re: Helping our Adult Child Buy a Home

Post by ZMonet »

I echo Raymond's advice to read The Millionaire Nextdoor. This is about much more than about what is a good financial deal and more about interfering with your relationship with your daughter, your relationship with your son-in-law, and even your son-in-law's relationship with your daughter. As heartfelt as I'm sure this gift is, I think there is much more downside than you realize. Give a gift, help a little (your daughter and son-in-law sound financially fine!), and let them enjoy a little of the struggle that you did growing up. Just my two cents...
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Tamarind
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Re: Helping our Adult Child Buy a Home

Post by Tamarind »

OP, I was an adult child who recieved a down payment as an unofficial loan and a parent as co-signer. I could not have bought my (much more modest) home at that time without the assistance. A few months after closing I lost my job and scraped and rented rooms and reduced retirement contributions to cover the mortgage. Everything went fine in the end. I covered all the costs, and after I married we refinanced together, paid my parents back, and got them off the deed. I'll own my home free and clear in 6 more years (age 40) because I got such an early start and a 15-year mortgage, which I would not have qualified for without my parents cosigning.

Looking back, I would not advise my parents to do it again, I would not do it for my child, and I would advise you not to do it either.

Even if everything goes swimmingly, you will be bending your daughter's options and choices around your money and your priorities. Assuming that you do not want to have to step in with more money if something goes wrong, you should not help your daughter to get into a financial situation where she cannot be independent from you.

If you want to make a gift, do so, but don't tie the gift to real estate. If you can't afford or emotionally accept making a gift, don't do it with strings attached.
fundseeker
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Re: Helping our Adult Child Buy a Home

Post by fundseeker »

runner540 wrote: Tue Jul 14, 2020 7:16 pm Wow, look at the consensus here! Pretty rare, and I agree with the other posters: Onetime gift if you want toward down payment or after for furnishings but not ongoing outpatient care. What a mess that would be.
I hope this is not piling on, but as nice a thought as it is, and I plan to help our children out too, putting them into a house they cannot afford and that they owe you money on will really change the dynamic.

If my in-laws had done that several decades ago, I would have felt, maybe wrongly, that my wife was still hanging on to her parents for support and keeping her in the style she was accustomed to, and they were doing so because I could not afford to provide for her. I would not have liked it, and it would have affected, probably adversely, my relationship with my wife and her parents. My plan, if my spouse concurs, will be to provide a nice down payment so they maybe buy up a little, but never a loan. Again, I get the helpful parent thing, but it's time for them to fly. :)
RocketShipTech
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Re: Helping our Adult Child Buy a Home

Post by RocketShipTech »

Agree with the others saying gift.

My parents contributed $250k to the downpayment on our $1.8M marital starter home. It worked out great.
TropikThunder
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Re: Helping our Adult Child Buy a Home

Post by TropikThunder »

RocketShipTech wrote: Tue Jul 14, 2020 9:04 pm Agree with the others saying gift.

My parents contributed $250k to the downpayment on our $1.8M marital starter home. It worked out great.
$1.8M just doesn’t buy what it used to.
oldfort
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Re: Helping our Adult Child Buy a Home

Post by oldfort »

RocketShipTech wrote: Tue Jul 14, 2020 9:04 pm Agree with the others saying gift.

My parents contributed $250k to the downpayment on our $1.8M marital starter home. It worked out great.
Only on bogleheads is $1.8M considered a starter home.
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Watty
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Re: Helping our Adult Child Buy a Home

Post by Watty »

Normchad wrote: Tue Jul 14, 2020 6:11 pm
KlangFool wrote: Tue Jul 14, 2020 6:09 pm
vanpan wrote: Tue Jul 14, 2020 6:06 pm Often finance and loans break relationships. Keeping things simple makes relationships better. My suggestion would be to gift your daughter whatever you can ( may be for the down payment) and they buy a house that they can afford. Having 50% ownership and gifting yearly for mortgage makes things complex. I went through. similar situation where my dad helped me buy our first home. He gifted us our downpayment and we made sure we bought a house well within our income limits. Our relationship is great and finances very straightforward.
+1,000.

KlangFool
+1000. Perfect advice.
Another +1

Something that may not have been mentioned was that you and her can have unexpected turns in your lives with things like divorces, deaths, job transfers to other cities, disabilities, job losses, remarriages, etc.
RocketShipTech
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Re: Helping our Adult Child Buy a Home

Post by RocketShipTech »

oldfort wrote: Tue Jul 14, 2020 9:29 pm
RocketShipTech wrote: Tue Jul 14, 2020 9:04 pm Agree with the others saying gift.

My parents contributed $250k to the downpayment on our $1.8M marital starter home. It worked out great.
Only on bogleheads is $1.8M considered a starter home.
It was a 1600 sqft ranch on a 5000 sqft lot, what would you call it?
oldfort
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Re: Helping our Adult Child Buy a Home

Post by oldfort »

RocketShipTech wrote: Tue Jul 14, 2020 9:51 pm
oldfort wrote: Tue Jul 14, 2020 9:29 pm
RocketShipTech wrote: Tue Jul 14, 2020 9:04 pm Agree with the others saying gift.

My parents contributed $250k to the downpayment on our $1.8M marital starter home. It worked out great.
Only on bogleheads is $1.8M considered a starter home.
It was a 1600 sqft ranch on a 5000 sqft lot, what would you call it?
The median household income in the Bay Area is $96k. At 18x the median income, I would call it luxury.
RocketShipTech
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Re: Helping our Adult Child Buy a Home

Post by RocketShipTech »

oldfort wrote: Tue Jul 14, 2020 9:58 pm
RocketShipTech wrote: Tue Jul 14, 2020 9:51 pm
oldfort wrote: Tue Jul 14, 2020 9:29 pm
RocketShipTech wrote: Tue Jul 14, 2020 9:04 pm Agree with the others saying gift.

My parents contributed $250k to the downpayment on our $1.8M marital starter home. It worked out great.
Only on bogleheads is $1.8M considered a starter home.
It was a 1600 sqft ranch on a 5000 sqft lot, what would you call it?
The median household income in the Bay Area is $96k. At 18x the median income, I would call it luxury.
What is the median Bay Area income for two adults with top tier MBAs?
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unclescrooge
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Re: Helping our Adult Child Buy a Home

Post by unclescrooge »

KlangFool wrote: Tue Jul 14, 2020 6:12 pm OP,

1) Can you afford to give/lose 600K?

2) What happened if they choose not to get married or divorce later? Are you okay to lose 300K to your son-in-law?

3) It is generally a bad idea for an unmarried couple to buy a house together.

KlangFool
I know someone who wanted to help her daughter and SIL but a house. She bought it outright and they paid rent. Four years later, when they got divorced, the house didn't become a point of contention between the family members.
BillWalters
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Re: Helping our Adult Child Buy a Home

Post by BillWalters »

Gift, but to daughter and house in her name only.
runner540
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Re: Helping our Adult Child Buy a Home

Post by runner540 »

BillWalters wrote: Tue Jul 14, 2020 10:02 pm Gift, but to daughter and house in her name only.
should the husband contribute his income and time/labor to maintain the house, pay property taxes, etc?
fourwheelcycle
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Re: Helping our Adult Child Buy a Home

Post by fourwheelcycle »

Hmm, I wonder if vanpan is my own son; I did not know he was registered on this forum.

In any event, when my son went to buy his first house my wife and I very quickly decided we wanted him to be able to afford a nice house, with an affordable mortgage, but we did not want to create a situation where "if hard times came" he could just walk away and leave us with a house we would have to sell. We decided he should shop for the house and the mortgage on his own and we would gift him a sufficient amount for a 30% downpayment.

That was about six years ago. He continues to have a good job, he can afford the mortgage, and he and his wife are raising their family in the house.
Last edited by fourwheelcycle on Wed Jul 15, 2020 8:33 am, edited 1 time in total.
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TxAg
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Re: Helping our Adult Child Buy a Home

Post by TxAg »

Consider fully funding your future grandchildrens' college tuition.

That would be less invasive and still help your daughter/SIL financially.
averagelonghorn
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Re: Helping our Adult Child Buy a Home

Post by averagelonghorn »

Seems like piling on at this point, but my advice is as follows:
A gift to help with the down payment is nice and will be appreciated, I'm (fairly) sure.
Further entanglements are not a good idea.

When I was engaged, my father sold the house I was renting from him to my then fiancee, now wife. It all worked out. 17 years in, that house was sold after it turned into a rental for us for a while. He had reasons; and again it all worked out. BUT; I would never do the same..... encourage them to buy a house they can afford after they are married; help them with a gift as much as you'd like; but make it truly a gift, no strings, no regrets. (Gift it far enough in advance that it's not something that raises eyebrows with a lender; Wedding gift is fine.
absolute zero
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Re: Helping our Adult Child Buy a Home

Post by absolute zero »

TxAg wrote: Tue Jul 14, 2020 10:29 pm Consider fully funding your future grandchildrens' college tuition.

That would be less invasive and still help your daughter/SIL financially.
+1

I would feel weird if my parents offered to just start giving me cash or paying for my house. It would feel icky to me. That’s just me though.

For whatever reason, I think if my parents instead offered to contribute to a college fund for my children then I would be pleased.
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geerhardusvos
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Re: Helping our Adult Child Buy a Home

Post by geerhardusvos »

TxAg wrote: Tue Jul 14, 2020 10:29 pm Consider fully funding your future grandchildrens' college tuition.

That would be less invasive and still help your daughter/SIL financially.
+1

My parents and in-laws are well off and they both have ZERO plans of giving us any money. Our kids on the other hand... they pay for some clothes, school supplies, future college, etc... We could get help from them if we asked, but we don’t need it and we don’t want the weird relationship. It’s a great backstop to know they have money but never used it. Blessing the grandkids seems to be a happy medium. Inheritance down the line for us surely, but we don’t need it. If you’re going to give some $, just give it out right, give them the money to use as they want to. Don’t put any strings attached. And don’t fund an inflated lifestyle for your kids. But I’d let them own their own life. Don’t co own or co-sign anything...

Now I just need to worry about my kids being spoiled by the grandparents....

Been eating popcorn reading this thread though LOL :D
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Stinky
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Re: Helping our Adult Child Buy a Home

Post by Stinky »

Don’t entangle yourself in someone else’s finances. Even a dear daughter and SIL.

Gift whatever funds you feel comfortable with. Don’t cI-own or extend a mortgage.

And (partially) funding grandkids education is a great idea, if you have the means. But make sure parents retain some skin in the game.
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megabad
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Re: Helping our Adult Child Buy a Home

Post by megabad »

As long as you are ok potentially losing the money in a divorce (sorry to go there but it is a risk), then I like Option 1 of the not so pretty options you have laid out. This would be relatively simple and would expose a more limited amount of your assets to loss in divorce.

On a personal level, I agree with the other posters, not a fan of a parent getting this involved in child finances like this absent an emergency. In fact, I would hope my child would hesitate or decline this type of involvement. If he/she didn’t, this would be a red flag for me. As a younger adult, I was not very well off financially and I still would have declined an arrangement like this if presented to me. Especially if I was the non related spouse.
mortfree
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Re: Helping our Adult Child Buy a Home

Post by mortfree »

Seems like a sneaky underhanded way for you to “help” yourselves under the guise of helping them.

If you want to invest in real estate do it on your own. Not through your daughter.
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Harry Livermore
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Re: Helping our Adult Child Buy a Home

Post by Harry Livermore »

vanpan wrote: Tue Jul 14, 2020 6:06 pm Often finance and loans break relationships. Keeping things simple makes relationships better. My suggestion would be to gift your daughter whatever you can ( may be for the down payment) and they buy a house that they can afford. Having 50% ownership and gifting yearly for mortgage makes things complex. I went through. similar situation where my dad helped me buy our first home. He gifted us our downpayment and we made sure we bought a house well within our income limits. Our relationship is great and finances very straightforward.
Also +1,000.
Stay out of it. They will find a perfect home without your help. If the itch is really there, gift them periodically in a way that does not set up expectations, but rather genuine appreciation.
They are adults.
Agree with the poster that cited "economic outpatient care" from "The Millionaire Next Door". It's not a good look...
Cheers
Jack FFR1846
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Re: Helping our Adult Child Buy a Home

Post by Jack FFR1846 »

I have to ask. What kind of house are they buying for $1.5M? Is it right in back bay? Brookline? Moving outside of 128 very quickly allows much cheaper prices. For 1/3 that price and a reasonable commute (assuming they work right in Boston in tech at a place like Sonos or SimpliSafe) they can buy a pretty decent house.

I'd say no on this arrangement. I will add that my parents loaned me part of the down payment for our first house in Ashland (2nd town of the Boston Marathon route) and we repaid it in 3 years with one engineer and one nurse. Maybe let them buy along 495, where a 60's ranch on a small lot is pretty common and way cheaper than a mil and a half.

If YOU want to be a landlord with a duplex or 3 decker, then do that on your own. Don't drag family into it.
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NotWhoYouThink
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Re: Helping our Adult Child Buy a Home

Post by NotWhoYouThink »

This thread is astonishing. I have never seen the bogleheads all agree on any topic, ever. But we all seem to agree on this one.
SQRT
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Re: Helping our Adult Child Buy a Home

Post by SQRT »

vanpan wrote: Tue Jul 14, 2020 6:06 pm Often finance and loans break relationships. Keeping things simple makes relationships better. My suggestion would be to gift your daughter whatever you can ( may be for the down payment) and they buy a house that they can afford. Having 50% ownership and gifting yearly for mortgage makes things complex. I went through. similar situation where my dad helped me buy our first home. He gifted us our downpayment and we made sure we bought a house well within our income limits. Our relationship is great and finances very straightforward.
Agree. We did the same with our daughter. Just before she got married (2015) we gifted her some stock. The idea was that this would be sold by her and used as a house down payment once they decided to buy a house. The stock ended up appreciating a fair bit but when she bought their house in 2018 the real estate market had appreciated even more so we ended up topping up the gift with cash to allow them to buy the house they wanted. All in all everything worked out fine.

I think it’s best to stay out of your kids financial lives as much as possible. I would never co-own a house with my daughter. Any gifts should be no-strings-attached to the extent possible.

I fully understood that once the matrimonial house was bought, my SIL would have the right to half of it in case of divorce. At least we had a few years prior to that to assess whether the marriage was “solid”. In any event, I treat him like a son and I didn’t want to get involved in their relationship by trying to structure the gift as some kind of loan to prevent him from getting any of it.
SQRT
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Re: Helping our Adult Child Buy a Home

Post by SQRT »

BillWalters wrote: Tue Jul 14, 2020 10:02 pm Gift, but to daughter and house in her name only.
In some jurisdictions he would still have a right to half of the matrimonial home.
eigenperson
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Re: Helping our Adult Child Buy a Home

Post by eigenperson »

In case you need one more post saying exactly the same thing: Please don't do any of the options you mentioned in the first post.

* Don't own part of your child's home. Definitely don't own part of your child-in-law's home. It is demeaning. People buy houses because they want to own the darn thing, like independent adults. By offering a large amount of money (too much to be refused) in exchange for part ownership, you're effectively paying your daughter and her husband to give up their independence. This is likely to harm your relationship in the long run.

* Don't encourage your children to purchase a house beyond their means -- i.e. don't give them more money if they buy more house. They will become adapted to a lifestyle they can't maintain on their own, which is not a good situation.

* Don't optimize your children's taxes for them -- they need to learn how to do this themselves, and besides, you probably don't know their situation as well as you think you do.

My suggestions:

1. If you wish to give them money, give them one-time or repeated gifts of a fixed amount, not dependent on their choice of house.

2. If you wish to make a joint real estate investment with your daughter and son-in-law, and they are also interested in the idea, go for it -- but don't make that investment in their primary residence.
jaj2276
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Re: Helping our Adult Child Buy a Home

Post by jaj2276 »

I wouldn't do 1, that would be terrible for both parties. If a divorce is in the cards after say 10 years, could the husband have any claim on the $50k of yearly support? If both husband and wife earn the same, I would think the $50k should also be split. That would be awful if the OP then had to pay $25k to the ex-son-in-law. Of course I'm not a lawyer.

Let me throw out another suggestion. How about you write them a private mortgage? They own the property, etc., but you have recourse to recover the property if things go downhill. Purely a financial arrangement that reduces the complexities of "ownership." Obviously it still requires you to become entangled in their affairs IF they miss a payment. If you're not ready to enforce like a bank, don't lend like one. Another advantage with this approach is that once the couple has had a few years to "save" for a down payment, they can simply refinance to their own loan and get you out of the arrangement completely.

My wife and I wrote a private mortgage for her sister and brother-in-law. Make sure everything is done through a lawyer and you should have the same protections as a bank. 28 months in, everything is going well, extra principal is being paid too. Our mortgage isn't on the magnitude of the amount you're thinking about so the risk profile is a bit different. And finally, if you were to write the mortgage, you'll be inundated with companies willing to buy your mortgage. I don't know the haircut they want (I've never bothered to entertain their "offers") but if it gets to the point where you need to extricate yourself from the arrangement, it's very easy to sell a mortgage. The "haircut" you'll take will then be your gift to them (they got a mortgage based off of your terms).

It is also nice to be making 4.5% on my money with cash/savings rates so low.
whereskyle
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Re: Helping our Adult Child Buy a Home

Post by whereskyle »

vanpan wrote: Tue Jul 14, 2020 6:06 pm Often finance and loans break relationships. Keeping things simple makes relationships better. My suggestion would be to gift your daughter whatever you can ( may be for the down payment) and they buy a house that they can afford. Having 50% ownership and gifting yearly for mortgage makes things complex. I went through. similar situation where my dad helped me buy our first home. He gifted us our downpayment and we made sure we bought a house well within our income limits. Our relationship is great and finances very straightforward.
Agreed. OP, give her however much you want to give her for the house now and leave it at that. Let her do it herself. In my opinion, two very healthy financial rules between friends and family are: 1. No loans that need to be paid back and 2. no dual ownership of property that is really just supposed to be one side's property. I don't want to be rude, but why does a 26 year old in tech need a $1.5m "starter" home that her parents pay for, maybe for the rest of their lives? Just beef up whatever account you want to leave to her when you are gone instead. Give her a chunk to help her buy a house within her means and let her do this herself. Gifts, free and clear, are better than complex financial entanglements under the name of gifts.

I'm nowhere near your stratosphere of wealth, but I bought my first house with a $3k gift from my mother to help with closing costs. That was it: a $3k check. She hadn't seen the house, nor did she know where it was. She had been planning to give me exactly that chunk since I was a kid. It was very generous of her to help us (3/4 of the parents said, "I'm not giving you money to buy YOUR house"), and I'm thankful for the generosity, but one rule remains: the house belongs to my wife and me. We are responsible for it, and it's my income that pays for it. It has no mother-in-law lien on it. Mom's name is not on my property, and that means a world of difference to my wife and me: the independence we sought when we decided to buy a house. Family help is important for young people encumbered by the debt that everyone has been telling them they need to take on to get an education. But that help still should have healthy limits that foster independence and mutual respect.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
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Sandtrap
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Re: Helping our Adult Child Buy a Home

Post by Sandtrap »

Possibles:

1. If you help fund house purchase:

(A)...and there is a divorce, what will happen to your daughters and your investment in the home?

(B) .... and they decide to sell the home and move across the country for job relocation?

(C) ..... will that influence daughters/couples decisions on the use of the house and whether to sell it, and so forth?

2. If you buy a duplex and rent out to daughter and a tenant.:
(A) What happens if there is a conflict with the tenant?
(B) Who manages the rental?
(C) Would you be happy owning a duplex rental after the couple moves to another state for work? And, will you help them buy the next residence?

3. How do SIL’s parents feel about this?

4. Other children?

5. Many things can happen from the age of 26.

Family dynamics can be greatly effected by financial matters.

Seek legal counsel to be sure your best of intentions do not step on a land mine or quicksand.

One of the great challenges and shared wonder of a marriage is building a ship together without help and rowing it together toward a shared journey.

At some point, no training wheels.
j🌺
Last edited by Sandtrap on Wed Jul 15, 2020 11:24 am, edited 1 time in total.
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Lazareth
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Re: Helping our Adult Child Buy a Home

Post by Lazareth »

NotWhoYouThink wrote: Wed Jul 15, 2020 7:06 am This thread is astonishing. I have never seen the bogleheads all agree on any topic, ever. But we all seem to agree on this one.
Sandtrap wrote: Wed Jul 15, 2020 7:56 am One of the great challenges and shared wonder of a marriage is building a ship together without help and rowing it together toward a shared journey.
+1 +1

As an advance on inheritance, I believe husband and wife can each gift $15,000 to each child for total of $60,000 per year to help them buy the home of THEIR choice and ability.
a/66, retired, married, enjoy p/t employment.
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