on parents buying their kids apartments

My mother-in-law loaned me and my husband the money for our down payment, so I don't think there is anything wrong with it. I hope I'll be in the position to do the same for my kids.

On the other hand, the day I graduated from college, my father said, "I hope you get a job quickly, because you've gotten the last dollar you'll ever get from me." Which was fine, because I didn't feel like he had any obligation to continue to support me. After college I was a lowly editorial assistant making very very little money, and I was always surprised that my colleagues seemed to be able to afford to go out to lunch every day, buy clothes, take vacations . . . finally I realized that they were all heavily subsidized by their parents. I didn't resent them, I just felt really jealous. It was probably character-building for me to be poor and have to learn how to live on a really strict budget and brown-bag my lunch and so forth, but really, it sucked, and if my kids end up in that situation in their 20s, I will definitely help them out if I can.

No, buying your adult child an apartment does nothing to undermine their independence, maturity and responsibility. But the three-year-olds running amok at Two Boots: by God, we need to stop mollycoddling them!

I kid, I kid!

I don't see anything morally wrong with "helping out" an adult child. As with so many things about parenting, it's all in how you do it. It's possible to give money to a kid and still have him be a responsible, independent adult, and it's possible to do it in such a way that he never learns to rely on himself.

I never got a dime from my parents for college (scholarships, luck) nor for housing. I'm glad in retrospect because it allowed me to make my own career and academic choices--many of which meant I would make much less money in the future than I could have--without feeling I had to provide return on anyone's investment. Am I proud to have fended for myself? Definitely. Would I have taken a handout if offered? Probably. Would it have changed me? Quite possibly.

Would I do it for my own kids? I think this is one of those questions like, "What would you have done if you lived in Nazi Germany?"--you can answer however you want, but you won't really know until you're in the situation.

Subject: Re: on parents buying their kids apartments

brooklynpotter wrote: plus, isn't buying property an exceptional investment?

Oh, BTW, on this point: not as exceptional as people think. Yes if you bought NYC property in 1995 and sold it in 2005. Not if you bought it in 1988 and sold it in 1995. Over the long run, historically, it's not bad and beats renting, but it's not as good on average as, say, the stock market.

Not that any of this should be your main consideration in buying a home for your child, but a lot of people are in the mindset about real estate today that they had about stocks in the late 90s--it'll just go up up up, at a ridiculous rate, forever.

Oh, enough with the Tampa dude already. He wrote one little post about 4 lines long; you have no idea whether he's really "doing all the legwork and taking care of all the details" for his kid. Maybe he just stumbled upon this site and impulsively decided to post. Maybe his involvement in his kid's apartment search begins and ends with his posts on this board. Maybe there's a really good reason he's helping his kid. Or maybe his kid's just a lame-o ... the point is, there's no way to determine any of that from what the guy has said here.

As was mentioned above, I think ideally the money should be a loan, not a gift. I know it's a separate issue, but after recently reading an op-ed written by Muhammad Yunus (winner of this year's Nobel Prize for his work providing micro-loans), I've been thinking a lot about what he said. Yes, I know that was in the context of helping out the poor, not your kids, but some of the principles he talked about still apply. Namely, receiving a loan instead of a handout builds pride instead of dependency and humiliation (let's face it, who among us is proud to say how spoiled they were by their parents, even if they liked it?); second, and more importantly, when you know you have to pay the money back, you are incentivized to work hard. How many children of privileged parents are complacent and lacking ambition? The lazy 2nd generation is a cliche, largely because the 1st generation, who worked so hard to earn its wealth, imagines it unthinkable that its own children could just sit around playing videogames and smoking doobies. But that's often what happens.

There are various ways to do it: buy the place and have your kid lease it from you with a principal component, so that he's gradually purchasing it; loan him the down payment and have him pay back the interest and down payment over time; or some other alternative. To distinguish yourself from Citibank, you can obviously loan at tiny to zero interest rates, give him a break on the occasional missed payment, guarantee any bank loans he takes out, etc. But overall, in principle, I think by framing it this way you're giving your kid both a financial gift and the gift of teaching him responsibility. That's my intention, at least.

(btw, didn't mean to be gender-biased, I just didn't want to write he/she again and again)

On the other hand, if they had learned that lesson long ago, perhaps they either wouldn't need someone to give them a house, or would have too much pride to accept the offer (and the implied beholdeness)?

When we bought a coop several years ago, we were the only new buyers in the place whose parents hadn't bought the place or at least put the downpayment down on the place for them. I would say that we, in some ways, valued the purchase more since we had sacrificed to save for a downpayment. I was the president of the coop and cared a lot about the place while some of the other people were lets just say slackers. But we did end up having to borrow 5k from my stepfather to help with the closing costs which we hadn't really factored in when we started to save.

But is there something wrong with parents buying kids property? No obviously not. When I was in high school some kids saved and bought themselves a used car and some kids' had parents who bought them a new car.

I think it just unlevels the playing field further and makes it harder for people who are TRYING to save. Buying property is getting harder and harder for first time buyers. But when a parent can step in and pay cash for a place and immediately outbid middle class people (as happend to us three times on our hunt for a house) it sends a message that 500k is an acceptable price for a one bedroom coop and the realtors will continue to push that envelope further--knowing that there are parents who can step up with the cash.

linusvanpelt wrote: As I said above, I can't really say it's morally wrong to buy your kid a place. But I do think we have an obligation to acknowledge that those decisions have real effects on other people, whose kids need safety and good schools as much as mine do but are not necessarily going to get them. (Now, does that mean I'm going to move to the projects to prove a point, or sell my house and give the money to a poor family? Don't wait up.)

I totally agree. And isn't that why there was historically an estate tax or as the Bush cronies call it-the "death tax?" The founding fathers were TRYING to keep the playing field level by not allowing huge fortunes to pass easily from one generation to the next? They were trying to prevent a recreation of the class system of England. Nowadays it seems that real estate is our "huge fortune" for most people and it DOES have a ramification on people trying to buy for the first time. I just wish we cared as a society to help those left behind. But you can't blame parents for wanting to set their kids up--it is up to the government to level the playing field so that everyone has a shot at that opportunity STILL today.

brooklynpotter wrote: i don't know. loans between family and friends can get very, very tricky. personally, i've never loaned $$. if someone has needed it i've decided either to give it to them or not. i don't believe in putting that kind of pressure on any type of non-professional relationship.

the fact is, things happen... and when do you renegotiate?

it can quickly become an ugly quagmire.

i'm certainly not saying we should give give give without thinking of the consequences, but if you're trying to "teach" your adult child something, shouldn't that lesson have been learned a long, long time ago?

Well, there's also the added benefit that you get your money back. Not everyone is able to just give away $100K or more, after all.

I hear what you're saying about how mixing family and money can be very dangerous. I've certainly accepted benefits from my parents and the "loan repayment" is essentially just my feeling that in the long run I hope to take care of them when our roles are reversed. I just see so many spoiled people out there, and so many people who don't understand the value of money, that I hope to try to avert those characteristics in my own kids someday.

The thing is: my parents' generation could afford to buy a nice house in a nice neighborhood straight out of college on one income. No way have incomes kept up with real estate prices. Everyone has to live somewhere; all that's really happened during the housing boom is a redistribution of wealth from the young to the old, from those who didn't own before to those who did. The benficiaries, middle-class baby boomer homeowners, are basically faced with two choices: hand over real estate (or equity thereof) to their kids before they die, or after. Sooner or later, the wealth will flow back in the other direction, plus or minus estate taxes.

When you look at it in those terms, wouldn't you rather provide a downpayment now and be around to see the kids make a home of their own?

kensingtonmom wrote: [quote=escap]Does anyone know what the tax implications are? I believe that the gift tax kicks in after $10K per parent per child, but does buying your kid a house count as a gift?.

I have lots of friends whose parents make yearly "gifts" to them of $10,000 to avoid any estate taxes.

Right, I'm aware of this law. And in fact, now that I think of it, I know that you can securitize your house and gift $10K worth of equity in the house to your kids each year.

But so doesn't this mean that you can't buy your kid a house, or put down the downpayment for him/her? Or is this some kind of an exception?

doctorj wrote: [quote=escap]
But so doesn't this mean that you can't buy your kid a house, or put down the downpayment for him/her? Or is this some kind of an exception?

What about buying a house, renting it to the kids for a year, selling it to them at a loss, and then claiming a tax write-off for the loss of capital?

No, I specifically asked an FC that once and he said the sale has to be at something approximating fair market value, or else it will be considered a gift (at best) or tax fraud (at worst).

escap wrote: [quote=doctorj][quote=escap]
But so doesn't this mean that you can't buy your kid a house, or put down the downpayment for him/her? Or is this some kind of an exception?

What about buying a house, renting it to the kids for a year, selling it to them at a loss, and then claiming a tax write-off for the loss of capital?

No, I specifically asked an FC that once and he said the sale has to be at something approximating fair market value, or else it will be considered a gift (at best) or tax fraud (at worst).

I know nothing about finances or how tax codes work but I do know you can bequest a gift of $10,000 per year as Kmom says. I do know that with an FHA mortgage you can give/loan the person the downpayment without any type of official loan document or even having to pay taxes on the gift. That would probably be the better deal for a parent.

ecap - I work with an attorney who has transferred the ownership of homes to family member for as little as $10 but I think the few times I have seen this there has been no mortgage on the house and I think that the person paid a lump sum transfer tax which was pretty substantial