HOW TO NAVIGATE REAL ESTATE THROUGH MULTIPLE GENERATIONS
We love you Mom and Dad, but this can get complicated.
First time home buyers are their own brand of special. Personally, I like them. Walking side-by-side through one of life’s biggest milestones, welcoming a new neighbor to the hood, though work-, time- and therapy- intensive, it’s incredibly rewarding.
More and more, it’s not just the first-time buyers who are my clients. It’s their parents. For generations, parents have been shelling out cash for family loans and down payments, but the trend is on the rise. Whether due to new gen standards or a rising house market forcing creative solutions, parents are all up in this business. Check out the 2019 Generational Trends Report from the National Association for Realtors. (hey kid! don’t roll your eyes!)
Let it be clear, I’m happy for the sales. If it weren’t for Mom and Dad (or Grandma, Grandpa and Uncle Joe) stepping in to help out, deals wouldn’t happen and homes wouldn’t sell. But having a ringside seat to an already stressful situation, and now adding the most emotionally-loaded aspects of one’s life – family and money – makes me stop and think. How can we make this a win-win for everyone?
From one borrower of the Bank of my Bloodline to another, here are a few RULES OF THE ROAD I’ve picked up along the way.
First, there are 4 basic ways parents can offer financial assistance towards a home purchase.
- Gift: A lump sum towards a down payment
- Loan: Your parents lend the money and you pay them back over time
- Co-sign: Mom and dad back the loan, no money is given here
- Co-purchase: You own the home together
No matter how they help, here are 3 simple rules I tell my clients when I know parents are going to be key players in the picture.
- Discuss the terms of their involvement BEFORE you start house hunting. Are they coming with you for house hunting? What if they don’t like your agent? Have you agreed on a budget? What happens when you sell the home? Do they have veto power on the purchase? The terms? You know these people well, try to predict possible scenarios and counter for them. Better yet, ask your agent, I’m sure they’ve seen it all.
- Get a lawyer and an accountant involved up front. No matter how tight your family is, or how much real estate experience your parents have, it’s best to put these types of financial arrangements in writing and to consult with an attorney and a CPA for guidance. This helps alleviate some of the emotion and make it more of a business decision.
- Have a pre-pow-wow with your agent. It’s important your agent be informed on the who, what and how of the deal. After you’ve set your family terms and gotten them in writing, talk to the team coach, your agent. They’re on your side and they want to make dreams come true. Often times, they can be everyone’s biggest ally.
Let’s face it, kids are always going to want to please their parents, and parents well, are always going to want what’s best for their kids – even if the two don’t always match. For any of you home buyers who might receives help in the form of a gift, loan, or co-sign, it’s pretty simple. Develop a plan, make sure everyone’s in the loop, and leave the family drama out of it. Last but not least, enjoy the process! It’s worth it.