Should Parents & Grandparents Help Their Kids Buy a Home?
By Guest Contributor, Leonard Steinberg, Compass
The media is again spewing a false narrative about how recently parents and grandparents are helping their kids buy a home......this is nothing new. The concept of parents and grandparents helping their kids out financially has happened for centuries. There is nothing new about this, except that now there is much more money in the hands of older generations living longer.
The salacious headlines speak mostly about spoiled rich kids being given tons of money to get ahead.....and yes, this happens for sure, and to many this seems unfair. But 'gifting' or 'loans' from parents and grandparents has always happened and it happens at all different price levels. Sometimes much less wealthy parents are much more generous. Relative to their wealth they are often MUCH more generous. Right now with a notable wealth imbalance between older and younger generations, this gifting is probably the best solution to play catchup. While most first time home buyers are realistic, many also feel extremely entitled insisting that their DREAM HOME should be their first home. Most who own beautiful homes did not start out owning one and built their wealth over time. The vast majority of homeowners of very expensive homes are much older.
Many parents and grandparents are dead right by not giving their kids any assistance: surely they should experience the same sacrifices and work as hard as they did to EARN the right to home ownership? While this may have some truth, the reality is that wages have not kept up with the costs to buy a home......we have been under-building for too long and prices have soared, especially recently, with builders more focused on more expensive and more profitable options. Some parents and grandparents who are more practical than right consider the following:
1. If I have extra capital, why not help those I love most.
2. If I have the wealth that ultimately will land in the hands of my heirs, why not share that now rather than later....AND have some control of how that inheritance is invested/spent!
3. If these kids will look after me later in life, why not help them now? Maybe we will move in with them at some point?
4. If I wish to reduce my estate tax burden, diversifying my estate now may have tax savings benefits?
5. If I need to help my kids pay rent, why not put that money towards ownership instead?
6. If inflation is 2%, a $50,000 loan now to help buy a $500,000 home may elevate that asset by $100,000 in 10 years.
7. Maybe at some point my kids/grandkids will help ME out financially?
8. Helping my kids/grandkids now may influence how they look at me at the Thanksgiving table.....
What's your opinion? I'd love to hear it...Tamara Z