For The Love of Money
Apartment rental prices in Los Angeles are through-the-roof. Last week, one of my clients rented a 1 BR/1 BA apartment for his daughter in Santa Monica for $3,800 a month – 1 year paid in advance. That’s roughly the same payment for an $800,000 loan based on 30 years and 3.92% interest rate.
Conventional wisdom says “why help pay someone else’s mortgage when you can pay your own and build equity in a home?” Parents of first time buyers are heeding that advice and increasingly are providing much-needed financial assistance in the form of down payments and/or gifting funds.
What does a parent need to know before helping their child buy a home?
- Tax Free Gifts. According to Ivory, an individual can give $13,000 tax-free to another individual each year. So if 2 parents can each give $13,000 that would be $26,000 in total to their child tax-free. If your child is married and their spouses parents contribute that same amount, the gift could be as high as $52,000.
- Down Payment Assistance/Gift Funds. The entire down payment can come from gift funds provided by a parent or family member and in most cases, the parents bank statements don’t need to be provided.
- Non-Occupant Co-Borrowers. Parent income and assets are blended with the child’s. Parents go on the loan with the child.
- Parent Equity Refinance. If the parents already own a home it may make sense for them to refinance their own property, pull out some equity and give it to their child for a down payment.
- Parents Purchase and Rent Back to Child. Parents purchase the home as an investment and have their child pay rent. Parents can then either sell the home to the child at a later date, keep the property as an investment, or sell it to someone else.
Jane Dalea-Kahn is a Los Angeles real estate agent with The Costas Team at Keller Williams Studio City.
For The Love of Money Part 2
Los Angeles is a sprawling mosaic of diverse neighborhoods that are connected by freeways, winding canyon roads and boulevards.
For parents who are looking to help find and/or finance a home for their grown-up kid this can be a tricky balancing act based on finances, safety and commute times. For those who aren’t from LA, it also means getting acquainted with vast geography of the city as well as the various cultures.
I found this vintage map online which shows the various neighborhoods in the San Fernando Valley. I’ve been sending it to my out of town clients so they have a visual reference…
Like all cities, each neighborhood has it’s own unique “real estate personality”.