Small-time investor--Helping kids buy 1st home - Posted by Teresa

Posted by michaela-ATL on August 28, 2005 at 10:08:54:

If you’re planning on letting them ahve it ‘subject to’, then it won’t be necessary to have references, because they won’t need to qualify as your children.

you could also make it a lease/option to be converted into a sale in x number of years with good eprformance.

If you want to make sure they have good references, then put a loan servicing company in the middle: They will collect the payments and make the payments to the mortgage company. It would be handled in a professional manner and they could reference in the future.
It would certainly help with the family relation, because, if they’re late, it’s out of your hands ‘so to speak’. They can’t blame you for a bad reference. They can’t complain about you being cheap etc. It would also allow you to check on their website (I have used in the past) to make sure the payments are made on time and your credit is not being ruined


Small-time investor–Helping kids buy 1st home - Posted by Teresa

Posted by Teresa on August 28, 2005 at 09:23:04:

It has been a very long time since I’ve posted. I’m one of those very cautious (parttime) investors. I’m nearing early retirement (age 51), so I’ll have more time to spend on investing. Here’s where I stand, and I’m hoping to buy another property, but my purpose for buying it is a bit mixed (partially an investment & partially to provide a hand-up to my daughter and future son-in-law). So here’s the story & my investment history (although brief) to date.

o Own primary residence, AND
o Currently own & rent a nice brick rancher (has positive cash flow now that we evicted prior renters–in arrears $7K & case is with attorney to collect or garnishee wages.)

o Daughter is engaged to be married in May 2006. Her fiancee has entry level computer programming job ($30K annual income) & has bad (but improving) credit due to youthful mistakes. Daughter graduates from college 12/05 and has limited parttime income now but will (hopefully) be full-time employeed by Jan 2006. My future son-in-law’s parents will gift him about 5% of downpayment on a house. I will help as well, but I’d prefer:
–to buy the house (thinking my excellent credit will result in a lower interest rate),
–pay for reasonable repairs
–pay the 1st five months’ house payment
–have the kids take over payments & own the house

My question regards the BEST way to put something like this together. Do I buy and then setup a lease/purchase, OR can we co-purchase having me serve as primary owner, OR are there other suggestions?

Also, I found a 1950s “fixer-upper” (in relatively good shape but would need inspection & punch list). Let’s focus on the 1st question, and then I’d like input on the 1950s property. MORE ON THAT LATER.

Thanks folks.

Re: Small-time investor–Helping kids buy 1st home - Posted by Devon Daughety

Posted by Devon Daughety on September 05, 2005 at 02:06:11:

Theres a lot of different things you could do. Where are you located (state wise)?? You could buy it as a non owner occupied and have them sign a lease for it… OR you could cosign, as a non occupying co-borrower, but because your daughter has no income, it would be hard to qualify her. We would probably have to go stated income, which would make the rate higher. Shoot me an email I have some other ideas too

Take A Lesson From The Gee-Tar - Posted by Milo Brom

Posted by Milo Brom on August 30, 2005 at 24:52:21:


Good for asking for other opinions and experience.

When six pa tells me he will buy me watch WHEN I can tell time. I learn to tell time from clocks and he buy me watch.

When teenager he tell me he help me get car WHEN I can drive. I learn to drive and sell me his old car for very good deal (he manager of car yard). Same car I learned on.

He buy me guitar. Not when I can play. And not with lessons on how to play.

I never learn how to play. He gave me a thing which required me to have a skill I didn’t have. Bad thing from him.

You want to do the same. You want to give money and property to people who do not have skill to handle money and property. And you don’t give lessons in skill with gift.

First get skill. THEN get property and money.

Get new son some money managing skills so his credit improve. And just like bank, require proof of savings ability. If no discipline to save, or improve credit, no discipline to pay you back, so no property/money gift.

Frank Chin gives good advice but he leave out important part. Family brought up with certain skill. But from what you wrote, that skill not in new daughter and new son.

Don’t do what my pa did and give guitar without lessons. Kids are thankful but not truly deep down appreciate. And certainly not value gift.

We value what we work for ourselves. Easy come and go is true.

Your job as mom is teach offspring to be elf-sufficient. Same job as moms of all animals. Giving such huge gifts doe not teach offspring to live by self. Only to ask you for more. This is how it is, even if you want to think otherwise.

Milo Brom

Re: Small-time investor–Helping kids buy 1st home - Posted by Steve

Posted by Steve on August 29, 2005 at 14:56:51:

My mother dod this for me 4 years ago. She lent me 50K for the down payment and put the mortgage in her name with me on the title. I am in the Washington DC area where homes are appreciating greatly. With in two years I was able to refi in to my name with cash out to pay my mother off and buy my wife a nice engagement ring. I have since pulled more money out and aquired more property. I have taught my mother how to more effectively use leverage(increased equity base by 500K for her)and gotten her to aquire more property.

If you have the means to do so, this is a great way to give your daughter a hand up and can lead to great things.

CO-DEPENCY!! DON’T DO THIS! - Posted by Sean

Posted by Sean on August 29, 2005 at 12:01:49:


I understand you want to help your kids out… but I have to say, DON’T DO IT, at least not in this manner.

Do not put your name on a note that they are going to “PAY”.

Do not put yourself in this situation, it more often than not ends VERY BADLY.

Its not that parents intentions are bad, its just a poor poor choice.

If you want to help them get into a house… do as the other parents are “GIFT” them some money to put down on a property if you want… NO STRINGS ATTACHED, OTHER than it has to be used for a down payment.

Mortgages last far beyond the initial “good will”… they are 30 or 40 year commitments on the high end… and your name will be on that note until it is paid off. DO NOT CO-SIGN/CO-OWN or otherwise CO anything with your child/in-law.

Help them find a great deal… help walk them through it… help them in any number of ways, but do not sign a note for them.

Re: Small-time investor–Helping kids buy 1st home - Posted by Frank Chin

Posted by Frank Chin on August 29, 2005 at 07:28:06:


My mother in law invested with just about all of her children with great success.

Most of the answers below pertains to your gifting cash to buy their own home. My mother in law insisted on buying rentals that cash flow, and the kids buy a place of their own to live in. If the cash flow helps out with the rent and mortgage, all the better.

My in laws were tremendous “savers”, as are many immigrants, and since the death of my father in law, she was cash rich. About 20 years ago, while she was cash rich, whereas her children was not, but each of us had high paying jobs, good credit scores, so why not “invest” together. The kids could also use the tax deductions.

So the deal is:

-She puts down most if not all the down payment on some of the orignal deals.
-The kids pay the mortgage, pockets the cash flow, or make up the difference on any negative (during vacancies)
-The kids handles maintenace, tenants, etc.

It worked well, and my brother in law since done 1031’s on the orignal property into more rentals in view of the surging prices in San Francisco.

She done some investing with us here in the east, so she can boast investments “coast to coast” as we often joke with her. She began all of this while a “widow”. She’s done well for someone who doesn’t speak English well.

I did the same thing with my sister where I provided the funds. SHe helps out with the property management.

You’ll notice its arranged so that there’s a minimum of arguments. She left it up to the kids to sell or reorganize if necessary. Otherwise, you’ll have “I want to sell but you don’t arguments”.

BTW, I needed to borrow 20K against one of the properties once, she provided a loan to us, with each of us having an attorney drawing up the loan documents. We beleive certain things have to be kept “arms length”.

Success or failure of such partnerships depends on the structure of the deal, (she’s like a passive investor), and the personalities of the people involved.

Frank Chin

Re: Small-time investor–Helping kids buy 1st home - Posted by Teresa

Posted by Teresa on August 28, 2005 at 15:11:08:

I want to thank everyone that replied to my post. I must admit, the opinion is almost unanimous that my approach is wrong. I am definitely rethinking my plan. I’ll give it alot of thought & think about how to guide them in the right direction rather than providing the direction (and the cash).

Again, thanks for your candor.

Re: Small-time investor–Helping kids buy 1st home - Posted by Killer Joe

Posted by Killer Joe on August 28, 2005 at 13:16:48:


The old saying “feed a man a fish and you’ve giving him a meal, teach a man to fish and he’ll have food for a lifetime”, (or similar :slight_smile: is as true today as it ever was.

Nine years ago I helped my oldest daughter out by giving her the CS course so she could learn the basics and GROW from there. I told her if she would put the energy into her education and subsequent due diligence on a property that I would gift her the down payment. That is what she did, and that is what I did. It worked out well for everyone.

The other posters here have giving you some world class advice about not proceeding down a road that leads to nowhere. If you truely want to help your children it starts with education. If you can provide the seeds for their education, and that education takes hold, they will be far better off than if you just provide an easy way for them to escape lifes’ realities about financial responsibilities.

Try to view it from a perspective of a few years down the road. These kids are young and will continue to make those youthful mistakes until their education and perspectives change and grow enough for them to have a solid foundation to build on. A little struggle goes a long way in helping one reach maturity. Education is the key to easing the struggle, as opposed to providing an easy path. Make sure your efforts are focused on insuring they get the basic financial understanding of how life works. The rest will take care of its’ self. Lead by example and they will have a good role model to follow. Just my thoughts, HTH.


Re: Small-time investor–Helping kids buy 1st home - Posted by Brian (UT)

Posted by Brian (UT) on August 28, 2005 at 12:33:02:


As a Realtor for 36 years I’ve seen many of these deals. I handled about 20-25 of them until I finally told my clients to get someone else to ruin their lives for them.

All but about 2 turned into nasty problems and I’m willing to make a sizeable bet that your about to do what the others here have told you not to do.


Re: Helping kids buy 1st home–Aauuuugggghhh! - Posted by Sailor

Posted by Sailor on August 28, 2005 at 10:38:38:

Having been there & done essentially that several times, my advice is to remember that NO GOOD DEED GOES UNPUNISHED! Financial transactions w/family members cannot end well. You w/be blamed for every little thing that goes wrong w/the house & it w/cost you mega-bucks & perhaps your relationship w/your DD when the deal sours. Also, your future SIL could end up owning half your house if there is a split. I’ve had an I-for Idiot SIL go BK on me TWICE. His idea of retirement is having me for a MIL (however, my goal in life is to outlive him & I have a good chance of making it since I am only 3 years older).

Having said all that, (1) I agree w/Michaela about having another party handle the payments, & (2) I advise doing an equity-share arrangement so when all this blows up you have a chance to get back your down payment.

I hope I’m wrong, but I bet your DD & her fiance won’t even like the house you have in mind for them. If so, let it go 'cause soon enough you’ll need to provide for your grandchildren.

Tye (who really isn’t quite that bitter, but HAS been through 4 equity shares & 3 generations of offspring)

Re: Small-time investor–Helping kids buy 1st home - Posted by Anne_ND

Posted by Anne_ND on August 28, 2005 at 10:16:53:

Hi Teresa,

Dealmaker beat me to what I was going to say- read what Thomas Stanley (and many others, I’ve read the same advice in the Kiplinger Report) has to say about kids who get financial first aid from their parents and how they turn out.

I suggest you let them start married life living in what they can afford without help (even if that’s a tiny crappy third floor walk-up with no elevator and no laundry). ESPECIALLY if your daughter’s boyfriend has bad credit. He’s already demonstrated he can’t handle his finances. If he’s in the process of turning his life around financinally that’s great, but imagine how emasculating it will be for him if his future mother-in-law steps in and makes everything okay. He has no incentive to change.

I suggest you go forward with your own investing career and maybe bring them on board after they’ve gotten jobs and fixed their credit. Teaching them to invest will be a wonderful gift you can give them.

good luck,


Re: Small-time investor–Helping kids buy 1st home - Posted by Randy (SD)

Posted by Randy (SD) on August 28, 2005 at 10:15:44:

My viewpoint is considerably more lenient than dealmakers (having children in their mid-20s, it’s gratifying to help them get started). My approach would be to purchase the home myself and sell on a CFD or land contract as opposed to a lease option. The CFD gives them and equitable interest from the time of purchase if and when they are ready to secure traditional financing it would be a refinance (easier qualifying) as opposed to a new loan with rental history. Additionally since they are making their payments to you, and you are paying the underlying mortgage you have better control that the payments are timely. Keep accurate records of the payment history, as they will need it when applying for their own financing.

Re: Small-time investor–Helping kids - Posted by dealmaker

Posted by dealmaker on August 28, 2005 at 09:29:34:

Well Teresa before I did any kind of gift to the kids I’d read (about 6 times) the chapter on “financial assistance to kids” in Dr. Stanley’s great book “The Millionaire Next Door”. His short word on it is “DON’T”.

That said the ONLY way I’d do it would be to buy it myself, rent it to them, AFTER THEY’RE MARRIED. Once they’ve got a couple of years of creditworthiness paying you they will be able to get a great mortgage.

Just my $.02, fee free to ignore any or all of it.


Re: Small-time investor–Helping kids buy 1st home - Posted by Josephine Marlowe

Posted by Josephine Marlowe on September 05, 2005 at 19:39:40:

I am new in this small time investor could please help me out. My phone is 650 270 3439 or E-mail me.Thank You. Josephine

Re: Small-time investor–Helping kids buy 1st home - Posted by Sailor

Posted by Sailor on August 28, 2005 at 16:21:47:

We were a tad strident in our responses, but only because many of us had been there before you & could feel your imminent pain! Just @ lunch today I was reading “Millionaire Women Next Door” by Thomas Stanley, & there is a chapter, “Intrafamily Gifts of Kindness” that directly relates to your situation. (BTW, there is another section about “Marginal Bob” that describes my I-for-Idiot SIL.)

It is our nature to nurture, but I fear there is an expiration date on benefits to our offspring–

Tye (who hopes you’ll do what I say, not what I did)

Re: Small-time investor–Helping kids - Posted by speednxs

Posted by speednxs on August 28, 2005 at 10:44:06:

This is pretty good advice. First, there is no investment aspect to this deal, but there is an indication that you are already deluding yourself. You want to use you money to buy gratitude from your children by “helping” them. OK, this is normal. Did doing your children’s homework for them, “help” them out? Isn’t it cute when you make a poodle sit up and beg to get a treat? Your son-in-law already has money problems. He doesn’t realize that borrowing money for consumption leaves you with fewer goodies, not more. You have to pay interest on that money. Many people aren’t even clear on the concept that you have to pay back the principle you borrow.

Is he really going to learn money management by being given charity? What is going to happen when you have grandchildren? How could you possible refuse them anything? You have started them down the path of dependency before they ever learning independence and financial responcibility. Giving them a windfall profit in their 20’s is very different than in their 50’s. The struggling they do in their early years can greatly improve their life in the later years.

Re: Small-time investor–Helping kids - Posted by Teresa

Posted by Teresa on August 28, 2005 at 09:42:50:

I didn’t expect that response, but I do appreciate it nonetheless. I will read the chapter you mentioned.

I do have a question though. If I did buy the property & rent it to them, are lenders not suspicious of positive rental references from family members?

Your idea has merit, and I will consider it.

Re: Small-time investor–Helping kids buy 1st home - Posted by George

Posted by George on August 29, 2005 at 01:58:36:

One side-note I haven’t seen mentioned yet on this subject is the challenge that young people face these days getting started. Depending on ones area of the country, I think the current generation of young people has a higher mountain to climb to get ahead financially than many of us faced in previous years. I think wages are stagnant, housing prices are higher compared to incomes, and it is increasingly difficult for young people to purchase their first home.

My own inclination would be to stay away from getting into any financial arrangement with the kids. I would recommend the kids have a few years to solidify their relationship, possibly save some money and improve their credit before giving them a hand. Because the downpayment is often the biggest impediment to purchasing a home, if your financial situation is solid and you can spare a dime or two, work with the in-laws to help the kids with the downpayment and leave the rest to them. Also don’t let them get too leveraged or deep in debt to start with. They’ll never get ahead if they get over their head in debt. Thus a condo or a fixer-upper that they can afford may be a good starter house.

Well, I think this is a harsh way~m~ - Posted by TinamarieD

Posted by TinamarieD on August 28, 2005 at 13:19:43:

of saying it, but I do I have to agree with this poster. I can only compare this situation to my SIL and her family. When my SIL got married 26 years ago my MIL let her live rent free in her recently deceased mother’s house. This was done to help them get established. Well, 30 years later and my SIL and her family are still living there rent free only she also borrowed $10,000 when her daugther was born to get them out of debt and 18 years later she has still not paid that money back. Her husband gets a brand new truck every 2 to 4 years, they go on lots of vacations (they go to Disney every year). She has over $10,000 in credit card debt and has basically no assets to her name.

My BIL is 55 and my SIL is 51. Contrast them to my husband and I. Jeff is 35 (let’s just say he was a surprise to his parents!!) and I am 34. We have two investment properties (one of which we own free and clear), we have only one vehicle (my husband gets one from work) which we had for 8 years (only sold it 2 months ago), have never carried a credit card balance (except for the 2.9% fixed for life rate card which we drew $20,000 to pay for part of our last investment property) and are very cognizant of our retirement savings and our monthly cash flow.

My parents divorced when I was younger and I was raised without many material things. My mother couldn’t afford to pay for college, my wedding, first house etc (and neither could Jeff’s as his sister got everything!!). for this I am very grateful. If I had been handed everything, I would never have learned that one must work and struggle in order to be rewarded with the finer things in life.

You sound like a very loving mother and I think it is wonderful that you want to help your daughter start her life with her husband. But, I can’t help but think of my SIL and how my MIL’s act of kindness just made her more irresponsible.

best of luck to you.