By Claire Ballentine and Paulina Cachero
Even as the US real estate market shows signs of cooling, inflation and higher interest rates are making it difficult for young house hunters to buy properties — at least on their own.
Parents are increasingly helping their adult children purchase homes, whether that means co-signing a mortgage, giving money for a down payment or buying the property outright, according to real estate agents across the country.
In New York, Coldwell Banker Warburg’s Becki Danchik says she has never seen so many parents buying homes for or with their kids in her 15 years as a broker. Since January, she’s worked with four parent-child combo clients, three of whom are paying all cash.
“It has a lot to do with rental prices being so high,” she said. “They feel like it’s a waste to be throwing away money on rent when they can capitalize on the sales market right now.”
Read More: Real Estate Is Emerging as a Hedge Against Roaring Inflation
Families with means have long helped relatives find their footing as new homeowners, particularly in expensive metropolitan areas, agents say. But that assistance is crucial now more than ever, with sky-high home prices and mortgage rates above 5%. Plus, real estate is increasingly being viewed as a hedge against inflation and a better option than paying rent.
Karen Rowan decided to help her 24-year-old daughter, Kassidy Leonard, purchase a three-bedroom townhouse for $330,000 in Denver last year. Leonard had been renting a one-bedroom in the city’s hot real estate market when her landlord hiked the rent to $1,600 a month from $1,400.
The 48-year-old businesswoman provided about $30,000 for the down payment and closing costs, and co-signed her daughter’s mortgage to help her qualify for the loan. The decision panned out: Just a little over a year since the Denver townhouse purchase, the property’s value has increased by nearly $100,000, Rowan said.
“The amount she was paying was about the same amount as a house payment: It no longer made sense financially,” Rowan said. “She’s already made back enough money to pay back the down payment and made a profit on it. Now she can leverage that money for something else at some point down the road.”
Bank of Mom and Dad
Homeownership among millennials trails behind other generations. Even at age 40, 60% of millennials have bought a home, compared with 64% of Gen Xers and 68% of Baby Boomers at that same age, according to an Apartment List analysis of census data. That’s because of ballooning student debt, higher home prices and stagnant incomes — all factors that are also making homes unaffordable for the Gen Z generation.
It’s hard to determine exactly how many buyers are receiving help from their parents, in part because few are willing to discuss how they’re paying for a new home. But financial advisors say they’ve seen a wave of ultra-wealthy parents seeking advice on buying homes for their kids because of the increased gift and estate tax exemption. The Tax Cuts and Jobs Act doubled the amount that Americans can pass on to heirs tax-free, to about $12 million for individuals and $24 million for couples in 2022. That provision will sunset at the end of 2025, when the exemption is scheduled to be cut in half.
Ellen Sykes, a broker at Coldwell Banker Warburg, just worked with a client whose father purchased her a $3 million apartment on New York’s Upper East Side. The money will come out of her future inheritance, and she’ll pay the maintenance and renovation costs on the property.
“It’s a form of estate planning and being able to take care of your children while you’re still living,” Sykes said.
The Long Game
When Sheila and Sebastien Centner’s eldest son got into the University of Miami, the Toronto-based couple purchased a vacation home there. Then, after their younger son got into the school, they paid about $195,000 for the caretaker’s cottage behind the house and spent another $100,000 renovating it into a one-bedroom, one-bathroom apartment.Read More: Homebuyers Swarm to High-Risk, High-Reward Fixer-Uppers in Red-Hot Market
Sebastien said that one or both of the boys — ages 21 and 24 — will likely live there soon, and later on, one of them could sell it and use that money as a down payment for their next place.
“The greatest appreciation of wealth has always been in people’s homes,” Sebastien said. “We wanted to help them out with that. Getting that foot in the door is important.”
In large cities, buying a property for one’s children is a way to invest in real estate while also avoiding expensive student housing. In New York, for example, student housing can cost up to $10,000 a semester at colleges including Columbia University and New York University.
College students make up a sizable portion of the clients Ian Slater, a broker at Compass, has helped find apartments at 208 Delancey on the Lower East Side, a short walk from most of NYU’s campus. Studios start at about $690,000 with monthly fees of $900, and one-bedrooms are about $999,000 with fees between $1,100 and $1,500.
“You see interest from people saying, ‘That could be a down payment. I may just as well have an apartment that appreciates,’” Slater said.
Others, like Mijeong Park, are purchasing apartments for their kids to live in after graduation. Although she currently lives in South Korea, her son recently finished the MBA program at Columbia University and decided to stay in New York City full-time. She helped him buy a one-bedroom, one-bathroom unit at “Bloom on Forty Fifth”, a new condo building in Hell’s Kitchen, for about $1 million.
“I work with a lot of foreign investors, and they tend to buy properties for their kids,” said Mina Bevan, an agent at Douglas Elliman who assisted the family. “They don’t want them to waste their money on rentals.”
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