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|Posté le: Lun 10 Avr - 14:24 (2017) Sujet du message: A House for Every Child
|A House for Every Child
By LIV Sotheby’s International Realty downtown managing broker, Steve Blank.
Denver, Colo., April 2, 2017 – Over the past 20 years, and particularly in the last four or five years, I have watched an increasing number of parents (and grandparents) purchase, or help their kids get started in real estate. The arrangements vary, but they recognize the benefits of teaching their children about home ownership and gaining that sense of responsibility. This is not spoiling them; it is being financially prudent. Some parents (and/or grandparents) pay cash for the home and have the adult kids pay them monthly interest and home maintenance. In many cases, they provide a down payment sufficient enough for the kids to obtain conventional financing. Most parents encourage their kids to save, and home ownership accelerates their ability to accomplish that ambition.
Many younger people earn decent salaries, but if they live in most metropolitan cities (Denver included), they pay significant monies in rent and find it quite challenging to save the down payment. The combination of good salaries and paying rent will equate to spending tens of thousands of dollars without enjoying the tax deductions for real estate taxes and mortgage interest (which is the high majority of the monthly payments). Kids mature when buying with their parents and learn to properly maintain a home, gain a pride of ownership, and appreciate the responsibilities and value of money. Meanwhile, parents may enjoy the benefits of a new connection with their children and may experience the pleasure and value of helping their kids while they're still around rather than have them just receiving an inheritance. And maybe the largest advantage is that a property is a tangible asset with long term tradeable value, and perhaps several times over in the future.
Last year I helped my youngest son with a down payment to purchase a condo in Los Angeles. He was paying a hefty monthly rent for a studio apartment and wanted to buy a one bedroom. After learning that market, it made the most sense to buy a two bedroom, get a roommate (learning a little bit about being a landlord as well) and we were able to cut his monthly housing out-lay by nearly half.
Most people may not know (or remember) the average price of a home in metro-Denver in 1983 was $80,000. By 2000, the average price increased to about $225,000, after factoring in a significant recession in the mid-late1980s. By 2016 the average price of a home rose to $405,000 even after the 2008-2011 recession. What a return for making a good investment.
Most parents and grandparents are legitimately concerned about sending kids to college by strapping themselves (or kids) with potentially hundreds of thousands in debt. A simple (if not brilliant) answer would be to buy a rental home for each child. Instead of the historical 7-10% annual home appreciation, let’s use a 5% annual factor on a $375,000 home. Over 15 years that home’s value would be over $655,000 (without compounding). That's a profit of $280,000, but it's actually a better story. At current interest rates and rents (both will rise in time) you make a small monthly return and the tenant pays down your loan each month amounting to another $70K - $100K ($300K loan) added to your $280K of equity build-up. BTW, remember this $350K +, of total equity build-up started with a down payment of about $75,000.
What’s in YOUR college investment portfolio?
For more information, contact LIV Sotheby’s International Realty downtown managing broker, Steve Blank, at 303.520.5558. To service all your real estate needs visit www.livsothebysrealty.com.