Co-Investing With Family Members

Written by Guest Contributor: Doug Goelz, Mortgage Services

I see the personal finances of many people, and in my experience, real estate is the most consistent means of wealth-building for my clients.  In many cases, the real estate holdings were originally co-investments with parents, or were inherited from the parents.  Modest investments years ago have become the basis of wealth for many of my clients.  Here are a few examples of some of my real clients:

Sue: Years ago, rents were relatively high and Tom and Sue were looking for a new apartment in San Francisco.  Sue’s mom was getting a little older and thought it made sense to move closer to her daughter.  Sue’s mom had the down payment needed for a two-unit property while Sue and Tom had the income necessary to qualify for the loan.  So, Sue’s mom bought a two unit property with Tom and Sue and moved into one of the units, while Tom and Sue moved into the other unit, and they lived in the building together for years.  Year later, after the units were converted to condos, Sue’s mother passed away, and Sue bought out (her now-ex-husband) Tom.  The property is worth about 6 times what Sue paid for it originally, and is still Sue’s primary residence.

The Smiths: Joe and Marie Smith bought a small apartment house years ago when their 4 kids were young.  Later, they bought a couple of small rental houses in the Sierra foothills.  Joe and Marie have passed away, and Tammy, along with her 3 siblings, all now adults, are the joint owners of the rental properties.  The siblings each have different financial objectives now so they are selling the properties and making their own real estate investments.  Tammy, one of the daughters, is a teacher and rents in San Francisco.  Her share of the money will let her buy a place for the first time.  The small real estate investments by Joe and Marie decades ago will provide the money for Tammy to a buy home; for the other siblings, their share of the proceeds from the sale will let them buy investment properties that will provide income for the rest of their lives.

Michael:  Michael’s father was selling a rental property and was not going to do a 1031 exchange because he was tired of being a landlord.  He was going to pay the taxes on the gain and invest the money another way.  Michael had just moved back to San Francisco and was looking for an apartment in this crazy rental market.  Michael suggested that his father buy a place suitable for Michael and a roommate.  The result of the property Michael’s father ended up buying? Michael has a place to live; Michael manages the property; and dad deferred taxes with a 1031 exchange and collects monthly rent from Michael and the roommate without the stress of dealing with tenants.  The real estate will be part of Michael’s future inheritance.

Is everyone in a position to buy a property with future generations in mind? No.  Does everyone want to? Definitely not.  Nevertheless, a multi-generational view towards buying a property can be beneficial to everyone involved by providing housing now to members of the family, rental income now, and/or a significant leg up on wealth building for the younger generation involved.

Do you want to explore your financing options for a property with your family? Feel free to get in touch with me at 415-730-4665 or doug@emortgageservices.net.