1. You Can Turn Your Home Equity Into An Investment Within The
Family!
You can turn your home equity into an investment within the family! Here are three ideas worth
considering when investing your equity which will give you a good return and at the same time make
it easier for your child to get into their own home.
First, it is not uncommon for parents to assist with a portion or gift of the down payment for their
child's first home purchase. The child (buyer) would pay a rate of interest to the parent that is similar
to what they would make if the funds were invested in a similar type of investment. Utilizing the
parent's equity this way can take the place of making an investment in a retirement account because
it provides for an adequate rate of return because they are investing in a reasonably safe investment.
The guarantee the parents have that the money will be repaid would be that it would take the form of
a note secured by a deed of trust on title.
Second, you can possibly assist in purchasing a home with co-ownership. The parent and child would
purchase the property together. They would then create an appropriate agreement in writing of how
the costs, expenses, maintenance and improvements are handled. If the property is co-occupied by
both parties then in creating a proper financial agreement you would need to consider what
percentage of the property each occupies, what percentage each party contributed to the initial cost
of the home and whether the parent also provides assistance in making the monthly payments. A
termination date should be added to the agreement because like any good investment there is a time
to enter and a time to exit.
Third, the parent may elect to purchase the property out right for their child. In this case, the
arrangement would probably work best if the child is treated as a renter for purposes of the
investment. The child would pay an amount monthly to the parent that would equal fair market rental
value, prorated monthly amount of what taxes, insurance and routine maintenance would cost.
The good news is that in the end you help get your child into a home and at the same time you
provide yourself with a reasonably safe investment opportunity with a good return.
Some information to write this article was obtained from the Los Angeles Times and Inman News.
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