Some parents are choosing to buy a home for their college-bound child in lieu of more traditional graduation presents, reports the New York Times, considering properties such as small condominiums or apartments near their child’s new school. Their intention may be twofold, according to the New York Times. On one hand, they are rewarding their child for their accomplishment and giving them a safe place to live. On the other hand, they may be investing in a potential downsizing property they can
move into after their child is done with college. Parents considering this option may want to take a few considerations into account.
Approach with a plan
There are a number of different home buying arrangements for parents and their children. According to the New York Times, the simplest may be one in which the parents are considered the property’s owners but the children are considered family members that are staying there and not renters. While some buy single-family homes, others lean toward properties in apartment buildings. Some buildings, such as co-ops, may not allow that type of arrangement and require that the occupant’s name appear on the proprietary lease, reports the New York Times.
Additionally, some condominium associations may have specific rules when it comes to owner-occupant or investor-type arrangements. Home buyers are advised to talk to an experienced real estate agent, who may have a good idea which types of properties in their area are best suited for such a situation.
Settle financial matters
Those who buy a home for their child should also be aware of the financial implications of such a deal, the New York Times reports. Some banks may require a different type of financing in such a situation because they regard the home purchase as an investment situation rather than a second home purchase. Additionally, the Wall Street Journal reports there can be tax implications. The Internal Revenue Service
takes a close look at real estate gifts, so it is important for families to report such an arrangement to the IRS to avoid later scrutiny, according to the Wall Street Journal.
Work out responsibilities and ground rules
Once parents have identified an ideal property and worked out financial matters, they’ll need to talk to their child about certain responsibilities. It should be determined who pays for certain maintenance or services, and what will happen to the property after the child leaves college, reports the New York Times. Real estate agents
sometimes look to include such decisions in written agreements, though some families find it easier to go with a verbal agreement.