October 25, 2016

Your New Buyer: The Landlord Parent

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Your New Buyer: The Landlord Parent

Parents are increasingly helping their adult children financially purchase a home, finding themselves in a new role going from parent to landlord.

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College graduates struggling to pay rent or save up for a down payment in high-cost metros are turning to their parents for help. Parents are buying up property and then renting it out to their children, often for an amount that's well-below market value.

A graphic designer was paying $2,150 for a one-bedroom rental on the Upper East Side in New York City. Now, with his parents as landlords, he’s paying $1,021 a month on a one-bedroom apartment his parents purchased for him last year.

“I’m definitely living in a place that’s better than I could afford,” Brian Landisman told The New York Times. “At first, I might have been a little concerned. Anyone would be a little hesitant about making deals with family members, but nothing has changed at all, except that I live in a better place. … I think, psychologically, it’s better that I don’t pay my parents directly; I pay the managing agent. If I were paying them, it wouldn’t feel like my place.”

Contracts aren't necessary for parent-to-child landlord arrangements, but some parents are formalizing the arrangement that way. In New York, a father has his daughter pay a monthly rent of $1,100 as well as quarterly taxes. He also required his daughter get a roommate who would pay $1,350.

“Over the last three or four years, we’ve been seeing more pied-à-terre purchases that involve parents buying a small unit as a home for a child with a first job in the city, and also as an investment,” Jonathan J. Miller, the president of the real estate appraisal firm Miller Samuel, told The New York Times. “They’re adding an asset to their portfolio that they hope will appreciate over time. Meanwhile, that asset is solving a housing problem for their children, and if the parents can defray costs along the way or make a little something, so much the better.”

Source: “My Parents, My Landlord,” The New York Times (Feb. 19, 2016)