Parents who would like to see their adult children leave the nest are increasingly buying their offspring their own places.
Once upon a time, Mom and Dad would wait until their kidlets were starting their own families to help them buy a house or apartment, if they offered any help at all. But now, that kind of assistance is coming earlier and earlier -- and continuing longer and longer.
Leonard Steinberg, president of the New York real estate chain Compass, sees this trend as the vanguard of an enormous shifting of assets that will happen over the next 20 years, as wealth accumulated by baby boomers is transferred to their heirs.
How much wealth? A staggering $30 trillion, Steinberg says, adding that it will be “the greatest transfer of generational wealth ever.”
And this isn’t an isolated occurrence -- it’s a real trend, says Steinberg. As an example: Parental deals benefitting their children make up 21 percent of activity at one of Compass’s buildings in New York’s booming Lower East Side.
While the trend is nationwide, Steinberg says it is more concentrated among larger cities where the cost of renting is sky-high. The reasoning: Why waste enormous amounts of money on rent -- a “reckless” expenditure, in Steinberg’s words -- if a parent can help a child get started in homeownership instead?
Hopefully, doing so will give the children a leg up on all the financial benefits from building equity, and foster values necessary to homeownership, like commitment. It also helps grown kids who have gotten themselves into the financial netherworld of bad credit -- perhaps due to the burden of scholastic debt -- or who have no debt, or credit history, at all. In those cases, their debt-to-income ratio is either so high or so nonexistent that it’s all but impossible for them to qualify for financing on their own.
It may sound as though this kind of maneuver is the exclusive province of millionaires, but Steinberg says he sees it over all niches of wealth. “A $50,000 cash infusion can make all the difference,” he says, and can help an adult child make as much as a $50 million investment.
In New York City, parents are buying their children all manner of housing, from condominiums and co-ops to semi-detached homes and brownstones. In Manhattan, the property is likely to be an apartment. But in the outer boroughs, you can still find a brownstone for $700,000 to $800,000 -- and, of course, into the millions.
According to The New York Times, assistance for kids who’ve left the nest comes largely in the form of helping with rent and other living expenses. And the amounts can be substantial.
Some 40 percent of 22- to 24-year-olds receive financial help from their parents, at an average of $3,000 per year. Children working in the arts and design fields get the most help, typically $3,600, while those in blue-collar trades and the military receive the least, about $1,400. More than half the young adults working in arts and designs get parental aid, but only 29 percent of those working in personal services get such help.
In real estate, the child beneficiary is usually an adult, but he or she can be of any age. Steinberg says his Compass clients have bought property for children as young as 12. In those cases, the parents rent out the property until the child is old enough to have his own place.
For some parents, that time can’t come soon enough: According to a Money magazine survey, adult children expect to be financially independent at age 27, while most moms and dads expect them to hit that landmark by age 25.
-- Freelance writer Mark Fogarty contributed to this report.