Guest Contributor Article - Kiddie Condo

Guest Contributor Article

In an effort to bring you new perspectives and information, we are instituting a guest contributor article to our quarterly newsletter format. We hope to add value by providing topics outside of the financial markets and financial planning that we already cover. Our inaugural article is from Dave Marcus, Sr. Mortgage Loan Officer at Spire Financial.

 Kiddie Condo

Do you have a child who is in college or will be entering college soon? Do you have a child that just finished college and will be moving back in with you? Do you have a child that has elected to forgo the college experience and might be living with you for the unforeseeable future? If so, I would like to introduce to you one of the often-forgotten techniques in today’s Real Estate Market.

In years past, this technique was referred to as the “Kiddie Condo”, but in today’s market it can simply be referred to as a multiple owner home purchase. This strategy is a great way to help your children establish credit while simultaneously creating wealth. The secret to this technique is a joint homeownership situation where your child is the primary occupant, and you are a non-occupying co-borrower. This allows for as little as a 3% downpayment and the opportunity to enjoy primary residence interest rates. In today’s market, a 2nd home purchase requires at least 10% down, while an investment property requires at least 15% down. Plus, both generally have significantly higher mortgage rates. But in the joint ownership with the child as primary occupant scenario, when executed properly, your college student can effectively live for free during their college years while you get to enjoy an appreciating asset.

As an example, if you were to purchase a 4-bedroom home and rent the three other rooms to their friends this could cover the entire mortgage expense (in many situations). If we use a conservative home appreciation number of 4%/yr., you will be able to sell a $500K home for ~$580K in 4 years. If we subtract the cost to sell in 4 years ( ~$35K), you will net $45K in profit with minimal to zero tax liability and never pay for your child’s housing throughout college. If you would like to learn more about this strategy, please feel free contact me directly.