Although videos of children surprising their parents with homes are fun to watch on social media, gifting a property should only be done with a carefully thought out plan. Here’s why.

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A sure sign that you’ve made it in life? Buying a home for your parents. Earlier this year, Star Wars actor John Boyega posted an Instagram video of the moment he told his parents he bought them a house in London.

Celebrities including Chris Hemsworth, Nicki Minaj and Niall Horan have all revealed that not long after they made it big as actors or performers, they used the newfound money to buy large and comfortable homes for their parents. And earlier this month, a home that Prince bought for his mother in the 1980s went up for sale in Minnesota.

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Moments like these make all the hard work worth it.

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But while celebrities tend to pick flashy properties, they aren’t the only ones buying homes as gifts for aging parents. Affluent individuals often consider buying homes for parents or other family members and reach out to agents to help them through the process.

Geoff Southworth, a real estate investor and founder of Real Estate Info Guide, said that both buyers and agents need to be informed of all the legal loopholes that come with buying a house for somebody else. Often, agents are less informed of this type of purchase and need to redirect clients to legal and financial professionals.

Geoff Southworth

“Be as generous as you want to be!” Southworth said. “But make sure you run it by your CPA and real estate attorney first. You need to know how any type of real estate transaction will affect you and your future.”

After the initial commitment to helping someone buy a home, your client will need to make a series of decisions about how to make the purchase. Some of the most obvious options include paying outright in cash and then transferring the deed, becoming co-signers on a mortgage, retaining the deed and letting parents live in it for free, renting it to them or giving them money for a down payment.

If the goal is to gift the property outright, the buyer will need to file a form 709 to the IRS and will be exempt from paying a gift tax if the total sales price does not exceed $11.58 million (the exact number varies from year to year but remains at around $11.5 million.)

“Just as when you own your own home, the parents or recipients will be responsible for all financial obligations in regards to their new home,” Southworth said. “This will include property taxes and any repairs needed.”

Joanne Firstenberg, a Compass agent in New York City, has sold two properties to children looking to buy homes for their parents over the course of her career: a $505,000 co-op in the Lincoln Towers and another $750,000 studio condo in Manhattan. The title would remain with the children and serve as an investment property while the parents would live in the house for free.

“It is not common for this to happen largely because parents are often settled,” Fierstenberg said. “But in this day and age, childcare is hard to find and expensive. If you have the kind of parents who are willing and happy to do it, it can often end up being cheaper [to buy an apartment] over time.”

In both cases, nearness and childcare was the primary motivation for the purchase. The couples wanted their parents, who would not be able to afford living in Manhattan on their own, to be near the family. (Daycare in New York averages out to nearly $12,000 a year for a child between three and five years old while a full-time nanny earns, at an average of $18 an hour, at least $35,000 annually.)

“Historically, people used to live in family compounds all over the world,” Firstenberg said. “It’s only in the U.S. that everybody’s individualism has resulted in families not living close by.”

But multi-generational living arrangements are, according to Firstenberg, still particularly common among immigrant communities who value a family-based system more than the rugged individualism inherent to American society — the pair who bought the Lincoln Towers property were brothers who wanted their parents, who had been living in Russia at the time, in New York and with the grandchildren.

Agents from non-immigrant backgrounds, therefore, should be receptive and accommodating rather than surprised when clients come to them with such requests.

“They felt that their parents have given them an education and they had no student loans,” Firstenberg said. “They felt that they had a great start in life and they made a lot of money so they could do this for their parents.”

Joanne Firstenberg | Compass

Sometimes it comes down to an outright gift of a home but, more often, homebuyers look for a property that will accommodate more than one generation — several floors, many bedrooms and ideally a detached suite.

Another client couple of Firstenberg’s was looking for just that kind of property in New York’s Port Chester for parents and an extended Mexican-American family. Both the parents and the adult children had the means to live apart but wanted to remain close together.

While videos of children saying “Surprise! I bought you a house!” can be fun and emotional to watch on social media, Fierstenberg recommends that those who are seriously considering this kind of purchase plan it out. The parents, or any other family member who will be living in the house, should view it alongside those footing the bill while details need to be talked out so everyone is happy with their living arrangements.

That said, buying a home for parents is often a privilege that many Americans would love to do but cannot always afford — as home values spike and a pandemic-related affordability crisis looms, many are feeling priced out of buying a first home for themselves much less anybody else.

But, as Firstenberg points out, the dream of buying a home for parents remains strong among many communities and individuals — for some it is the ultimate sign of gratitude for parents who helped them get started out in life.

Email Veronika Bondarenko

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