Should I go into business with my son?

[Deb Markland]

I'm just starting out and interested in mining your wisdom. My husband and I would are interested in making our first investment home one that our 28 year old son can live in and then participate in any future revenue. We would like to help him build wealth and we increase our retirement savings. He would be the sweat equity partner and pay rent to cover our mortgage payment. What's the simplest way to structure the loan so that we take advantage of all of the tax breaks? What are the pitfalls of this strategy? Thanks in advance for your advice!

[John Clark]

Quote from @Deb Markland:

I'm just starting out and interested in mining your wisdom. My husband and I would are interested in making our first investment home one that our 28 year old son can live in and then participate in any future revenue. We would like to help him build wealth and we increase our retirement savings. He would be the sweat equity partner and pay rent to cover our mortgage payment. What's the simplest way to structure the loan so that we take advantage of all of the tax breaks? What are the pitfalls of this strategy? Thanks in advance for your advice!

The pitfall is blowing up the family. If you're not willing to foreclose on your flesh and blood, then don't do it. Also, any other children who are going to insist on a comparable helping hand?

You also need to have a lawyer review your proposed deal structure and draft air-tight documents accordingly. "Family" is a red flag for preparation. There's less room for shortcuts than there is with dealing with a bank.

Have a frank talk with junior about what happens when things go pear shaped. Saying "that won't happen" is not only not an answer, it's a reason to not do it.