My 12 year old bought his first house

My 12 year old bought his first house

Rental Property Investor · OKC, OK · Member since 2008 · 108 posts · 235 votes

My 12 year old son closed on his first rental property last month - and now he wants to buy another. 

I think every parent wants to teach their kids about finance, and my wife and I like others, have struggled with how best do that without boring them to death.  So over the past summer,we offered to pay our 3 sons to read books (thanks BP podcast for this great idea!) of our choosing.  Our 14 year old son passed on the idea because he doesn't like to read and honestly would rather spend money on clothes and shoes versus saving a single cent.  But our 12 year old is a fervent reader and quickly read "Rich Dad for Teens" while we were on a vacation to Durango.  The deal was, however, that he had to read it and be able to have an intelligent discussion about the book's core concepts.  

On the drive home he began to explain assets versus liabilities, earned income versus passive income, etc. and it seemed as though he really had a solid understanding.  Over the following weeks, he asked if he could use his "stock money" to purchase a rental home since he had seen us building our rental portfolio.  This lead to further discussions about leverage and how to make OPM work with tax savings.  Of course these were cursory discussions but I was surprised at how much he actually retained.  So we told him we would help, but he would have to do most of the heavy lifting and use his own money.   

Over the next few months, he would ask me to drive him around to go look at houses. I really think he was equally as interested in going to lunch with Dad - the boy likes to eat! - but either way, we looked at lots of properties together. He carried around a notebook and wrote down Realtors' numbers, made calls himself, made "guestimates" of repair costs, rents, how much he would need for a down payment, etc. and we practiced crunching the numbers together. I made him talk to the Realtors directly and I was amazed by how many spoke to him as if he was an adult investor and not a 12 year old. We made many offers which didn't pan out. But one evening just after he had gone to bed, I received a call from a Realtor that a HUD property that we had inquired about would go to investor status the following morning and so we put in the offer we had previously discussed and it was accepted the next morning.

We had started a DRIP (dividend reinvestment plan) when each of our boys were born and asked family to give birthday and Christmas gift with that in mind.  So they might get $100 total and $25 of it could spent on a toy and $75 went to their stocks.  And my wife and I made an automated $25 contribution monthly to each of their account.  This grew over times and was intended to be college money or retirement money or whatever they chose once they were adults.  But we agreed to let our 12 year old cash some of this in to buy this house.  So he provided the $11k down payment and $1500 or so closing costs.  Also the approximate $3k in repairs were provided by him.  I understand that there will be some naysayers who will say that it's truly not his house since the mortgage was obtained in our name and the house was titled in our name.  But we have contributed zero dollars of our own money.  And after consultation with accountants and lawyers, this seemed the best way to go about this and we will title it to him at age 18.  Any cash flow will go to replenish his stock account and potentially fund more properties.  And he's definitely involved.  We did take him out of school to attend the closing, I've taught him how to change the locks and do basic repairs, and he has to stay up to date on the financials on his house.  

So my 12 year old is already looking for his next property, my 9 year old now thinks he want to do the same but doesn't yet have the comprehension of the basics to move forward, and my 14 year old just bought another pair of shoes!  

Sorry for the long post, but I'd love to hear other people's experiences and thoughts on this strategy.

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Springfield, MA · Member since 2017 · 11 posts · 14 votes
9y
Wow I'm 23 and I want to be like your 12 year old great job on parenting and he's also doing a great job all the books I've read say to start early I guess he understood that perfectly
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  • Springfield, MA · Member since 2017 · 11 posts · 14 votes
    9y
    Wow I'm 23 and I want to be like your 12 year old great job on parenting and he's also doing a great job all the books I've read say to start early I guess he understood that perfectly
  • Lender · San Antonio, TX · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    @Drew Eldridge That's a great story. Congratulations to you and him. It's never to early to get them involved. When my oldest was a toddler he used to tell strangers 'I want to buy your house today.' 

  • Real Estate Investor · Baltimore, MD · Member since 2015 · 24 posts · 10 votes
    9y

    Woooooww! That's amazing, I love your story and I hope one day when I have kids I can do the same.  Now I feel like I started my investing so old compared to your 12 year old!

    Good job both of you! 

  • Investor/Realtor · Hoover, AL · Member since 2010 · 1k+ posts · 459 votes
    9y

    @Drew Eldridge...Luv it!  Congrats!!!

  • Rental Property Investor · Smyrna, GA · Member since 2016 · 86 posts · 27 votes
    9y

    Awesome stuff! Taking notes on this for my future kids lol

  • Lender · Falls Church, VA · Member since 2016 · 41 posts · 22 votes
    9y

    @Drew Eldridge That is an amazing story and I am truly happy for you and your family. You obviously have done a fantastic job raising a son with a drive, passion and personality to become successful in this world. Please hear me out, but I truly believe that the story can be published into a best seller. As much as I enjoy hearing success stories on BP blogs, I would love to see that in a book. Your son alone could be famous (maybe not publicly yet for his privacy until he's 18) for his personality and his drive. I believe you would be doing a disservice to everyone if you did not share this with the world. I am glad I came across this post as it has inspired me to great things just like your son. If you decide to write a book or record an audio book, please contact me first and I will be your first customer without hesitation.

    Best of Luck!

  • Rental Property Investor · Gainesville, FL · Member since 2015 · 1k+ posts · 432 votes
    9y

    Congratulations to you and your son and most of all teaching not just how to buy property (ie finances, steps, etc) but how to be responsible.

  • Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes
    9y

    Amazing story! Hope I can teach my (future) children like you and your wife! btw I would get rid of the 14 year old and focus on the other two. Just kidding!
     
    Tell him congrats from me :)

  • Rental Property Investor · OKC, OK · Member since 2008 · 108 posts · 235 votes
    9y

    @Gunnar Sevart lol. I appreciate the kind words. I'm not sure it's that exciting of a story but I guess I could see that it may be motivating. I had mentioned it on my Facebook account and I've had many friends contact me about how they could get their children involved doing something similar. I will say that it's definitely opened up the REI conversation with many friends who otherwise had no interest.

  • Investor · San Antonio, TX · Member since 2016 · 10 posts · 3 votes
    9y

    Wow that is extremely impressive! Congratulations to your son. His story of putting what he learned into action at such a young age is very encouraging. I'm sure everyone who reads this will take something from it. 

  • Peter TverdovBusiness Member
    Developer · New Brunswick, NJ · Member since 2015 · 1k+ posts · 2k+ votes
    9y

    That's a really awesome story. Your son will likely be one of the people in this country who sign the front of a check instead of the back when he gets older. 

  • Rental Property Investor · San Diego, CA · Member since 2016 · 507 posts · 171 votes
    9y

    Man...12 year old making me look like a sucker! You have a very intelligent son! Looks like he will be very successful in RE and has a natural knack for it. 

  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    9y

    @Drew Eldridge how do the taxes work on that? I know it was his money that was put into the property, but since it is mortgage and titled in your name, doesn't that become a gift to you? It is probably small enough to avoid gift tax, but what happens when you transfer title to his name at 18? Aren't you responsible for paying a gift tax at that time? I don't know much about this, so curious to see what your lawyers said.

  • Rental Property Investor · OKC, OK · Member since 2008 · 108 posts · 235 votes
    9y

    Great question @Joe Splitrock.  The DRIP was in my name as the custodian of my son.  I will have to pay capital gains tax on what we took out as I am still the primary, due to his minor status.  So as far as any gift tax there will be none as this is ostensibly my money.  When we title it to him at 18 or sell it to him, there will be some tax ramifications.  All worth the cost of education; at least in my mind. Part of the reason for posting this was my interest in hearing if others have done similar or if anyone had thoughts on similar strategies.  Thanks!

  • Rental Property Investor · Bethalto, IL · Member since 2014 · 319 posts · 103 votes
    9y

    @Drew Eldridge What a great story.  Congrats to you and your son.  He is miles ahead of the game.  Best wishes to all of you.  wow.

  • Parlin, NJ · Member since 2015 · 24 posts · 10 votes
    9y

    "My 14 year old just bought another pair of shoes!" haha, excellent story.

  • Investor · Virginia Beach, VA · Member since 2015 · 83 posts · 34 votes
    9y
    Drew Eldridge Nicely done! I hope to do the same thing for my children as they get a little older and I can introduce them to the benefits of real estate.
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    9y

    Neat story. One caveat - this line is not correct: "But we have contributed zero dollars of our own money."  You stated in the same paragraph that you automated $25 per month into the savings account when they were born. At a conservative 2% interest, that's 5 grand right there. Now if you had said he saved 11 grand of lawnmowing and snow shoveling, I would have really been impressed!

    Nevertheless, teaching kids fundamentals about money is one of the most important things they can learn. Kudos for getting them thinking about their financial future early. 

    Skyline Properties
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  • Alan CaceresPro Member
    Bronx, NY · Member since 2016 · 41 posts · 9 votes
    9y

    @Drew Eldridge That is an amazing story! I can totally relate to your 14 year old when I was that age, new and shiny things always got my money. Your story is really inspiring and I look forward to teaching my future children the values you have given to your 12 year old. You are really setting your kid up for a great future. Congrats to you and him!

  • Real Estate Broker · Rock Springs, WY · Member since 2015 · 57 posts · 43 votes
    9y

    Yay! Fantastic!  You are setting your kiddos on a firm foundation--or should I say giving them the option to set themselves on one if they chose to do so.  Good financial parenting.

  • Real Estate Broker · Wilmington, NC · Member since 2016 · 14 posts · 3 votes
    9y

    @Drew Eldridge thanks for sharing this great story. I will have to do something similar for my 2yr old twins. Keep us updated on his success!

  • Investor · Sherman Oaks, CA · Member since 2017 · 1 post · 1 vote
    9y

    What an awesome story.  That kid is very lucky to have parents like you both.  

    Anyone nay-saying that your son technically didnt purchase the home on his own is being ridiculous and pedantic.

    Congrats, you must be very proud.

  • Ben McMahonPro Member
    Investor · San Diego CA · Member since 2014 · 341 posts · 139 votes
    9y

    @Drew Eldridge

    Drew, that is fantastic.  I have actually been looking into that myself because I have a 9 year old that is totally interested in doing the same thing.  He sees me buying rentals, and he wants to be like daddy O.  He also has the investor mindset, and is looking to save his money for something other than Candy and Legos.

    Its actually been part of my plan for the last few years to have my kids buy a house while still young.  It teaches them so many things about responsibility and money, not to mention giving them a huge leg up in the world.  Wish my dad had done something like that for me.  Would like to talk more about it.

  • Minneapolis, MN · Member since 2013 · 2k+ posts · 1k+ votes
    9y

    I thought my parents were smart making me open a checking account at 9 for my paper route. 

    Your life lessons will gain interest and equity. Your 14 yr old will gain interest once his brother asks him if he wants a job doing maintenance on his property, he's got a smart brother as his wing man.

    Congrats on the deal 

  • Investor · Dallas, TX · Member since 2016 · 20 posts · 8 votes
    9y

    Great life lessons for your son(s).  Thank you for sharing!

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