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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  • Real Estate Investor · Memphis, TN · Member since 2016 · 940 posts · 695 votes
    9y

    @Drew Eldridge - Thanks so much for sharing this!  You really should write a blog about this.  I think other parents would love to have this as an example.    Maybe better, have your son start one about his investments and real estate! I'd definitely follow him!  (seriously, if he wants to do this and doesn't know how to start message me and I can help walk him/you through it!)

    As for any "naysers", they are simply jealous!

  • Flipper/Rehabber · Pearland, TX · Member since 2015 · 43 posts · 23 votes
    9y
    Drew Eldridge what a great post! I'm pumped up about teaching my son although I have to wait a few years (he's still a toddler). You can avoid the gift tax by transferring the title to a trust and changing the beneficiary of the trust to your son when he turns 18. This strategy also provides some privacy. There are title transfer fees but these a minimal in comparison to the tax.
  • Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
    9y
    Originally posted by @Drew Eldridge:

    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!

    What you'll want to look into is establishing a self-directed Roth IRA for your son using the proceeds from the DRIP - contact a financial and/or legal professional to learn how to do that - and acquire the property in the IRA.

    One of my investment group leaders has an 11 year-old and a six year-old, both of whom have IRAs which own income property.

  • Investor · Hurricane, WV · Member since 2016 · 3 posts · 2 votes
    9y

    I have a 3 year old and everyone thought I was crazy saying I want him to buy his first house by 18!! This is a great story and thank you for sharing!! 

  • Brie SchmidtBusiness Member
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    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    9y

    I think that is fantastic.  Financial literacy is not taught in school so most people never learn.  Your child will be leaps and bounds ahead of his peers because of this.  Congrats!

  • Investor · Dunedin, FL · Member since 2015 · 36 posts · 23 votes
    9y

    that is awesome! I wish my parents had understood these concepts when I was growing up. What a great story!

  • Littleton, CO · Member since 2014 · 195 posts · 72 votes
    9y

    Congrats to your Son, and to you for sharing the story.  I got bitten by the shiny object syndrome when I got out of the Military, so I was not able to save up for a down payment.  Hopefully, after your other Son sees that your younger son will be able to buy all the shoes he wants and still have 1-3 houses bringing in monthly income he too will decided to get into Real Estate investing.  

    I am not sure since is has been awhile since I have read RDPD, but as most RE books states,  more millionaires are made from RE than from investing in Stocks.

  • Irvine, CA · Member since 2016 · 1 post · 1 vote
    9y

    This is awesome and a great idea that I'll definitely use when I have kids! Financial literacy is what kids are in dire need of now and I believe it should be taught to all kids. Great example of a Rich Dad lesson.

  • Newark, NJ · Member since 2015 · 162 posts · 102 votes
    9y
    Your son and you should be on the podcast! Who knows how to make that happen?
  • Attorney · Santa Cruz, CA · Member since 2015 · 345 posts · 358 votes
    9y

    Great story. I hope that house cash flows and no accidents happen. Be sure that he understands about insurance and putting some money aside for maintenance and capital improvements. Sigh! I wish I could have done something like that for my kids. In California where property costs a minimum of $500K and a down payment is at least $100K, that is just a dream...

  • Investor Agent · San Antonio, TX · Member since 2013 · 79 posts · 210 votes
    9y

    Wow! that truly is an inspiring story! I believe that America would be a much different place if more parents would teach their kids about financial IQ. I will be nominating you for parents of the year award @Drew Eldridge

    Keep up the awesome job!

  • Investor · Tampa, FL · Member since 2017 · 122 posts · 87 votes
    9y
    Thanks for sharing! That is very encouraging. I have younger siblings and my children that I have been thinking a lot about how to help set them up financially for the future starting now. I feel like I've lost a lot of time in my life already by not setting things up in my younger days.
  • Real Estate Professional · Mansfield, MA · Member since 2012 · 74 posts · 28 votes
    9y
    This is great stuff!! I have a one year old and a savings account with automatic savings built in for him. Thank you for the ideas.
  • Flipper/Rehabber · Edmond, OK · Member since 2016 · 209 posts · 107 votes
    9y
    Drew, Strong parenting man! Let's schedule a time to meet for coffee. Bring your son and we can discuss real estate.
  • Investor · Washington, DC · Member since 2017 · 7 posts · 12 votes
    9y

    This is so impressive. Great job... am supper happy and proud of you guys.

  • Rental Property Investor · Grand Rapids, MI · Member since 2017 · 113 posts · 91 votes
    9y

    WOW, great job Drew!

    Several of our kids also own investment properties but they weren’t 12 years old when they purchased them!

    Thanks for sharing that with us.

  • Investor · Marietta, GA · Member since 2014 · 226 posts · 97 votes
    9y
    Drew Eldridge What a phenomenal and uplifting story. Tell him to keep up the good work. And you and your wife deserve credit also.
  • Real Estate Agent · San Diego, CA · Member since 2015 · 293 posts · 109 votes
    9y
    Drew Eldridge this is an awesome story! I have a 2 year old and you've just given me some good ideas for her future.
  • Full time investor · Cincinnati, OH · Member since 2013 · 405 posts · 312 votes
    9y

    I just made a calendar appt to buy that book in five years when my daughter turns 12.  Great story and you are correct, a lot of us wonder how to pass on this knowledge without boring or overwhelming the kids.

  • Investor · Pflugerville, TX · Member since 2014 · 114 posts · 19 votes
    9y
    Drew Eldridge what books did you have on his reading list? I love the idea by the way.
  • Investor · Philadelphia, PA · Member since 2015 · 69 posts · 28 votes
    9y
    That's awesome! Thanks for sharing!
  • Flipper · Irvine, CA · Member since 2015 · 7 posts · 3 votes
    9y

    Woo,. Amazing story. Congratz and keep it up.

  • Orlando, FL · Member since 2017 · 7 posts · 4 votes
    9y
    May I ask what you stocks you were investing in for the kids? I have mutual fund accounts for my girls. Haven't seen much growth but my advisor said they are for long term.
  • Investor · Cocoa, FL · Member since 2017 · 5 posts · 1 vote
    9y
    That is an awesome story! Very smart kid you have there! Too bad more kids don't think like that. Very good parenting on your part!
  • Real Estate Broker · Phoenix, AZ · Member since 2013 · 749 posts · 399 votes
    9y

    @Drew Eldridge this is awesome! I love the story and outcome. I have two boys under 2 and will be doing the same thing myself.  Thanks for sharing. 

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