If I could do it all over again, I’m not sure I would have scrimped and sacrificed so much in order to come up with a $120,000 down payment for a condo back in 2003. It kinda sucked living in a studio with another guy for two years, especially when I brought guests over. I missed out on a lot of boozing and fun excursions as well.
Because I never once thought of having my parents buy me a ridiculously priced apartment in NYC that cost way more than their humble townhouse in Northern Virginia, I never asked! But in retrospect, perhaps I should have.
We know that plenty of Millennials expect massive inheritances once the richest generation passes. But is inheriting $1M+ after the age of 50 really so great? Not really. Therefore, I want to highlight some of the best strategies I’ve learned from adult children who were able to extract even more money from their parents while living.
GETTING FINANCIAL SUPPORT FROM PARENTS
My friend’s parents bought him a one bedroom Manhattan condo a year after attending Cooper Union. The condo has since appreciated from $250,000 to ~$800,000. He recently got married and plans to sell the condo and use the proceeds to buy a nice single family home for ~$1.5M in New Jersey. If only I was smart enough back then to convince my parents to buy a place for me. We’d be rich! Or at least have bi-coastal pied-á-terres in NYC and San Francisco.
It may seem a little off, or unfair as an adult to ask parents entering retirement or in retirement to pay for a car, a house, or graduate school when they’ve already supported you for 18-22 years. But what I’ve realized after listening and talking to thousands of people about their financial situations over the years is that those who get ahead are very crafty.
We already know that roughly 14% of people post college live at home with their parents. What’s yet to be fully understood is what percentage of adult children continue to receive significant financial assistance after college. Lucky for you, I’ve been able to interview several adult children on how they convinced their parents to buy them things they could not afford on their own!
1) Tell them you love them often. One 32 year old guy who got his parents to pay for his Audi A4, his law tuition, and lives rent free in one of his parent’s properties shared, “Before I plan to ask my parents for anything, I tell them I love them very, very much. I can’t tell them just once, and be done with it. Instead, I tell them I love them at least once a week for one month before I make the ask. What’s more powerful than love?”
Parents who had no contact with at least one of their children for more than a year were about 40% less likely to leave equal inheritances to their offspring than parents who remained in touch with all their kids, according to a study by the National Bureau of Economic Research!
2) Provide as long of a lead time as possible. One 29 year old events coordinator who doesn’t have to pay her credit card bills thanks to her parents told me, “You never want to just ask your parents for something out of the blue. Instead, create a strategic timeline where you butter them up for one whole year. This way, when you finally ask them for the latest 6 Series BMW, they won’t feel it’s out of the ordinary because you’ve been talking about cars for a while. You’ve showed them you’ve thought things through and will be a responsible individual.”
3) Make it clear how they will be helping you. One woman who had her entire $100,000 MBA tuition paid for told me, “Besides always keeping in contact with my parents, I created a Powerpoint presentation explaining why them paying for my MBA was going to be such a great investment. I highlighted pre- and post-MBA salaries, the top 10 employers who hired from my school, and mentioned famous alumni closer to their generation to make them proud.
My presentation worked like a charm! I was able to land a great job after business school, graduate with no student debt, and travel to amazing places for school. It was like a two year vacation fully paid for by my parents! I’m now engaged to a fellow MBA too. As soon as the wedding is over, I’m going to give them a new presentation on why they should buy us our first apartment here in San Francisco’s Marina district. We need roughly a $300,000 downpayment for the $1.4 – $1.6M condos we are looking for. Eventually we’ll pay them back!”
4) Use the “what’s mine is yours strategy.” A 26 year old woman who currently lives in a ~$1.2M two bedroom, two bathroom condo paid for by her parents told me, “It’s all family money anyway. I made an argument why San Francisco real estate is a good investment (tech boom, inexpensive compared to other international cities, low interest rates), and told them not only could they invest their money wisely, they could also help my living situation. I agreed to pay the mortgage, maintenance, and property taxes so they could rest free knowing their asset was being taken care of. I also rent out the second bedroom to a girlfriend of mine for $1,900 a month.”
5) Demonstrate your worthiness. One parent who supports her 31 year old son who works at a startup said, “I needed my kid to show me his 5 and 10 year career and financial plan before I opened my check book. The last thing I want to do is write a $200,000 check and have him quit his job and use the money to travel the world for several years! When I bought him his condo, I made him sign a contract to follow his financial plan for at least five years before doing whatever he wants. He agreed, and after two years, he hasn’t quit his job yet!”
6) Sound like a real estate expert. One 26 year old fella whose parents bought him a $1M loft in San Francisco’s SOMA area said, “I’m a real estate fanatic! I studied real estate in college and am always reading everything there is to know about real estate taxes, 1031 exchanges, up and coming areas, and so forth. My favorite TV show is MTV Cribs. I’ve read your entire Real Estate Category section, and have plenty of books at home about making money in real estate. There’s nobody more knowledgeable about real estate in my family than me!”
Following along the lines of point #5, pretend like your parents are private equity investors. You must demonstrate to them you have a strong grasp of everything real estate. Discuss various price appreciation or depreciation scenarios and why they may occur. Talk about the tax benefits, leverage effects, and the ability to generate future passive income with tenants. Discuss the downsides of ownership by discussing realistic ongoing tax bills, association dealings, and problem tenants. Highlight historical interest rate cycles and where you see the local economy going over the next 10 years. The more you can sound like you know what you’re doing, the more they’ll likely fund you.
7) Sacrifice long enough. One 37 year old founder of a gin company whose parents bought him a $2M+ Greenwich Village loft told me, “I’ve always been close to my parents. They live in Long Island and I live in Manhattan. I see them once a week when I’m not traveling for business. For almost 10 years after quitting my banking job, I’ve lived in a dinky 2/1, East Village apartment on the ground floor with random roommates. I scrimped and saved to put everything I have into my gin company. If I stayed in finance, I would have lived a much more comfortable life all these years, but I didn’t. I went after my dream of being an entrepreneur, and my parents are proud of what I’ve done. They had money to spare, so when my lease was up they decided to buy a loft in their name, with the understanding it would one day go to me.”
THE WRONG WAY TO ASK
The worst way to get your parents to buy you anything significant is to tell them, “All my friend’s parents are buying them homes and cars after college, why can’t you?” This argument reeks of entitlement! No effort or love is spent in this ask.
Your parents will likely start questioning whether they raised you right after all these years. They’ll probably even alter their will. Yes, we all know that hard work is not the only way to get ahead thanks to the massive generational wealth transfer that will be taking place over the next three decades. But it’s important adult children never let their parents know they are expecting anything.
Think about what goes on in your parents’ heads.
- They want you to be happy and not struggle more than you need to.
- At the same time, they don’t want you to take them and their money for granted.
- They’re curious to see what you can do on your own after all these years of support.
- They know that nothing is more satisfying than achieving something on one’s own. Therefore, they don’t want to rob you from fulfilling your potential by handing you money.
- They’re hoping you’ll stick around when they’re sick and need help.
If you are incapable of taking on side jobs, saving aggressively, and being patient with your desires, it’s more important than ever to convince your parents to buy you everything you want due to growing competition. Just take a look at this time frame of the typical home buyer:
Pre-1970s: The typical homebuyer came from a single individual income source, usually the husband.
Post-1970s: The typical homebuyer came from dual income sources as more women entered the work force full-time.
Post 1970s – 1990s: As home price appreciation far outstripped wage growth, a third source of money started coming from adult parents.
Today: When buying a home, we now compete against quadruple incomes (couples + parents) + increasing international demand from developing nations such as China. There is no way a single person can compete any more.
Over the past 15 years I’ve probably been to over 2,000 open houses. It’s part of my 3-in-1 Sunday system to exercise, learn about new design, and understand the investment landscape. The consistent trend I’ve noticed is that there are more and more young adults checking out homes with their parents. Here are some of the things I’ve heard from the adult kids,
“But I don’t like these countertops.”
“Where’s my media and game room going to be?”
“I liked the higher floor apartment with the view.”
“I wouldn’t pick out those tiles for the bathroom!”
“Oh, this is so cheap!”
What I don’t hear is a more in-depth discussion between adult child and parents about the financial merits of the particular property. This is where this post comes in. To educate adult children to sound much less entitled, and much more knowledgeable about large purchases.
Don’t think for a second the reason you lost a bidding war is because the 26 year old complaining about the countertops has a lot more money than you. It’s the 26 year old + her parents’ balance sheet who are blowing you out of the water! Recognize the state of the common buyer now, and realize competition is only going to get even more fierce from wealthy foreigners looking to diversify their wealth.
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Updated for 2019 and beyond. Please note the estate tax exemption amount has risen to $11.4 million per person. Parents who have an estate lower than this threshold might as well give us much to their adult children as possible while they are alive then after they are dead.