When Life Happens, Real Estate Happens

When Life Happens, Real Estate Happens.

In this 2-minute read you'll find: Real Estate Stories: I'm in the Sandwich Generation. The generation above me owns significant real estate wealth, while the generation below me wonders how they're going to get it done. Your family's in this too. How to approach it.

My job offers no shortage of exciting and amusing material (mostly in hindsight) so I often enjoy sharing fun, exciting stories in my emails (thanks for your kind words of appreciation). But allow me to get a bit more personal and sober in this newsletter. I’m 51 years old. My daughter Madeleine just left for college on a pole vaulting scholarship. My wife’s father Jon, after being a celebrated college basketball player in the 1960's, is now battling Parkinson’s at age 82. I am in the middle of the Sandwich Generation, watching big changes happen all around me, trying to help where I can.

In September we dropped off Madeleine at Westmont College.

Lately, as our family balances the needs of parents and kids, the family has been asking me: "Matthew, how does real estate fit into all of this?" My father-in-law Jon built the family home with his own hands in the early 1980's. My wife grew up there. But as Jon lives with Parkinson's, the house no longer serves their needs. Meanwhile, we look at what's coming up. Before long, Madeleine will need a house. Is there a way to keep this house in the family? Is that the right thing to do? Below, I consider what would happen IF Madeleine wanted to own the house, and IF Jon and Jean decided they wanted her to have it. Both are big questions, but for the sake of education we'll run with it.

My father-in-law (middle) built this house in the 1980's Scenarios like this are playing out all over the country. Baby Boomers own over $19 trillion in real estate, 53.6% of the total wealth in U.S. property. Meanwhile, the steep rise in home prices over the past 15 years has made home ownership extremely difficult for Millennial buyers, leading to delayed house-buying and delayed wealth creation. It doesn't seem like this should be so difficult. Let's assume older generations would like to transfer their property to younger generations. What challenges are families facing? What might Jon and Jean do?

How could grandparents pass on their home to the next generation?

(1 of 4) Jon and Jean could give the house to Madeleine

Simply giving the house to the next generation might sound like a common sense solution. Once taxes get involved, it's not. Jon and Jean have a share in the Boomers' $19 trillion real estate wealth. The government wants a bite of it. Say they give the house to Madeleine. If she then wanted to sell it, the entire value would be subject to capital gains for Madeleine to pay. Madeleine's rate would likely be 15%. This is why families usually wait for heirs to take ownership through inheritance.

(2 of 4) Jon and Jean could leave the house in their will for Madeleine to inherit.

This is typically better from a tax perspective. The house value rebalances through the inheritance process. Say Madeleine inherits the house, then sells it ten years later. She would only owe capital gains taxes on the difference between what she inherited it for, and what she sold it for--not the entire amount, as in the gift context. The problem here is timing. Our housing shortage is "now". And curiously, none of the parties want to wait. The only reason they're doing it is tax benefits. And they could be waiting 10 to 15 years. Magnify our little story across the country and this becomes a significant dynamic in our national Real Estate experience.

Enjoy this Video When I start thinking about an issue, I enjoy writing about it and even dramatizing it. Here's a tender Instagram Video I made touching on these themes. This was inspired by my work for a client this year who was on the "Baby Boomer" side of the "should I sell?" scenario. Click to watch!

(3 of 4) Jon and Jean could sell the house.

This of course is the obvious answer. The quickest way to access the equity in a house is simply to sell it. As for taxes, the first $500,000 of gain on the property would not be subject to capital gains for Jon and Jean. (Selling the home speaks to another minor issue that I have thus far ignored in this exercise - Jon and Jean have other grandkids. It ain't all going to Madeleine!) How might Madeleine benefit? From the proceeds, Jon and Jean could each give Madeleine $18,000 annuallly to provide her a nest egg for her own downpayment when she graduates college. The challenges here are emotional and tactical. Selling the house triggers a host of scary questions for Jon and Jean. Where do we go now? What do we do with all our stuff? Add to this the emotional reality that Jon literally built the house himself. In the 1980's he built the house with his own two hands. Now, as a Parkinson's patient, his hands are shaking. That's not easy.

Maybe he should just sell the house and buy a Corvette? (4 of 4) Jon and Jean could sell the house to Madeleine.

This is "seller financing", and it's rarely done because it's tricky, but it's got some cool features. Jon and Jean become the bank. They sell the house to Madeleine at market value (it could be the low end of the range). Then Madeleine pays them a mortgage. Moroever, if they sell in installments, their capital gains get spread out over time, which can also be helpful. Finally, since Jon and Jean could each also give Madeleine $18,000 per year without triggering a gift tax, there are ways to help Madeleine pay the mortgage. Not the simplest, but worth considering for financially savvy people.

How to help your family have this conversation

What's the best answer? What will we do? What should you do? There's no easy, one-size-fits-all solution. What to do with the family house has been a challenging conversation for our family and it likely will be for yours too. We have the benefit that most of the stakeholders are local, but that's not always the case. Your family might be spread across the US or even the globe. To have substantive conversations, you'll need to carve out time and emotional space. It's hard, but you really need to do this. The first step needs to be considering whether your parents need to transition their housing. The steps below are a good place to start. Assess their current needs: Evaluate your parents' health, mobility, and daily living requirements. Consider if their home is becoming challenging to maintain or if the layout no longer suits their needs. Explore housing options: Research alternative living situations, such as downsizing to a smaller home, moving to a retirement community, or finding an assisted living facility, depending on their preferences and care needs. Don't forget the emotional impact: Consider the emotional aspects of the decision, like leaving a long-time home or community. Involve your parents in the conversation to understand their feelings about change.

Feel free to call me BEFORE the Real Estate question is dire.

I can serve you by listening to your story, helping you sell and buy Seattle properties, referring you to Compass agents I have vetted in other markets, and connecting you with other professionals. I wish you and your family all the best.

Listing Updates

Pending Richmond Beach 19507 21st Place Northwest 5 BD 3 BA 2830 SF $1,050,000

PENDING Southeast Magnolia 3001 24th Avenue West 4 BD 4 BA 2160 SF $1,400,000

SOLD Magnolia 1535 Magnolia Boulevard West 4 BD 4 BA 3718 SF $1,550,000

SOLD Magnolia 2837 34th Avenue West 5 BD 3 BA 4690 SF $1,865,000

Thanks for making it to the bottom of the newsletter.  In all aspects of my business, my goal is to empower and delight the people I am connected to.  I’m glad you are part of my community. Please forward this to anyone who might enjoy it.

Contact me today

Matthew Koenig Lic. Realtor® M: 206.234.5574 matthew.koenig@compass.com

Compass is a licensed real estate broker. All material is intended for informational purposes only and is compiled from sources deemed reliable but is subject to errors, omissions, changes in price, condition, sale, or withdrawal without notice. No statement is made as to the accuracy of any description or measurements (including square footage). This is not intended to solicit property already listed. No financial or legal advice provided. Equal Housing Opportunity. Photos may be virtually staged or digitally enhanced and may not reflect actual property conditions.

marketingcenter--