If you are considering buying a house for your child as a means to invest in their future, then that is a great idea. While most children want to be independent, buying them a home can help them achieve a lot more in life a lot sooner. 

If you invest in a property with the idea that you will transfer it before death, then make sure you are aware of any options like proposition 58 real estate, or loophole that can mean this is a beneficial move. 

Here are a few reasons why investing in property for your child is a great idea: 

Tax reasons

Property is one of the best things to hand down to your children because it has a lot of tax benefits. You could also consider giving property as a present. It could be an advancement on a child’s inheritance, enabling you to benefit from the present federal gift and estate tax exemption. 

Before the funds are subject to federal taxation, each parent may give a child a gift of up to $11.7 million under the gift tax lifetime exemption. Because tax laws are always changing, you should contact a tax professional prior to making a gift and factor in any state estate taxes which may be applicable.

Immediate Income

With the property comes the opportunity to make a rental income. If you have more than one property, then gifting one to your child as a means of income can help them start earning – and putting away savings. 

In general, when gifting a property, it comes with two substantial financial perks – long-term appreciation and rental income. 

If the child doesn’t need to live on the property. Further to this, if the property is rented out, you can benefit from deductible expenses like mortgage interest, utilities, depreciation, and repairs. Just be mindful that if the renter-occupied house is sold, you most likely won’t qualify for capital gains tax exemption. 

Long-term financial support

The investment should be made with the idea that children will use it to further their independence and work on their financial security. Often the house will serve as the child’s first home and will be the building blocks for them learning to manage their finances. 

Charging a small rent for the duration of their time in the home can help them learn how to budget and become responsible. It is essential that before the keys to the property are handed over, that you and your child have discussed and created a contract that outlines the responsibilities of each party. 

Of course, most often, families who can afford to invest in multiple properties aren’t usually concerned with the cost of the home – but rather what the home can represent. 

The long-term financial support, and somewhere to live if needed are among the best reasons to invest in a property for your child – rather than your portfolio. 

Ultimately, when purchasing a property for your children as an investment, it’s essential to consider the big picture, both personally and financially. 

If you are considering how you can make the most from your portfolio, read more about What Investments Will Make You The Most Money?