Multi-Generational Wealth: Managing Mortgages

multi generational wealth building, and a picture of a building

This post is not for the young entrepreneur-investor I typically speak to, but the aged boomer who wants to invest in their family’s long-term success.

Let’s say you’re a boomer. You had a great career and you’ve raised a wise and healthy family. You’re someone who cares about generational wealth.

While it can be a bit of a buzzword these days, generational wealth should mean setting up your kids to do better than you did. “Better” is up to you to define, but it inescapably involves money because how you think about money is how you think about the rest of life.

I’m going to share one great tactic to building generational wealth, specifically around home ownership.

The Plan:

  1. Raise your children and let them grow up, get a career, and build savings
  2. They eventually buy a home and take out a normal loan from the bank
  3. Once they do this, and they’ve committed to the mortgage, you step in and buy the loan from the bank
  4. You offer your child a lower interest rate

Here’s why this plan is good:

  • You buying their mortgage means you can offer them a lower interest rate and still profit (because they’re still paying you interest)
  • They get to pay less interest in general, which means they’ll pay it off faster and take ownership sooner
  • By letting your kid buy a house normally, they’re not planning to rely on your charity so they’ll have a better chance of picking property they can afford and in an area they hope will appreciate

It’s a win-win.

Side note: buying mortgages is not difficult or complex. If you’re rich enough to do this, you can hire a lawyer for an hour to teach how to set up an LLC for investing in property and buying bank loans.

The obvious risk is if something happens and the child defaults on the mortgage. This plan partially mitigates that risk because you’re not going to tell them about this offer until after they buy the house, so hopefully they’re only buying what they can afford.

However, you probably don’t want to do this plan if you think they’re unwise with their money, or if you lack the stomach to foreclose on their property if they default.

Eventually, if you need the cash or decide to simply stop, you can sell the mortgage to another bank or lender. This happens all the time in banking world.

Your child can also choose to refinance if they decided they can find a better deal elsewhere. No one is “locked in” forever.

When should you NOT do this?

  • If you don’t have the cash to buy their mortgage outright
  • If you don’t trust your kids (in which case, that’s on you for how you raised them)
  • If your kids will resent you for having your hands in their life (AKA they don’t trust you)

On the first: this plan requires you to already be rich enough to buy a house in cash. If you’re not there, then you’re probably not in the place to offer much in terms of generational wealth. Your focus should probably be on building your own wealth, first. After all, your future generations start with you.

On the second: if you got offended, then I’m guessing you don’t trust your kids. Work on that—one way or another.

On the third: if you got offended, then I’m guessing your kids don’t trust you. Work on that.

Last Word

Multi-generational wealth is rare because it requires both your family culture (AKA trust) and your financial health to both be incredibly strong. There is no multi-generational wealth without trust (or a really strict hierarchy, but most everyone reading this is way too western to even have that conversation).

If you have the trust and finances, then this tactic can add more wealth both to the parents’ and child’s balance sheets.

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