The Ideal Gift
Many times throughout the year, we are looking for the ideal gift.
What if I told you I have the perfect gift, and many of you have experience with this gift. This gift is one that keeps on giving. It is a gift we can offer as a living legacy that can transcend generations and provide a hand up to future generations.
A friend of mine, Rachel, told me that her mother was leaving her an inheritance of $70,000 when she passed away. Rachel’s mom is in excellent health, and this money is not available for some time to come.
Rachel has a young family and is an investment real estate investor. She had run out of her own money for down payments on new properties. She had several joint venture arrangements, but finding more partners was coming harder to source.
I asked Rachel if she had ever thought of having her mother gift the $70,000 now. Her mom would get to see how these funds over the years would help Rachel and her family build a healthy investment portfolio.
Rachel’s mom was hesitant to consider Rachel’s request and thought the banks might have an issue with this.
Rachel has two daughters, ages 11 and 13. Her daughters help her clean their revenue properties when there is tenant turnover. The girls thought their mom and dad were in the cleaning business!
One day Rachel’s mom decided to help Rachel and the girls clean a tenant turnover. On this day, Rachel explained to the girls that the property they were cleaning belonged to their mom and dad.
She explained the tenants paid rent, and the rental income covered the cost of the ownership.
The girls asked, “What was the cost of ownership?”
Rachel explained the bank lent their parents money to buy this property, and they had to make a mortgage payment to pay the bank back.
The city where the property is located has property taxes, and the property taxes covered the cost to run the city. Each house owner had to contribute money to help run the city.
Rachel explained costs to fix the house from normal wear and tear had to be covered by their parents.
Any utilities, power, gas and electricity, water and trash removal, cable and internet, and telephone were the responsibility of the tenant.
Rachel went on to explain any money left over would be kept in the bank. This new money Rachel mentioned was to help someday fund the downpayment to purchase another revenue property.
Rachel explained to the girls the concepts of equity and principal pay down.
Rachel told the girls the capital growth and principal payment down was their legacy.
The girls understood some of what their Mom told them, but not all. Rachel knew she had time to over the next number of years for her girls to understand the complete process behind owning investment real estate.
Rachel’s mom heard the whole story and realized that she had raised her daughter to be a smart and business savvy woman who was building a business helping her family now and in the future.
With the housecleaning completed for the arrival of the new tenants, Rachel’s mom took everyone out for supper and let Rachel know she was going to gift the $70,000 to Rachel now.
Rachel promised her mom she would talk to her accountant and her bank to make sure everything was on the up-and-up.
When she met her accountant, Rachel asked,” Can momentary gifts be used to purchase real estate?” His answer was yes. Her accountant went on to tell her that each lending institution has a standard form for the money received as a gift and does not need a repayment.
Make sure you do your research and contact your bank to learn more about gifting or receiving cash.
Rachel contacted one of the major banks, which has a form called a Gift Letter. The form is straightforward to fill out. The Gift Letter is made out to the manager of the bank. It confirms the amount gifted and identifies who the money is gifted to and the relationship to the person gifting the funds. The person can be a friend or family member.
The form has an area for the address of the property purchased. The Gift Letter states:” No part of the gift is to be provided by any Third Party having any interest (direct or indirect) in the sale of the subject property.”
The form has a section on Verification of the Existence of Gifted Funds. The structure has two options: the giftor takes the form to the bank and signs it at the bank or attaches copies of their bank book or statements of investment confirming the number of gifted funds given.
Rachel’s mom felt terrific about her decision to gift her daughter the $70,000 and is now spending more time with Rachel and her granddaughters helping to clean more tenant turnovers.
This gift turned out to give much more than just the money, creating a strong bond and living legacy for the family.
If you are interested in learning more about having a living legacy for your family, listen to the following podcast. The Remarkable Value of a Living Legacy
Help give the gift that keeps on living and giving, investment real estate.