My 12 year old bought his first house

[Drew Eldridge]

My 12 year old son closed on his first rental property last month - and now he wants to buy another. 

I think every parent wants to teach their kids about finance, and my wife and I like others, have struggled with how best do that without boring them to death.  So over the past summer,we offered to pay our 3 sons to read books (thanks BP podcast for this great idea!) of our choosing.  Our 14 year old son passed on the idea because he doesn't like to read and honestly would rather spend money on clothes and shoes versus saving a single cent.  But our 12 year old is a fervent reader and quickly read "Rich Dad for Teens" while we were on a vacation to Durango.  The deal was, however, that he had to read it and be able to have an intelligent discussion about the book's core concepts.  

On the drive home he began to explain assets versus liabilities, earned income versus passive income, etc. and it seemed as though he really had a solid understanding.  Over the following weeks, he asked if he could use his "stock money" to purchase a rental home since he had seen us building our rental portfolio.  This lead to further discussions about leverage and how to make OPM work with tax savings.  Of course these were cursory discussions but I was surprised at how much he actually retained.  So we told him we would help, but he would have to do most of the heavy lifting and use his own money.   

Over the next few months, he would ask me to drive him around to go look at houses. I really think he was equally as interested in going to lunch with Dad - the boy likes to eat! - but either way, we looked at lots of properties together. He carried around a notebook and wrote down Realtors' numbers, made calls himself, made "guestimates" of repair costs, rents, how much he would need for a down payment, etc. and we practiced crunching the numbers together. I made him talk to the Realtors directly and I was amazed by how many spoke to him as if he was an adult investor and not a 12 year old. We made many offers which didn't pan out. But one evening just after he had gone to bed, I received a call from a Realtor that a HUD property that we had inquired about would go to investor status the following morning and so we put in the offer we had previously discussed and it was accepted the next morning.

We had started a DRIP (dividend reinvestment plan) when each of our boys were born and asked family to give birthday and Christmas gift with that in mind.  So they might get $100 total and $25 of it could spent on a toy and $75 went to their stocks.  And my wife and I made an automated $25 contribution monthly to each of their account.  This grew over times and was intended to be college money or retirement money or whatever they chose once they were adults.  But we agreed to let our 12 year old cash some of this in to buy this house.  So he provided the $11k down payment and $1500 or so closing costs.  Also the approximate $3k in repairs were provided by him.  I understand that there will be some naysayers who will say that it's truly not his house since the mortgage was obtained in our name and the house was titled in our name.  But we have contributed zero dollars of our own money.  And after consultation with accountants and lawyers, this seemed the best way to go about this and we will title it to him at age 18.  Any cash flow will go to replenish his stock account and potentially fund more properties.  And he's definitely involved.  We did take him out of school to attend the closing, I've taught him how to change the locks and do basic repairs, and he has to stay up to date on the financials on his house.  

So my 12 year old is already looking for his next property, my 9 year old now thinks he want to do the same but doesn't yet have the comprehension of the basics to move forward, and my 14 year old just bought another pair of shoes!  

Sorry for the long post, but I'd love to hear other people's experiences and thoughts on this strategy.