Taylor Swift got her start in the music industry at the tender age of 16, with the release of her eponymous country album in 2006. In the years since, the 12-time Grammy winner has transformed herself into a pop superstar and built her brand into a global powerhouse, selling more than two million tickets for her upcoming “Eras Tour” in a single day and announcing plans to direct an upcoming feature film. Along the way, she has become a savvy businesswoman who has often used her clout to shake up the music industry. Most recently, her decision to rerecord her older albums, ensuring that revenue from those streams go to her, caused a flurry of new standards from her label Universal Music Group NV to make sure other artists didn’t follow suit.
So it’s perhaps not surprising that, in the process of becoming a music-industry juggernaut, Ms. Swift has also amassed an empire in the real-estate world. Despite her relative youth, the 33-year-old has assembled a portfolio of homes worth at least $150 million. With a penchant for historic houses, Ms. Swift—using a variety of trusts and limited liability companies—has acquired significant properties in locations ranging from Nashville, Tenn., to Beverly Hills and Rhode Island. Since most of these properties were purchased years before the Covid-induced real-estate frenzy, their value has risen dramatically in the time they’ve been owned by the country-singer-turned-pop star. While Ms. Swift tends to hold her properties for the long term, she has also sold a few homes along the way, often for a substantial profit.
Most people have a travel bucket list, perhaps with 10 to 15 countries.
For this couple, it’s all 195 — and they’re more than halfway there.
Hudson and Emily Crider have visited 112 countries, but their journey together began long before that. Both are from the “same small town” of Lancaster, Pennsylvania. They met in fifth grade and started dating in high school, the couple said.
Speaking to CNBC via video from Chiang Mai, Thailand, the couple explained that their goal in college was to buy an RV and travel to all 50 states in the United States.
Hudson and Emily Crider in high school.
Hudson and Emily Crider
They began to save for that goal after getting married in 2012, but just a few years later, Hudson’s father died of a heart attack. “It was a reminder to us that we’re not guaranteed another day,” said Hudson, 32.
That motivated them to “sell everything and buy this old RV,” said Hudson. The couple left their jobs — Emily as a marketing manager in an agency, Hudson as a financial planner — in the Washington D.C.-Baltimore area, said Emily, 31. Just two years later, they accomplished their goal of traveling to all 50 states.
So they set their sights higher.
Now, as the couple pursue their goal of traveling to every country in the world, they spend less than when they lived in D.C., said Emily. “The thing we found most helpful is eliminating expenses,” said Hudson. “We don’t have a house, car, kids and also make sure to budget.”
The couple have met people on the road who have children, or a home that they’re renting out to travel long term, said Emily. “We really believe there’s not a right or wrong way to travel,” she said.
Hudson and Emily Crider on a safari in Kenya, Africa.
Hudson and Emily Crider
The couple work remotely while on the road to support their travels, said Hudson. They teach English online, create content on YouTube and Instagram, and sell products like clip-on hand sanitizer holders on Amazon.
Although every traveler has different circumstances, being able to research and read reviews on the internet makes travel “the most open that it’s ever been,” said Hudson.
The couple’s own style of traveling helps them save on food, attractions and local culture in countries they visit, no matter how expensive.
The Criders have traveled to every continent except Antarctica, they said. The following is their ranking of the world’s major regions based on the cost of travel — from the least to most expensive:
- Asia
- South America
- Africa
- Middle East
- Australia
- Europe
- North America
Food is one of the categories of travel that “people plan the least for,” yet it’s the cost that is “easiest to add up,” the couple told CNBC. In Bali, Indonesia, they kept those costs low by eating street food like nasi goreng, spending as little as $1 per meal.
Trying street food is a “great way to taste local food and culture,” said Emily. Their favorite Asian cuisines include pad Thai and khao soi from Thailand and Vietnamese banh mi, she said.
The couple save on housing, their second biggest expense, by doing homestays with locals. In Bali, they stayed with the “sweetest family” for just $4 per night, said Emily.
Hudson trying an organ sandwich in Marrakech, Morocco.
Hudson and Emily Crider
The couple also use Couchsurfing.com, a site where travelers can find locals offering free housing. In Switzerland, they stayed with another couple who made them raclette, a traditional Swiss dish, and took them paragliding, said Emily.
Homestays are a great way to connect with local people, said Emily. “When you’re quickly going to a place and taking pictures of tourist sites, you don’t always get the full picture.”
South America was the third cheapest for activities, at an average of $15.00 per experience, the couple told CNBC. Many activities were free, they added.
The couple research and budget for the main activities they want to do before visiting any country, they said.
Hudson and Emily Crider on a hike in Patagonia, South America.
Hudson and Emily Crider
They hiked through “amazing” places like Patagonia and Peru without booking a guide, said Hudson. With online resources, “it was so easy to find it ourselves,” he said.
The couple call this “do-it-yourself style travel,” where they find transportation and explore cities without having to book a tour, said Emily.
“Do-it-yourself” travel even extends to safaris, according to the couple.
In East Africa, Hudson and Emily rented a car and drove through the Serengeti on their own.
Hudson and Emily Crider camping during their self-drive safari in the Serengeti in Tanzania.
Hudson and Emily Crider
“It was more of an adventure than we signed up for, but it was a good way to save money,” said Emily.
Transportation typically means metros, buses or tuk-tuks instead of taxis and Uber, the couple said.
Hudson and Emily Crider in Petra, Jordan.
Hudson and Emily Crider
But renting a car can also be worth it.
The couple spent the most on transportation in the Middle East, at an average of $14.00 per ride, they told CNBC.
“If anybody’s traveling to Jordan in particular, rent a car — it’s a great way to meet local people,” said Hudson.
The couple spent $85 on a harbor cruise in Sydney that went past the Sydney Opera House. “We prefer to spend a little less money on housing and food and more on experiences,” said Emily.
They spent the most on activities in Australia, with an average of $42.50 per experience. Transportation, however, was the second-least costly, at an average of $3 per ride.
The cruise was also an example of how the couple create content on the road, as they partnered with a company to promote the experience, said Hudson.
By saving a little bit in every category, the couple save a lot of money in the long run, they told CNBC. They did the same in Europe, which was the second-most expensive for housing, food and transportation.
It helps to spend less time staying in the more expensive areas, said Hudson. Compared with Paris, cities like Prague and Budapest are “equally beautiful” but have housing that is “half the cost,” he added.
Hudson and Emily Crider paragliding in Switzerland.
Hudson and Emily Crider
To get around, the couple used the Eurail unlimited pass to travel to as many places as they wanted within a booked time period, said Hudson. Budget airlines like Wow Air and Ryanair were also “amazing” options, he said.
“We would get a €12.00 flight and spend more on getting the Uber to the airport,” he quipped.
They used Google to find accommodations based on budget, then booked using Airbnb or Booking.com for the “best deals,” said Emily. They typically did a “really cheap hotel or motel” in Europe as it was often less expensive than a hostel, she added.
Although New York consistently ranks as the most expensive city in the U.S., it is a popular destination for travelers who visit North America, said Hudson.
The couple got around by walking or riding on New York’s “amazing” subway system for $2.75 per trip, he said. They used Google Maps to access bus and metro times in almost every major city they visited, they said.
They also said they use blogs and Facebook groups to find suggestions for public transportation too.
Hudson and Emily try to strike a balance between “comfort and cost” when picking accommodations, they told CNBC.
That often leads to a choice between air conditioning and Wi-Fi, said Hudson. (They rarely compromise on the Wi-Fi.)
Reading an accommodation’s newest reviews gives a “current update of someone’s experience staying there,” said Emily.
“We don’t book places without reviews within the past four or five months.“
A hostel room where the Criders stayed in Sydney, Australia.
Hudson and Emily Crider
Bonus points on credit cards also help to save money, said Emily. “Chase Sapphire Preferred and Reserve cards are our favorite because those can be transferred to a lot of different hotels and airlines,” she said.
The couple plan for future trips by using Google Flights to notify them if a flight price drops below a certain amount, said Emily. Instead of being fixed on one specific destination, pick five places you want to visit and set notifications for them, she recommended.
As for Hudson and Emily, they have set their sights on more places than that.
They are headed to West Africa next, they said.
I have an adult son who is 27 years old and works in the tech industry. He is doing well, but he is not disciplined when it comes to money. He has been living in an 800-square-foot apartment in one of the most expensive cities in the U.S. Buying a place on his own is out of the question given his salary, current property prices and rising interest rates.
My solution to rescue my son from his tiny apartment is to buy a house for him. He is not married. I want him to sign a promissory note and pay me back interest-free over the next 20 years. I want to somehow insert this promissory notice into the title so that he will not be able to sell the house without my consent. Also, if he does not keep up with his payments I will have recourse to take action. I am 99.99% sure that all my concerns will end up groundless, but I want to have this in writing to be sure.
His monthly payments will be important but not critical to my daily life. I have more than enough money to cover my expenses, but it is important for me not to create an opportunity — even to the most innocent mind — for doing something silly. I want to be fair to my son, who has been a very good kid, but I do not want to compromise too much during my own retirement years. I have been working since I was 14 years of age (I’m now over 65), and I recently retired comfortably.
Is this a good plan? Should I proceed with it? Is such a promissory note sufficient, and can that be inserted into the title in the same way a lien works? I love my son, but he is not careful about how he spends his money. I hope that this process teaches him a bit of financial responsibility and that his quality of life improves significantly. That is my main objective.
Please let me know what you think.
Loving Father
Dear Father,
It’s safest to make financial decisions with a cool head and a steely resolve. Of course you love your son, but you should not allow emotion to rule your finances. This will be one of the biggest purchases — if not the biggest — you make in your lifetime, and you will be relying on a third party to pay the bills. Seek legal and financial advice before promising anything.
You would need to arrange — with a real-estate attorney — a promissory/mortgage note and a deed of trust. The former outlines the terms of the loan: the interest rate (0% in this case), when each payment is due, the length of the loan, etc. The latter establishes that your son is obligated to repay the loan and outlines exactly what happens if he defaults.
Alternatively, you could reduce your financial commitment by giving your son a down payment or paying for a portion of the house so that the mortgage repayments are within his reach, cosigning on the loan and putting both your names on the deed. With the 30-year interest rate edging closer to 7%, however, this may be a less attractive option.
If you did cosign on a mortgage with your son and you contributed to the closing costs, that contribution could be viewed by the Internal Revenue Service as a gift if it’s more than the annual exemption ($17,000 for an individual in 2023). Under current rules, an individual may give away $12.92 million in assets or property over the course of their lifetime.
Neil Carbone, trusts and estates attorney at Farrell Fritz, said you could provide your son with an intrafamily mortgage loan. “Intrafamily loans can be good estate-planning vehicles because the interest on such a loan is generally lower than can be obtained through a commercial lender,” he says.
“The interest rate will typically be set at the AFR, or applicable federal rate, which is the lowest rate that can be charged without the loan being considered a gift. Another benefit of an intrafamily loan is that the repayment terms can be more flexible than a commercial lender may be willing to provide. “
For example, the loan can provide for payments of interest only for a period of time, with a balloon payment at the end, he says, and the loan must be carefully documented and the mortgage will be listed as a lien against the property, so you will have protection if your son fails to make the payments.
This gift would change his life and show him how fortunate he is to have such a generous father, and he should — in theory — change his ways. Unfortunately, however, life rarely works like that. Financially reckless people don’t change overnight and, if the years I have spent writing this column have shown me anything, it’s that free gifts rarely spark a complete transformation.
In fact, they risk doing the opposite. Free gifts often have the capacity to seem like a reward for imprudent behavior. Although you expect your son to meet his monthly obligations, as any landlord will tell you, you should prepare yourself for a missed payment here and a missed payment there, or for 90% of the payment one month and 100% the next, followed by 70% the next.
You should ask your son some questions before you go ahead with this: Has he paid off his credit-card debt? Does he have six months’ worth of emergency savings? Would he submit to a monthly “wallet check” over a period of six months to make sure he can stick to a budget and resist the temptation to overspend? Would he agree to meet with a financial planner?
You should also meet with a financial planner to “stress test” your finances. How would a default affect your credit? Will you incur a gift tax? What if you had a medical emergency or needed long-term care? From what you say in your letter, your son may not be in a position to help you out. Do you have long-term care insurance?
And be prepared for the unexpected. Home values generally go up over time, but they can also fall without warning. The housing market has been on a tear for the last three years, but there could come a time when property values fall and the house is worth less than what you paid for it, or less than what you owe if you decide to take out a mortgage.
Alternatively, you could create a trust for your son’s benefit and put the house in that trust, and make a gift of cash to the trust, which could be used to purchase the house, Carbone adds, and as a beneficiary of the trust, your son could be permitted to live in the house rent-free provided that he pay for the upkeep of the house. (Or, preferably, charge him rent and ask him to be responsible for the upkeep, so it keeps him accountable and also helps with your own cash flow.)
Hard knocks, learning from past financial mistakes and wins, and appreciating the value of a dollar by working hard for what he has — along with advice from a financial adviser and trusted attorney — are far more likely to help your son than the proverbial gift horse. Your son, like millions of people his age, is living in a small apartment and getting a sharp dose of reality.
It is, regrettably perhaps, a rite of passage. But it will help build character and allow him to appreciate any steps he takes up the property ladder in the future. He may even look back on this part of his life fondly. The gift of a house should be more than a way to teach him a bit of financial responsibility. In fact, I recommend him meeting a series of goals if you decide to sign on the dotted line.
You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com, and follow Quentin Fottrell on Twitter.
Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.
The Moneyist regrets he cannot reply to questions individually.
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Getting a second dog to fix the first dog’s behavior? Not the best idea.
If you were one of the 100 million or so who sat down Sunday to watch Super Bowl LVII, you noticed a pair of dog-focused commercials.
The first, from The Farmer’s Dog, was so sweet it threw my heart into a woodchipper. But then came the second ad, courtesy of Amazon. It implied a disappointing message: Getting a second dog can fix your first dog’s behavior problems.
“PSA: Do not be fooled by the [Amazon] dog commercial,” Diamond’s Friends Pet Rescue wrote on Instagram. “Getting a second dog is not the solution to fixing behavioral issues like separation anxiety.”
In fact, adding another dog could double the destruction. Instead, this fictional family should’ve spent their time and money making sure their first dog was mentally and physically healthy. Then they could decide whether another dog is a good idea.
The Commercial
The first third of the 90-second commercial features a family and their dog at the beginning of the COVID-19 pandemic. Like a lot of us three years ago, they’re all working and learning from home, happily spending all their time with the dog. But then it’s time to go back to the office and school. As they head out the door, the family’s dad tells the dog, “We’ll be back soon. Be a good boy.”
That doesn’t happen. After some forlorn gazes out the window, the dog gets destructive, breaking a lamp, strewing trash everywhere, shredding clothes and furniture, and chewing the remote. He ignores his mom on the treat dispenser, and the struggling family seems to ostracize him. (The four humans standing together, arms crossed and staring at him from a distance is particularly bad.)
RELATED: How Do Dogs Communicate With Each Other? Actions Speak Louder Than Woofs
But then we see the humans gathering around a laptop. They’re buying a heavy-duty kennel from Amazon—but not for their dog. The kennel arrives, and the family opens it to reveal a second dog. The two pups offer each other some introductory sniffs, and the commercial ends with the two of them napping together with one of the kids.
So let’s get into why that was decidedly not great.
What the Amazon Family Should’ve Done
When he’s left alone, the dog in the commercial seems to be showing signs of separation anxiety, boredom, or depression, according to Jenna Stregowski, RVT and Daily Paws’ pet health and behavior editor. His usual routine with his homebound family has been upended, and he lacks the cognitive ability to understand and adapt to the change, she says.
(Also, dogs don’t speak or understand conversational English, so his dad telling him to be good while they’re gone does precisely nothing.)
“He’s just finding his own coping mechanisms,” Stregowski says. “For dogs, chewing and ‘destroying’ things are enriching and entertaining. He doesn’t think about it as destruction—it’s an activity to relieve his unwanted emotions and release pent-up energy.”
So what can you do to prevent this type of behavior?
- Get help: A certified trainer or a pet behavior expert will be the best resource to help your dog feel at ease when they’re home alone.
- Make a plan: Figure out where to put your dog when you leave, make sure they have stuff to do, and decide whether you need to hire any help. We even have a template for that.
- Practice the plan: The family in the commercial didn’t prepare their dog for their new routine at all, and you want to avoid that mistake. Try leaving for brief periods each day to see how they handle it, making your absences last longer each day so your dog gets used to it.
- Wear them out: Before you leave for the day, play fetch in the yard or head out for a walk. Hopefully, your dog will be too tired to cause mayhem. If they have excess energy or you’re going to be out of the house more than eight hours, consider hiring a dog walker or pet sitter.
- Leave them something to do: This can be a KONG filled with peanut butter or another interactive toy. Hopefully, getting the treats and goodies will be more fulfilling than ruining your house.
- Dog-proof the pup’s space: Closed doors and better dog gates could’ve prevented much of the Amazon dog’s destruction. Make sure your dog has access to what they need, but otherwise close off other parts of the house. It’s also a good idea to train your dog to get comfortable with a crate in case you need to keep them there when you’re gone.
Finally, make sure you talk with your veterinarian if your dog is destroying things or peeing or pooping inside while you’re gone. You’ll want to rule out any medical problems.
Why Is the Second Dog a Bad Idea?
It’s an unwise decision because the first dog’s mental health is in a bad place, Stregowski says. A new dog can be a fabulous addition to many families, but the Amazon family probably would’ve ended up with two dogs with behavior issues.
Why? Stregowski has a few reasons. The second dog might copy the original dog’s behavior. Or the new dog might detect the other dog’s stress, making the second dog stressed as well. Then there’s an obvious one: This family didn’t provide enough enrichment for one dog, let alone two.
RELATED: Do Dogs Have Emotions? What Science Says Your Pup Feels
Rather than treat a second dog as a “fix,” families should consider whether they can provide for another pet. Stregowski listed several questions to ponder:
- Is your dog physically and mentally ready for another pet in the house?
- Does your dog get along with other dogs?
- Can you dedicate the time and resources to caring for this new pet? Are you prepared to change your daily life to care for the new addition?
- Will you make sure to introduce them correctly? The Amazon family rushed into introductions, which could have led to a dogfight.
Most importantly: Will your life and both dogs’ lives improve under your stewardship? If yes to all those questions, you should start looking for adoptable pups and find your dog a new best friend. Leave behavior issues to the pros.
Falling prices may be luring buyers back into the U.S. housing market, but don’t let that fool you — homes are still far from affordable.
Prices in many U.S. housing markets have been declining over the past year and buyers are starting to make purchases again. But is now the right time to buy?
A careful look at the cost of mortgages over the past couple years suggests that prices aren’t nearly as low as they could be, and that over the life of a mortgage, buyers are actually paying far more for their homes than they would have in 2021 when housing prices peaked.
Two solutions are needed to address this affordability crisis: buyers need to fully leverage their negotiating power, and cities need to encourage new housing.
As an example, consider John, who found his dream home: a two-bedroom, two bath townhouse, close to his job, with enough space for his family, and good access to everything they need. John was hesitant to buy — prices were high and still rising — but on Nov. 10th, 2021, he closed the deal. He bought the home for $400,000 on a 30-year fixed rate mortgage with a 20% down payment and a 2.98% interest rate. It was perfect: only $1,346 a month to service the mortgage.
But what if John had waited a year? National average interest rates on that type of mortgage were 7.08% in November 2022. If he had closed on the same home for the same price a year later, with 20% down, and a 30-year fixed rate mortgage, his mortgage payment would have been $2,146 per month — almost 60% higher. John might not have been able to afford his dream home if he had waited for prices to fall, and would have had to settle for something smaller and less convenient.
Now consider the example of John’s friend Carla, who waited to buy. Price spikes forced her to put homeownership on hold. But lately, Carla is seeing price cuts and hearing stories about how the market is starting to recover. Now seems like the time to buy.
Carla finds a home valued at $400,000. She has good credit and enough money saved for a 20% downpayment, but the monthly payment is the big concern. Assuming she could get an interest rate close to the national average of 6% — twice as high as what John’s mortgage was in 2021 — she would have to negotiate the price down by $95,000 if she wanted to have the same monthly mortgage payment as her friend.
That’s a cut of almost 25% of the total price of the home. No major U.S. city has seen prices fall far enough to make a home in early 2023 as affordable for homebuyers as it was in late 2021. Even in areas where prices are still being cut, buyers need to be careful not to buy too quickly.
Prices can and should be brought down further. Buyers need to leverage their negotiating power to pull them down as far as possible.
Of course, negotiating prices can only do so much. The Federal Reserve has been attempting to drive down prices by pushing up interest rates, but the effort so far hasn’t been effective. Lower prices lure buyers; things won’t be more affordable in the long term without broader fixes to the market.
For many of the regional U.S. housing markets, the ultimate problem is limited supply. Housing advocate Up For Growth estimates that the current housing supply deficit in the U.S. is more than 3.5 million units, with other estimates suggesting it could be as high as 20 million.
Buyers can leverage their negotiating power to bring down prices, and the Fed eventually will start to cut interest rates. In the meantime, the U.S. needs more housing. Municipalities need to do all they can to pave the way for developers: loosen density restrictions; shorten permitting times and untangle the red tape — especially for affordable housing.
Until that happens, affordable housing will remain out of reach for most Americans. Among buyers who can even afford to consider returning to the market now, buying a home, particularly in strained coastal housing markets, is an expensive project. Prices can go down further, and buyers should put pressure on both government and the market to see that they do.
Jeremiah Ludwig is an independent housing policy researcher, based in Washington D.C.
They were like haute couture for the real-estate world.
Investors in a new model of mortgage bonds created over the past decade to finance trophy commercial real estate and star property owners are about to find out what higher mortgage rates mean as a mountain of debt comes due.
More than $45 billion of loans on some of the nation’s most recognizable office buildings, hotel chains and other commercial properties are set to mature through 2024, debt that was tucked away into bond deals known as single-asset, single-borrower (SASB) securities, according to a tally by DBRS Morningstar.
The bonds, tied mostly to large loans of $200 million to $1 billion each, helped finance high-end buildings and well-heeled borrowers in the era of rock-bottom interest rates that prevailed in the wake of the 2007-2008 global financial crisis.
Now, owners of many of these office towers, hotels and multifamily developments soon face big, balloon payments to satisfy their debts in cities and towns across the nation altered by the pandemic. Loans also have become more costly to take out, and harder to come as the Federal Reserve wages its battle against high inflation.
“Everybody is going to be watching this,” said Zach Streit, a founder of Way Capital, a debt and equity commercial real estate advisory firm in Los Angeles.
“It’s the head of the dog, because it is some of the largest assets, with the biggest sponsors,” Streit said, adding that what happens in the large-loan market will filter into everything else.
Iconic, but concerns
Lending at low rates helped propel commercial property prices to record highs during the pandemic, helped along by annual mortgage bond issuance that in 2021 hit a 14-year high of nearly $140 billion, according to data from the Securities Industry and Financial Markets Association.
The trend on Wall Street for decades had been to bundle up dozens of smaller commercial property loans into $1 billion bond deals, to help diversify the risks. The twist over the past decade was to lean heavily into debt that hinged on a single, trophy asset or top real estate owners.
Some of the buildings, like the sprawling Parkmerced apartments in San Francisco transformed neighborhoods, while the Seagram Building on Manhattan’s Park Avenue has been credited with giving rise to sleek, modern skyscrapers.
Bond investors often jumped at the chance to own even a sliver of debt on iconic buildings, but now both Parkmerced and Seagram sit near the top of a pile of maturing large-loans “of concern” for 2023 and 2024, according to lists compiled by analysts at DBRS Morningstar.
To be sure, concerns about maturing debt on specific buildings only point to potential trouble ahead, not a guarantee of it. High-profile real estate operators often have many options to avoid defaulting, such as writing a bigger equity check when looking to refinancing, bringing in other forms of capital or additional partners, or even selling a property.
Also, while the DBRS Morningstar analysts pegged the loan payoff rate for mortgages in single asset, single borrower property bond deals at a low 62% in 2022, they expect roughly 75% of loans to pay off this year and 94% in 2024.
A spokesman for RFR Realty, owners of the Seagram Building, declined to comment. Parkmerced owners Maximus Real Estate Partners didn’t immediately return a call or email seeking comment.
A ‘new reality’
Trophy buildings in places like Manhattan and San Francisco were long known for retaining their appeal in past economic downturns, at least before the pandemic changed expectations around working from the office five days a week.
San Francisco has been reeling from a wave of layoffs in the technology sector in recent months, but also has been one of the slowest big U.S. cities to recover from the pandemic.
Weekly office occupancy rates for the New York and San Francisco metro areas were still pegged below 50% in early February, according to Kastle System’s 10-city national average
Many commercial property owners made use of loan extension options available during the pandemic, which could be running out right as loans come fully due as interest rates reset higher. Many loans in the past decade required borrowers only to pay interest, but not to shrink their loan balance.
Specifically, the Parkmerced loan “of concern” carries a low 3.25% fixed rate, and it comes due in December 2024, according to the DBRS report, while other floating-rate loans carried rates as high as 8.47%
Many fixed-rate property loans are based off the 10-year Treasury yield
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plus some basis points, to compensate for default risks. Treasury yields rose and U.S. stocks
SPX
were heading lower over the past week on concerns about how long the economy might face even higher interest rates as the Fed keeps up its inflation fight. The benchmark 10-year was at 3.73% on Friday.
“Right now, rates probably are in the high 5s to mid 6% range,” said Anuj Gupta. chief executive officer of A10 Capital and a veteran commercial real estate lender.
Gupta expects a portion of the maturing, floating-rate debt in bond deals to qualify for refinancing into longer, fixed-rate loans, but he also sees borrowers who might need to put more equity to properties as prices wobble, or the use of more costly mezzanine debt and other forms of funding to stabilize buildings.
“I do think the real-estate market has already capitulated to a new reality,” he said.
‘My son is not careful with money’: I want to rescue him from his ‘tiny’ 800-square-foot apartment. Should I buy him a home, and have him sign a promissory note?
I have an adult son who is 27 years old and works in the tech industry. I love my son, but he is not disciplined when it comes to money. He has been living in an 800-square-foot apartment in one of the most expensive cities in the U.S. Buying a place on his own is out of the question given his salary, current property prices and rising interest rates.
My solution to rescue my son from his tiny apartment is to buy a house for him. He is not married. I want him to sign a promissory note and pay me back interest-free over the next 20 years. I want to somehow insert this promissory notice into the title so that he will not be able to sell the house without my consent. Also, if he does not keep up with his payments I will have recourse to take action. I am 99.99% sure that all my concerns will end up groundless, but I want to have this in writing to be sure.
“‘I am 99.99% sure that all my concerns will end up groundless, but I want to have this in writing to be sure.’”
His monthly payments will be important but not critical to my daily life. I have more than enough money to cover my expenses, but it is important for me not to create an opportunity — even to the most innocent mind — for doing something silly. I want to be fair to my son, who has been a very good kid, but I do not want to compromise too much during my own retirement years. I have been working since I was 14 years of age (I’m now over 65), and I recently retired comfortably.
Is this a good plan? Should I proceed with it? Is such a promissory note sufficient, and can that be inserted into the title in the same way a lien works? My son is not careful with money. I hope that this process teaches him a bit of financial responsibility and that his quality of life improves significantly. That is my main objective.
Please let me know what you think.
Loving Father
Dear Father,
For many young people living in big cities in 2023, an 800-square-foot apartment would be an absolute luxury.
It’s safest to make financial decisions with a cool head and a steely resolve. Of course you love your son, but you should not allow emotion to rule your finances. This will be one of the biggest purchases — if not the biggest — you make in your lifetime, and you will be relying on a third party to pay the bills. Seek legal and financial advice before promising anything.
You would need to arrange — with a real-estate attorney — a promissory/mortgage note and a deed of trust. The former outlines the terms of the loan: the interest rate (0% in this case), when each payment is due, the length of the loan, etc. The latter establishes that your son is obligated to repay the loan and outlines exactly what happens if he defaults.
Alternatively, you could reduce your financial commitment by giving your son a down payment or paying for a portion of the house so that the mortgage repayments are within his reach, cosigning on the loan and putting both your names on the deed. With the 30-year interest rate edging closer to 7%, however, this may be a less attractive option.
If you did cosign on a mortgage with your son and you contributed to the closing costs, that contribution could be viewed by the Internal Revenue Service as a gift if it’s more than the annual exemption ($17,000 for an individual in 2023). Under current rules, an individual may give away $12.92 million in assets or property over the course of their lifetime.
Neil Carbone, trusts and estates attorney at Farrell Fritz, said you could provide your son with an intrafamily mortgage loan. “Intrafamily loans can be good estate-planning vehicles because the interest on such a loan is generally lower than can be obtained through a commercial lender,” he says.
“The interest rate will typically be set at the AFR, or applicable federal rate, which is the lowest rate that can be charged without the loan being considered a gift. Another benefit of an intrafamily loan is that the repayment terms can be more flexible than a commercial lender may be willing to provide. “
For example, the loan can provide for payments of interest only for a period of time, with a balloon payment at the end, he says, and the loan must be carefully documented and the mortgage will be listed as a lien against the property, so you will have protection if your son fails to make the payments.
“‘This gift would change his life and show him how fortunate he is to have such a generous father, and he should — in theory — change his ways. Unfortunately, however, life rarely works like that.’”
This gift would change his life and show him how fortunate he is to have such a generous father, and he should — in theory — change his ways. Unfortunately, however, life rarely works like that. Financially reckless people don’t change overnight and, if the years I have spent writing this column have shown me anything, it’s that free gifts rarely spark a complete transformation.
In fact, they risk doing the opposite. Free gifts often have the capacity to seem like a reward for imprudent behavior. Although you expect your son to meet his monthly obligations, as any landlord will tell you, you should prepare yourself for a missed payment here and a missed payment there, or for 90% of the payment one month and 100% the next, followed by 70% the next.
You should ask your son some questions before you go ahead with this: Has he paid off his credit-card debt? Does he have six months’ worth of emergency savings? Would he submit to a monthly “wallet check” over a period of six months to make sure he can stick to a budget and resist the temptation to overspend? Would he agree to meet with a financial planner?
You should also meet with a financial planner to “stress test” your finances. How would a default affect your credit? Will you incur a gift tax? What if you had a medical emergency or needed long-term care? From what you say in your letter, your son may not be in a position to help you out. Do you have long-term care insurance?
And be prepared for the unexpected. Home values generally go up over time, but they can also fall without warning. The housing market has been on a tear for the last three years, but there could come a time when property values fall and the house is worth less than what you paid for it, or less than what you owe if you decide to take out a mortgage.
Alternatively, you could create a trust for your son’s benefit and put the house in that trust, and make a gift of cash to the trust, which could be used to purchase the house, Carbone adds, and as a beneficiary of the trust, your son could be permitted to live in the house rent-free provided that he pay for the upkeep of the house. (Or, preferably, charge him rent and ask him to be responsible for the upkeep, so it keeps him accountable and also helps with your own cash flow.)
Hard knocks, learning from past financial mistakes and wins, and appreciating the value of a dollar by working hard for what he has — along with advice from a financial adviser and trusted attorney — are far more likely to help your son than the proverbial gift horse. Your son, like millions of people his age, is living in a small apartment and getting a sharp dose of reality.
It is, regrettably perhaps, a rite of passage. But it will help build character and allow him to appreciate any steps he takes up the property ladder in the future. He may even look back on this part of his life fondly. The gift of a house should be more than a way to teach him a bit of financial responsibility. And I’m not sure it will help him in that endeavor. In fact, I recommend you have him meet a series of financial goals before you decide to sign on the dotted line.
You have the opportunity to give your son a head start, but I hope that he also learns how to stand on his own two feet.
You can email The Moneyist with any financial and ethical questions related to coronavirus at qfottrell@marketwatch.com, and follow Quentin Fottrell on Twitter.
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