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A Massive Generational Wealth Transfer Is Why Everything Will Be OK

Bank Of Mom And Dad
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When I bought my previous home 10 years ago my 68 year old neighbor stopped by to say “hello.” He was the godfather of the block, having bought his building back in the early 70s. He gave me the inside scoop on all the neighbors, and one neighbor stood out in particular.

He said the house across the street was purchased a year before mine by a family who wanted some place for their son to live as he attended UC Hastings School Of Law. The purchase price? $1.45 million for a 2,100 square foot three bedroom, three bathroom house. The son would host at least one fraternity-like party every year, but other than that, the house was pretty tame. The son continued to live in the house after law school and now it looks like they might sell.



For 10 years, the son not only lived for free, but he probably made rental income as well thanks to his two roommates. His $120,000+ law school tuition was also probably full paid for by Bank of Mom and Dad and I’m not sure how he paid for his $60,000 Audi S4 unless you make a lot of money as a law student? If the house ever sells, I wouldn’t be surprised if he gets to keep the $1 million+ in profits.

It’s clear to me that my neighbor is going to be quite alright, even if he doesn’t work for the rest of his life. If you’re willing to accept so much assistance that’s beyond what you can afford, then why bother working at all? Just mooch off your parents forever!

My Other Neighbor

About two years ago my 32 year old next door neighbor came home in a brand new, $48,000 Toyota 4Runner Limited. I thought it was a quizzical purchase because the car couldn’t easily fit in his garage. I saw him struggle for five minutes just to get the beast in.



Even so, I was intrigued and wrote a post about it called, “Dealing With Money Envy” because I was jealous. He’s lived in his parent’s flat for the past 11 years since college while his parents lived in their other home in the South Bay. With the average SF rent for a two bedroom at $3,800 a month, of course he could afford a new 4Runner. He’s saved $400,000 in after-tax money by not paying rent for 11 years.

My neighbor is a nice fella who now works in real estate with his father. For 2.5 years he got to travel around the world in his 20s without holding down a job because he could. His mother would stop by and share with me how his son was having so much fun. Meanwhile, I worked my ass off all throughout my 20s just so I could be able to afford the house at age 27. His carefree lifestyle is what made me the most envious. The car was just an extra kick in the nuts.

When I was moving out he asked whether I’d like to sell my house to him (to the family really). If he could really afford my house at $1.7M, then his finances must be in great shape because valuations have gone a little nuts as you can see in this chart. Then in mid- 2021, when I texted him to know I was considering selling my house to simplify life, he gave out an offer of $2.1M. It was a low ball offer because I believed the market value was at least $2.4M – $2.5M, but it just goes to show how much money his parents have to help him buy!

IT IS NOT AS EXPENSIVE TO LIVE AS WE THINK

One of the biggest problems in society today is the widening wealth gap. Part of the angst has to do with the rising cost of living (rents and property prices) while wages for the middle class have stayed stagnant. There isn’t a week that goes by where some type of newsworthy fight between landlords and renters, developers and renters, and tech companies and renters doesn’t occur.



But if you ask my two previous neighbors about costly living in San Francisco, they’ll have no idea what you’re talking about given they haven’t had to pay a dime in rent for years thanks to their parents.

The other week I surveyed four UC Berkeley part-time MBA students about their rent during a meet up one evening. Their average age was 31 and their rent ranged from just $800 to $1,600. That’s not bad for folks who are presumably making at least $80,000 a year. Every single one of them was sharing an apartment or house with a roommate or three. One finally said he was moving in with his girlfriend and splitting their $2,800 a month rent. $1,400 is not too bad at all.

Rooming with other people and living just a little bit further away from city center was the basic feedback of my post asking how people can afford to live in expensive cities on less than six figures a year. To me, it feels weird to still live with roommates after age 30, but I guess that’s how things are nowadays. At least it’s a step up from still living at home with your parents in adulthood.

Let’s meet my new neighbors.

MEET THE NEW NEIGHBORS, SAME AS THE OLD NEIGHBORS



One of the reasons why I moved out of my old neighborhood was to experience a new lifestyle, eat and drink at new restaurants and bars, hike at different parks, and view different sceneries. The people are pretty homogenous on the north end of San Francisco, where property prices easily top $1,200/sqft. I longed for a little more diversity.

I thought I’d experience a more realistic representation of San Francisco given my new house is roughly 50% cheaper than my old house and not too much more expensive than the median SF home price, but not so! It seems like there’s even more parental help for adult children the cheaper you go.

Here is a quick summary of my six neighbors in Golden Gate Heights. They are all wonderful people and one couple even snipped me a bunch of roses from their garden as a welcoming gift.

* Neighbor 1: 50-year-old female. Grew up in the house since birth and inherited the house after her parents passed away.

* Neighbor 2: 40-year-old male with wife and kids. Father bought his house for him nine years ago according to his father who introduced himself to me while painting his son’s house while he was away.



* Neighbor 3: 24-year-old male attending community college. Lives in the entire house for most of the week while his parents live in another house up north.

* Neighbor 4: 40-something year old couple. Lives in his father’s house with his partner. His father lives somewhere else.

* Neighbor 5: 60-year-old woman living with 31 year old daughter. Daughter has lived in the house since she was in middle school.

* Neighbor 6: 30-something year old woman with family. Father bought the house for her in cash early 2014. It’s the same father who bought his son a home! Father was a first generation immigrant who started an auto repair shop and saved all his money.

Pretty interesting how much you can learn by just keeping quiet and listening. There’s a lot more detail, which I’ve kept private. For those who asked what I do, I told them I was a writer working on an online media business.

Notice the commonality in all six neighbors? NOBODY has to pay rent or a mortgage because they either inherited the property or their parents paid for the property. None of them had to go to some fancy private university and get some cutthroat job in banking, consulting, private equity, tech or any other high-paying industry either.



I’m not making this stuff up. I am the ONLY turkey who had to aggressively save money and delay gratification for years to buy my latest house! I’m sure my neighbors worked hard, saved their money, and took risks as well. But it’s hard to come up with something as expensive and hard to save up for like property, unless you’re talking about saving and investing for a new business. Oh yeah, doing that now.

My initial reaction to the realization that every single one of my neighbors for the past 10 years didn’t have to pay a cent for their house was, Why bother trying so hard? I was admittedly envious of their good fortune and I felt deflated for having to take a more treacherous path.

I quickly got over my pity-party and focused on the one big positive: Everything will be OK due to a massive generational wealth transfer!

A BETTER LIFE FOR OUR CHILDREN

Someone has to slave away so the next generation can have a brighter future. It’s the American way. We pray our children will have better lives than us because from where I’m standing, life seems so damn competitive.

Elementary school kids are already being pushed by their parents to be superhuman with after school activities and weekend schooling. Elite universities have acceptance rates under 10% now thanks to population growth and the common app. Jobs are being outsourced due to cheaper labor and the internet, which makes the transfer of skills much easier. Costs for real estate, tuition, food, and gas are rising much faster than wage growth. What is a young person supposed to do to get ahead except tell themselves hard truths?

But after witnessing with my own eyes how every single one of my neighbors over the past 10 years was able to get ahead thanks to the help of their parents, I am no longer as concerned! The godfather of my old block has a multi-unit building that generates over $300,000 a year in rent. He said his daughter will inherit the building when he passes. Lucky her.



If I ever have children, they will get living help from me as well if they decide to live in San Francisco. I’ll make them pay at least 75% market rent so they don’t grow up being entitled brats. But still, I will help them out as much as possible because getting ahead is brutally tough. Of course if they decide to complain why they can’t get ahead when they are only working 40 hours a week or less, I’ll let them fend for themselves.

SUPPORT FROM MY PARENTS

My parents provided an incredible foundation for me to learn and grow. I remember my father introducing me to many of his business connections in order to try and help me get a job. In the end, I went my own way, but that’s only because my parents gave me the educational opportunities in order to do my own thing.

One thing that kept me going during the most brutal times in finance was knowing I could always go back to Hawaii and live for free in a home my grandfather purchased 60+ years ago. Hawaii was my backup plan that I almost executed after 9/11 happened. Just knowing that I wouldn’t fall into the abyss provided me motivation to take some risks.

The next time the media says Americans are in financial disarray, don’t believe them. There is roughly $30 TRILLION dollars getting passed down over the next 15-30 years, according to government estimates and independent research houses like Impact Assets. The average American inheritance is $180,000 and will just continue to grow over time.

And if for some reason your parents didn’t purchase a home 30+ years ago to leave to you and they didn’t save and invest their money wisely over their careers, not to worry! Not only are you not spoiled, you’re now able to create your own fortune one dollar at a time to leave to the next generation.

Update 2021: I decided to sell my SF rental house not to my neighbor for $2.1M, but to a tech VC for $2.74M in 2021 and simplify life after the birth of my son. I still own my primary residence in Golden Gate Heights, a two bedroom rental property in Pacific Heights, and a 2/2 vacation property in Squaw Valley, Lake Tahoe. I used $500,000 of the proceeds to reinvest in real estate crowdfunding. My goal is to earn passive income by buying cheaper valuation properties in the heartland with higher net rental yields. If I can earn an annual 15% return on $500,000, that is a greater net return than what I was making with $2,740,000 in exposure with my SF rental house.



Update 2021: I met a new neighbor, 29 years old and still living with his parents. But they bought him a new $50,000 truck. I asked him if he works in construction and he said no. He just likes big trucks and goes up to Tahoe during the winter. Neighbor #3 is now 28 years old and is still living at home as he still tries to figure out what to do with his life. In the meantime, he got a new $8,000 motorbike. His dad said he wants to get a graduate degree in something. 

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