Buying
Investor
How to give your kids a helping hand
04-Mar-2019
With stricter loan requirements, it has become a growing trend for Baby Boomers to step in and help their children buy their first home. In fact, a recent REST Industry Super survey found that an incredible one in three retirees in Sydney, Melbourne and Perth and one in five in Brisbane and Adelaide were looking to give their adult kids money to help them get onto the property ladder.
Baby Boomers came from a generation whereby generally anyone on a decent wage could afford to buy a suburban home. Times have vastly changed since then. We are now looking at a situation where salaries have not grown in line with housing prices and majority of young professionals can’t afford to pay their mortgage repayments. To put in to context, 40 years ago the proportion of median family income required to meet average loan repayments was between 10 and 15 per cent. Now, according to the Real Estate Institute of Australia, that figure is more than 30 per cent.
It’s important to remember that helping your kids into property doesn’t always have to equate to financial assistance. Here are some ways to help get your child’s property journey started.
1. Educate - start early and share your knowledge about the property market with your kids. Just having simple conversations with your children about real estate can really benefit them in knowing some of the hidden costs or benefits that will arise from owning property.
2. Provide a cash gift for deposit - this is probably the most common trend. Parents are providing the 10% deposit required to secure that first home.
3. Act as a Guarantor - using the equity in their home or other investment properties parents can act as a guarantor over the loan amount.
4. Buy it for them - this can come in many forms. Parents can become a co-owner of the property, buy it outright and rent it back to their kids or just buy it in their name. All options have tax or other financial implications that need to be taken into consideration.
5. Provide a personal loan - sometimes parents opt to provide a large loan, forgiven on death, instead of gifting a deposit. Again, there financial and personal implications to consider.
What do parents need to be aware of when making the decision to financially assist their children in to the property market?
With any major investment it obviously makes sense to seek sound professional advice. A property solicitor can take you through all of the bumps in the road that you may not have considered. For example, becoming a co-buyer might sound logical but will your child miss out on the First Home Owner Grant or stamp duty concessions? And what about the potential for a relationship breakdown or the possibility that one of the parties might pass away? There are so many factors and moving parts to consider so be sure to seek the right advice.
Further to that, parents need to take into account their personal circumstances. For example, if you have more than one child, are you going to be able to provide the same assistance for the others? Have you worked out a payment scheme for paying a deposit back? How are you going to structure your agreement?
Being able to help your kids into property is a great thing, but the plan has to be well thought-out and well-managed.
Given it is such a big investment and there are so many things that need to be taken in to consideration - is it worth it?
The short answer: absolutely. Encouraging your kids to get into the property market sooner rather than later is a good thing. It gives them a foothold in the door and a solid investment for growth. As long as you do your research, speak to the right professionals and have a well thought-out plan, investing in real estate for your children is a generous and life-altering opportunity.
SOURCE: Real Estate Result Network
Baby Boomers came from a generation whereby generally anyone on a decent wage could afford to buy a suburban home. Times have vastly changed since then. We are now looking at a situation where salaries have not grown in line with housing prices and majority of young professionals can’t afford to pay their mortgage repayments. To put in to context, 40 years ago the proportion of median family income required to meet average loan repayments was between 10 and 15 per cent. Now, according to the Real Estate Institute of Australia, that figure is more than 30 per cent.
It’s important to remember that helping your kids into property doesn’t always have to equate to financial assistance. Here are some ways to help get your child’s property journey started.
1. Educate - start early and share your knowledge about the property market with your kids. Just having simple conversations with your children about real estate can really benefit them in knowing some of the hidden costs or benefits that will arise from owning property.
2. Provide a cash gift for deposit - this is probably the most common trend. Parents are providing the 10% deposit required to secure that first home.
3. Act as a Guarantor - using the equity in their home or other investment properties parents can act as a guarantor over the loan amount.
4. Buy it for them - this can come in many forms. Parents can become a co-owner of the property, buy it outright and rent it back to their kids or just buy it in their name. All options have tax or other financial implications that need to be taken into consideration.
5. Provide a personal loan - sometimes parents opt to provide a large loan, forgiven on death, instead of gifting a deposit. Again, there financial and personal implications to consider.
What do parents need to be aware of when making the decision to financially assist their children in to the property market?
With any major investment it obviously makes sense to seek sound professional advice. A property solicitor can take you through all of the bumps in the road that you may not have considered. For example, becoming a co-buyer might sound logical but will your child miss out on the First Home Owner Grant or stamp duty concessions? And what about the potential for a relationship breakdown or the possibility that one of the parties might pass away? There are so many factors and moving parts to consider so be sure to seek the right advice.
Further to that, parents need to take into account their personal circumstances. For example, if you have more than one child, are you going to be able to provide the same assistance for the others? Have you worked out a payment scheme for paying a deposit back? How are you going to structure your agreement?
Being able to help your kids into property is a great thing, but the plan has to be well thought-out and well-managed.
Given it is such a big investment and there are so many things that need to be taken in to consideration - is it worth it?
The short answer: absolutely. Encouraging your kids to get into the property market sooner rather than later is a good thing. It gives them a foothold in the door and a solid investment for growth. As long as you do your research, speak to the right professionals and have a well thought-out plan, investing in real estate for your children is a generous and life-altering opportunity.
SOURCE: Real Estate Result Network