How to give your kids a kickstart in property
Yesterday I was speaking with one of my valued clients. He said, “My kids Max and Luca are both in primary school. This year my wife Sarah and I realised we need to start thinking about high school for my eldest, Max. He’s in grade 4. One day he’s learning to walk. The next thing we know, he’s off to school camp.”
What we, and other families are worried about, is: How will our kids get into the property market with the long-term trend of increasing property prices??
That’s why we’ve realised that strategic investing now – for our kids and ourselves – is so crucial.
Setting up the right portfolio can put you in a position to help your children when the time is right.
Let’s explore 4 strategy options by using a sample situation to see how a family with 2 young kids could help their children to buy a house to rent out.
Sample Situation
Couple Julie and Andrew are in their mid-40s. They have 2 children, Coby aged 8 (going on 21!), and Cassandra, wreaking havoc in her terrible 2s.
They plan to pass on their home as an inheritance. But with an Aussie’s average life expectancy of 82.5 years, it may be a while before that can benefit them. So they decide to find out other ways they can give their kids a headstart sooner.
Good thing is, interest rates are low – and the economists are saying rates may stay low for a while.
Snapshot of Julie & Andrew’s financial situation
Current home mortgage balance: $210,000
Home value: Approx. $750,000.
Capacity for investment: 2 properties under $500,000 each (after consultation with finance broker)
Options
With current low-interest rates, Julie and Andrew may:
- Get into a cash-flow positive situation
- Potentially borrow 100% (using equity in their home)
- Not have any cost to hold
Fast forward 15-20 years…..and this brings us to some common strategies that could get Coby and Cassandra into the property market.
Strategy 1: Sell one property
- Realise the capital growth
- Gift or lend the profit to their children
- Hold the other property for retirement
Strategy 2: Sell both properties
- Realise the capital growth
- Gift or lend the profit to their children
- Use left-over funds to supplement superannuation/retirement
Strategy 3: Keep both properties
Borrow against the equity that has built over time in the investment properties to the value of what is required as a deposit (or more if need be).
This could be gifted – however if it is set up as separate loan facilities for each child and specifically for that purpose, the child could be responsible for repaying that portion.
You’re helping them while encouraging them to be self-sufficient.
Important note: Julie and Andrew (parents) must be able to make repayments in case Coby and Cassandra can’t – as parents are responsible for the loan.
Strategy 4: Give them a property each
Give them a property each.
Note: they would be liable for stamp duty if they are transferred into the children’s name.
The loan often used by parents to help their kids
We asked Mortgage Broker Doreen Lehmann from Limitless Lending Solutions about how parents can help their kids finance a property. She explains:
“A Guarantor Loan is a great way to get your children into the property market. When you have equity in either your own home or investment property (ideally), this property can be used as security to cover 20% of the purchase plus the costs such as stamp duty.”
Benefits:
- No deposit required
- All repayments are made by the borrower
- Avoid large mortgage insurance fees
- Get into the market sooner
Summary: How to give your kids a kickstart in property
Every parent is worried about their child’s future. The good thing is, you have the power to set your kids up if you strategically invest.
4 Strategy options (if you purchase 2 investment properties) to get your kids set up for the future include:
- Sell one property
- Sell both properties
- Keep both properties
- Give them a property each
A Guarantor Loan is a common way to help finance your kids to get them an investment property.
It can seem daunting, but property investing isn’t hard. It’s a formula:
What’s important is to use the right formula for your situation.
That’s what we do for our own family – it’s what we do to help many Aussie families do every day.
Let us help you and your family. Give your kids an edge in life by getting them into the property market early – book your free strategy consultation.
