Setting your kids up with their first property or two is a wonderful gesture that (hopefully) they’ll appreciate and a decision that will certainly give them a financial head start in life.
There are a number of ways to go about it, each with their pros and cons, and the age of your kids will have a significant bearing on which you choose. If they’re littlies, you could consider buying them a block of land that they can build their first house on, or sell to fund a deposit and good chunk of the purchase price on a property somewhere else.
Another alternative is to buy an existing property, rent it out, and put the money away in a trust. When they come of age, they can enjoy a line of passive income from the rent, or they can sell the appreciated property.
There are of course a range of financial and tax implications on how you go about the purchase – whether it’s buying in your name and transferring the title later; buying in your kids name; or setting up a family trust and purchasing the property through it. Before making these sorts of decisions, your first investment should be in a quality financial advisor who understands property investment.
If your children are in their late teens or twenties, their biggest problem will be getting into the housing market. Young people in Sydney are finding it as difficult to buy into the property market as young people in New York and London. Which is no surprise given Sydney is now one of the top 10 most expensive places in the world to buy property, according to Knight Frank.
Income is not the problem – with many people in their 20’s in stable, well-paying jobs. The issue is it’s become almost impossible to save the kind of money needed for a deposit on a modest home or apartment. One that isn’t 2 hours drive out of the CBD, anyway.
But if the kids can use mum & dad’s equity (either in the family home, or in an investment property portfolio) they can get into their own place sooner and – love them to death – out of yours, so you can go back to playing your Duran Duran records and watching reruns of Miami Vice without fear of ridicule.
Or if you’d like to teach your kids about the choices and freedoms that come from having passive income, perhaps part of your equity could go towards their first investment property.
Whichever way you do it, property is a good long term investment in your child’s future, and may have the added benefit of removing the taint of emo rock and the X Factor from your household.
And beyond the financial assistance, it gives the kids a feeling of ownership and empowerment, in that they’ve been given a hand up, not a hand out.
– Owen Davis
About Owen Davis: Owen Davis is the Principal of DFG Property, a full service property management, finance & sales firm based in Sydney. Owen has over 15 years experience in property financing, real estate and property management. More than a third of his clients are among the top 10% of property investors in Australia.