How to give your kids their first home09 Aug 2014 03:08:00
Duncan Hughes
Some parents are getting in early, buying rental property for teenage children for when they leave home.
The financial pit otherwise known as parenthood has just got a lot deeper for parents and grandparents who are helping to finance the next generation’s ascent up the property ladder.
For some, it’s a guaranteed way of ensuring the long-dreamed-of empty nest remains empty and not just a drop-in centre between their children’s holidays, overseas trips, studies, emotional crises or financial disasters.
Others are convinced that property prices, already high, will continue to soar as low interest rates and massive overseas investment greases the lowest rungs for all those except the most determined – or rich.
Peter Townsend, principal of Townsend’s Business & Corporate Lawyers, claims clients are increasingly asking for advice about how to structure tax-efficient and legally binding property agreements for their children.
“There are a lot of people out there who believe overseas buying will mean their children won’t be able to afford a house and are seeking ways of helping,” Townsend says.
Some parents are getting in early, buying rental property for teenage children for when they leave home.
There is a lot of competition in the market. Property investors – many of them investing through their self-managed superannuation funds – have been squeezing out first-time home buyers. And there has been an explosion in the number of property spruikers and so-called wealth creators promising dazzling returns on off-the-plan apartments.
Most parents’ first thought about funding the relocation of a child from the couch in front of the TV might be to seek something as cheap and far away as possible.
Kids’ affairs difficult to untangle
But that’s wrong.
Most parents know the financial affairs of children in their late teens or early 20s are as messy and difficult to untangle as the trash and treasure on the back seat of their car – which the parents also probably paid for.
Veteran tax and property advisers strongly advise parents use their financial clout to dictate the terms and conditions about who has the final say about financing, location and ownership.
There are innumerable hard-luck stories, some recently reported in Smart Money, where generous parents wanting to help their children by using their own house as security for loans are facing eviction after things went wrong. Advisers also recommend against picking the low fruit and sinking money into low-cost, high rises that are flourishing around central business districts, particularly Melbourne.
“[They may as well] donate the money to the Red Cross,” buyers’ agent and 20-year industry veteran David Morrell says about capital growth prospects. He recommends older-style apartments or, even better, a well-located cottage.
Louis Christopher, managing director of property analyst SQM Research, warns apartments are proliferating two times faster than cities, such as Perth, can absorb them. He recommends buyers consider capital cities’ outer rings, which range from 15 to 20 kilometres in Melbourne, about 30 kilometres in Sydney and 15 kilometres in Brisbane.
A more prosaic strategy, which will only be appreciated when the children have their own families and need cheap babysitters, is to buy within a reasonable distance of the family home, says Daren McDonald, a director with accounting and financial planning firm Moore Stephens, who has been advising developers and rich clients for more than 20 years.
Many new suburbs on outer metropolitan fringes might be cheap but lack basic amenities, including reliable public transport, and take a long time to reach by car. “It’s a balance between lifestyle and location,” he says.
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