Buying with the kids - does it work?

[Ross Muir]

Hi All

We are thinking about buying an investment property (50/50) with each of our two grown up Kids. It's a way of helping them into property investment and ownership. Has anyone already done this with their kids? What is your experience? Does it work? Glad any views - I hope this thread is the right forum.
Cheers

Ross Muir

 

[RumpledElf]

And I was thinking buying with little kids ... "no mum, don't buy that one, the walls aren't pink enough" "muuuuuuuuum buy that one, look at that AMAZING pink bathroom and those pretty floral pink tiles" "mum, get that one, look at that great pink shag pile carpet"

Uh, adult kids. You mean investment properties not for them to live in? Depends entirely on how well you get on. But no matter what - get EVERYTHING in writing by a proper qualified legal type person because no matter what you say, something *will* come up down the track.

 

[twobobsworth]

Yes my brother inlaw and father inlaw are 50/50 ownership in a property with 90/10 distribution of the expenses.

 

[wylie]

It has worked for me. Twice before I was 20 and again in my 40s. Absolute trust in each other is a necessity.

 

[marg4000]

Have seen it done successfully with several different friends. All circumstances different but no problems.

1. Friend went halves with their daughter who came out of a relationship and moving back home was not a popular choice. Daughter eventually found a new partner and married, property was sold after about 5-6 years.

2. Friend's husband, his two brothers and father went 1/4 share in a half acre (rural) near Brisbane and built a holiday cottage. After about 25 years it is still in the family and the kids and grandkids are now using it as well.

3. Friend and his two sons went shares in an acreage with two houses, eventually the sons may live in one each but for now a toehold in the RE market.

4. Friend and her partner have gone halves in a large house with friend's daughter and her husband. They had all lived happily in frield's previous house.

I would say that good communication and a clear exit strategy should one party need or want to sell may help.
Marg

 

[tobe]

From a lending perspective it would make more sense giving them the deposit to purchase the place in their own names, rather than split it 50 50, especially if it is there first home. Being 50 50 can cause issues for your borrowing capacity down the track, depending on how the loan is set up. Jointly and severally liable means the full loan amount, rather than just half is counted for your next lending application.
In any case, however you do it. Have a clear exit strategy written down.

 

[Sheryn]

Hi All

We are thinking about buying an investment property (50/50) with each of our two grown up Kids. It's a way of helping them into property investment and ownership. Has anyone already done this with their kids? What is your experience? Does it work? Glad any views - I hope this thread is the right forum.
Cheers

Ross Muir

Could work

First investigate all avenues via mortgage brokers as to whether kids can buy on own.

My thoughts are let the kids borrow to the max for IP on own if Mum and Dad can step in and cover, if IP is without a tenant for a few weeks or they can't make the rates or insurance.


Cheers
Sheryn

 

[dubrex]

Hi All

We are thinking about buying an investment property (50/50) with each of our two grown up Kids. It's a way of helping them into property investment and ownership. Has anyone already done this with their kids? What is your experience? Does it work? Glad any views - I hope this thread is the right forum.
Cheers

Ross Muir

I have had a third share in two investment properties with my parents for a few years, which seemed like a great idea at the time as it allowed me to get into the market with a much lower outlay and thus at a price I could afford, being in my early twenties.

When my partner and I were buying a house to live in last year, the bank had no problem lending the money to us at 95% lvr and would have in fact lent double the amount we were applying for. Their mortgage insurer on the other hand knocked us back at the last minute because they considered me jointly and severally liable for the entire loan on each of the two investment properties, but only entitled to a third of the rent, which obviously throws the serviceability equation out the window.

Luckily another bank was far more lenient and got us over the line in the end!

I used the equity from one of the properties as a deposit for the house last year, so from that perspective the whole exercise has been handy. It does however worry me that down the track I'm going to run into the same problem, and it seems others on this forum have also had the same issues.

 

[Perp]

I would say that good communication and a clear exit strategy should one party need or want to sell may help.

I think the exit strategy is absolutely the most crucial aspect to be understood and (preferably) documented.

From a lending perspective it would make more sense giving them the deposit to purchase the place in their own names, rather than split it 50 50, especially if it is there first home. Being 50 50 can cause issues for your borrowing capacity down the track, depending on how the loan is set up. Jointly and severally liable means the full loan amount, rather than just half is counted for your next lending application.
In any case, however you do it. Have a clear exit strategy written down.

Spot on! dubrex's story is a perfect example of the wisdom of this advice.

Another consideration: if the adult kids go through a relationship break-up in the future, you may want to shield their equity in this IP from their current or future partner. I'm sure you don't really want to be donating to your kids, only to end up losing a good part of that "gift" and its growth to a future ex-partner.

You could consider purchasing in a bloodline trust, or some other structure, or else make your "gift" of 50% a loan that has to be repaid at a time of your choosing (and you'd only choose to demand repayment if your child's equity was being threatened by said ex-partner). Obviously such a loan would need to be documented, and you'd need to secure it with a caveat, but also need to consider how it impacts on their ability to borrow for other items. Quite a complex area, and you should definitely consult both an accountant and a lawyer to set it up optimally. Yes, will cost you a few thousand, but that's well worth it relevant to the size of the gift you're considering giving, IMHO.

Good luck, and welcome to the forum. Congratulations on your wisdom in thinking all this through and asking for advice before you've gone ahead and done it.

 

[travelbug]

Also you need to consider your payments and tax.

If they will be living in it, how will that work? Will they pay you rent for your half? Who pays rates, insurance etc? How do you make money on the deal (is that an issue)? You will have a mortgage to pay, will you just fund that). If you are not getting market rent you will have difficulties claiming tax deductions.

If it's to be used as an investment and rented out it would be easier.

As mentioned, an exit strategy is needed and the partner thing can be an issue too. If a partner moves in they can claim part of the house.


Lots of things to consider. Good luck.

 

[Ross Muir]

Thanks everyone for your comments, they're very helpful indeed. They made me realise that there are quite a few issues we hadn't thought about. Needs more thought on our part.
Thanks again
Ross Muir

 

[Perp]

Thanks everyone for your comments, they're very helpful indeed. They made me realise that there are quite a few issues we hadn't thought about. Needs more thought on our part.

That's great to hear.

Well done once more on asking before you did it, instead of being in the unenviable but common situation of debuting on the forum by asking for advice on how to resolve a claim by your son's ex-girlfriend, after it's all gone pear-shaped...

I hope we see you here more often.

 

[Aaron Sice]

worked well with us and my wife's dad - twice - mum was another story.