Helping kids buy property.

[whitt]

I was wishing to help our kids out in the future with getting started in there first home.
As this forum shows the sooner they get started the sooner they build wealth.

Prehaps I could offer them a deal that we as parents will match any deposit they save for the purchase of there first home.

Advantages:
They learn to save for a goal.
They get into property market young. (we all not what that will mean)
They don't waste money on boy racer cars.
They won't live at home till they are 30 trying to save for a deposit. ( not sure on the cost of kids living at home when they are older. But am guessing the money you spend helping with deposit could be offset by them not living at home. So it may not actually cost any extra to help them out.)
They get a crash course on life, Bills etc...

Has anybody tried an incentive such as this and had any sucess?

 

[kissfan]

Just a thought Whitt, but you could also buy an I/P now, with the intention of giving it to your child at a later date and let them take over the repayments. By then the house should have had good capital growth so effectively your child is getting a cheap house but still has to learn budgeting etc. If more than one child involved, same scenario, just let them know that the house is for them (later) and that upon sale of the house all profits are to be divied up equally. As I said, just a thought...............
All the best

 

[Jacki Henry]

helping kids

We intend to help our kids get into property as well. We have helped them get into depreciable assets (cars, computers, overseas trips) so we are keen to get them started in the property market - when they are ready. We would be using our LIne of Credit and they would be paying us back at the interest applicable at the time.

 

[suggo]

I agree with the incentive thing more so than just telling them this will be split between you. I think that makes them get off there bottoms a bit more. But I wouldn't match it as a gift, it would be a low interest bearing loan that can be paid off! It might sound harsh, but I feel they have to learn to fend for themselves. *shrugs* but what do I know!!

 

[Donna L]

I am a control freak. I suck 20% of both my kids pay straight out into a separate savings account. If they are living at home, they can afford it. The remaining 80% means they don't feel deprived. My son is 18 and has just under 10k together. I would expect him to have a deposit for an IP by the time he is 21 (probably interstate). Within 3 years of that he should have generated enough capital growth for the deposit for a house of his own at 25. (Of course, he will probably still be glued to the computer in his bedroom so it's more likely to be another IP). My 15 year old daughter is on the same programme. It teaches them a huge amount about the power of compounding interest, the differences between cash management trusts and share trusts. The banks will love him because he has a 3-5 year savings record when applying for the loan and his credit card repayments and mobile phone account payments give him the good credit rating.

Sometimes you just have to be cruel to be kind. My mother-in-law thinks I am one step removed from a child molester!

Be careful with buying things for other people in your name. You can create all sorts of Capital Gains nightmares and taxation issues. Some banks won't like it because the deposit is a gift rather than genuine savings.

 

[Des]

Hi Whitt

We've taken that step. How we've done it may not suit others, but we're comfortable with it.

18-year-old daughter started her law degree at uni this year, and also a part-time job. We were a bit worried that the money from her job would quickly vanish on the kinds of rubbish that kids normally spend it on (I only have to remember my younger days many years ago). So when we bought a block of land to build an IP on earlier this year, we suggested that she buy one as well. She signed the contract, and the land and house will be in her name. Obviously with only part-time work (and only 17 at the time) she couldn't get a loan by herself, so we've taken out a joint IO loan with her. We're providing the 20% deposit from one of our investment LOCs.

All rent she receives will go into a "no-touch" account that will cover the interest on the bank loan. From her part-time job she will pay us the interest on her part of our LOC. The rest she can spend as she likes.

Once she graduates and gets a job, she will refinance the loan under her own name, and pay us what she owes on our LOC.

She's gradually learning the ins and outs of property investing. Probably the most satisfying thing about this whole exercise (apart from the fact that she will have this wonderful appreciating asset that she will own and pay for in her own right) is that she now knows what an asset is, and what doodads are. She even started reading RDPD by herself. And she is now developing healthy spending habits.
The land should settle in the next couple of weeks, and a few months later she should be getting her first rent check. Mum and Dad will be so proud.

Regards
Des

 

[michele_b]

Donna
I'm interested in the kind of money you're talking about, especially for the 15 year old. Is she working? Also, is there any way that she could buy now?

michele

 

[Donna L]

The amount is not so important as the establishment of the regimen. My daughter earns about $40 to $100 p.w.as a casual after school etc. BUT Let's say she just spent it all and meanwhile I was putting aside $7000 in her name in a share fund. Because she is a minor the income on that money will be taxed at the trustee's rate of tax (the parent) because it is unearned income which suffers a punitive rate over $416 a year. So if the distributions were being reinvested she would be over that limit in a very short space of time. However, if she were investing from EARNED income she pays only the normal marginal rate of tax and could theoretically have 120,000k of earned income invested for $6k of income a year tax free. ..Providing that the savings are not more than she earned she can declare the interest or whatever as exempted income from the punitive tax scale. (Check with your financial adviser or accountant)

She's managed to save about $600 so far and is therefore establishing a savings record. The ING online accounts are great because the interest is paid monthly and kids can see that interest rising month by month and the compounding effect. I then like to equate it with their hourly rate of pay...i.e. $8 interest this month..... that's an hour a month you no longer have to work... the joys of passive income. The penny drops very quickly.

 

[michele_b]

Thanks Donna....that's exactly what I was after

M