looking for creative ways to help subsidise children's first homes

Hi Carol,

Interesting thread. Some good discussions and responses so far.

Can I ask what suburb near the river you live in....you guys could be one of our neighbours ??


Even though we seem to be about 10 or 12 years behind your family, we believe we have already addressed the issue you are discussing.

Our eldest is 10, going on 11, and we have been telling her and her younger sisters for the past 3 or so years, that at the age of 18, both M&D will take great delight in booting them out of the family home.....none of this sponging off M&D until they are late 20's or god forbid 30, 'cos it's "Comfy and cheap and Mum is so good at the washing and Dad can fix stuff up really well while I rest up watching my favourite DVD".....

We copied an old Polish gentlemen we knew who had 4 children. He accumulated 5 properties - somehow unencumbered - and as his offspring reached 21, he handed them the title deed to the property. They simply had to fork out the stamp duty at the full and fair rate and it was theirs.

It was simply amazing what some of them did with the massive financial boost. Two out of the four simply nestled down and carried on with life. The other two went straight to the bank and slapped it down as a deposit on about 3 or 4 other properties. This was back in '94, so they have since carried on and built sizable portfolios, all based on the one kick start. Their peers on the other hand who weren't assisted by their parents are still paying off their first home loan.

We have earmarked a place in a decent suburb (currently a rental) that will be the place where they will live and be responsible for. It has 3 bedrooms, so the eldest can stay in one room and pay $ 50 p.w. in rent to us, but must find tenants for the other two rooms, collect rent and manage the whole show. We believe this will give them a tad of experience. As each turns 18, they get booted out and get to live in it as well, taking turns in managing it.

It's not all the way, with them owning their own home, which is the ultimate first step of course, but it certainly gets them up and running and standing on their own two feet without sponging off M&D.

Sitting down and casually having a chat with the kids about mortgages and general attitudes to money and a hard work ethic have already been done. They are all dynamos when it comes to cleaning up other people's rubbish and sweeping up disgusting factories.....so hopefully we have well and truly dislodged that silver spoon out of their mouths.
 
Hi Daz

That's an interesting idea too - - providing rental accommodation, with landlord responsibilities attached.

You might want to re-think the age of getting kicked out closer to the time. 18 might be a bit young! They are still pretty silly at 18.

I don't know about your Polish friend - - I think he might have been a bit too generous there - a whole house with no strings attached by 21!

Still, it sounds like a successful experiment so far.

I have a strange relationship with money - - I think people should try to accumulate lots of it, but I also think they should do something wonderful with it and not squander it on too many self-indulgences.

Finding the "wonderful" things to do with money is quite difficult.

Carol
 
Put it this way, Carol, if you don't find a way to use that money, I'm sure your kids will. Does it make sense for you to work hard in making it and your kids get to spend it? Or maybe I'm just selfish.
 
Nope! But she plans to do her PhD on Altzeimer's so hopefully that topic is regarded as a good one for post-doctoral funding.

Carol

I believe that it is a growth industry with our aging population. I also hear that it is an area where there is a lot that is unknown.

I hope she does suceed.

When I lived OS Australia was famous for it's sporting stars and TV programs like Neighbours, Home and Away etc. Be nice if we were famous for research, science and other things as well. :)
 
I believe that it is a growth industry with our aging population. I also hear that it is an area where there is a lot that is unknown.

I hope she does suceed.

When I lived OS Australia was famous for it's sporting stars and TV programs like Neighbours, Home and Away etc. Be nice if we were famous for research, science and other things as well. :)

One can get an idea of how multifaceted and complex research into Alzheimers is via PubMed. Unfortunately, when one starts dealing with the central nervous system, in addition to degenerative processes, there is not likely to be one patentable solution. When I last spoke with a neuroscience friend, the best way to avoid alzheimers is to ensure a good supply of micronutrient and oxygen rich blood to your brain. That means eating a very healthy diet, getting regular exercise, and keeping your blood pressure low. I doubt lifestyle diseases are a priority area for ARC funding.

Nevertheless, Carol's daughter will probably do well in an overseas lab where research is funded seriously. And if she ever gets frustrated with the lack of dollars available for pure research, she can quickly become wealthy working as a research associate for a pharmaceutical company.
 
Put it this way, Carol, if you don't find a way to use that money, I'm sure your kids will. Does it make sense for you to work hard in making it and your kids get to spend it? Or maybe I'm just selfish.

You're definitely selfish :D
Carol is a fine example of good parenting :)
 
You're definitely selfish :D
Carol is a fine example of good parenting :)

Sure hope her kids appreciate it and deserve it. I've seen too much of the flip side to have that much faith in kids' financial acumen without proof. Still think it's an example of good parenting when the kid has no appreciation of money and just expects mum and dad to give it to them even when they have good jobs, and fully expects parents to fund holidays, the family home, etc? Each to his own, and I have my own views on this.

The point of that section in the Millionaire Next Door is that the kid who most deserves your money (because they know how to handle it) won't need it precisely because they know how to handle money. Getting money from mummy just warps its value, IMHO: where is the value in money that just falls from the sky like that? Better hope the kid already has an appreciation of money before that happens.

I'm planning to live for a few centuries, so my kids (not born yet) will be waiting for a while..........
Alex
 
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Good luck with the whole "kids leaving home at 18" Dazzling. Thats not been my experience. Very different from our parents day. If you do a degree at Uni now it often takes 4 years and then one degree isn't always enough. It seems more common now for kids in mid 20's to be in the family home and to be quite happy about it. Must admit, I don't see it as a bad thing really.

On the plus side, it can be pleasant having all those adults in one home. It takes a new type of parenting too. All the boundaries seem to get changed. And obviously the expenses continue for a lot longer than in our parents day.

Mind you, having the house without progeny in it for a weekend can be bliss once in a while....
 
Family equity financing

If you want to give your childen a helping hand into owning a home you could consider a family equity deal.

Basically the child buys a house and has a loan for 80% of the value. You then put a 2nd mortgage on your home (parents) for 20% (plus costs if you need to).

They should be done as two loans to reduce the liability for the parents. The 80% loan would be interest only and the 20% loan P&I with accelerated repayments to reduce the debt as quickly as possible. The loans would both be in the child's name with the parents going equity guarantor for only the 20% loan.

Obviously this is not for everyone - if the child stopped making the repayments, the bank would sell and the parents may be left with the 20% debt over 30yrs.

This scenario is great for parents who want to help their children but don't want to give them cash and the child has the right attitude to pay off the mortgage thus doing the right thing by their parents.

They can pay off their parents loan first and as soon as the ppty has increased in value sufficiently - get it revalued and pay out the parents. The parents would need to seek legal advice.

A different take on the issue. I hope this helps.

Cheers
Amanda
 
Thanks, Amanda

That loan sounds interesting.

Maybe the parents could pay the interest on the 20% loan and when the house appreciates enough in value the child could pay back the parents the loan and the interest.

Cheers Carol
 
Carol,
we adopted a different strategy. To give our newly married daughter a start we bought a house, approved by the couple, in a family trust. They rent it from the trust at market rate, plus extra on top as a forced saving for their 'deposit'. The extra counts as a loan to the trust, and can be paid back to them if they ever wish to sell; and in this case we would also allow a proportionate share of the capital gains. If the house is not sold, then equity from any capital gains could still be paid to them from the trust, the same as if they had purchased it in their own names.
Of course, they have not accessed the FHOG, but this option is still open if they ever want to use it.
The trust also has benefits now that we have a grandchild.
Hope this gives you another approach to think about (of course, it's not a recommendation - you need to consider your own circumstances!)

Terry
 
This is a great thread. We're in the same process atm.

Our plan is buy a duplex, shares with our daughter. At the end of the day strata title it and she gets to do what she wants with her half. She can aford the payments with rent added. At present she lives in a unit under our PPOR. Her plan is to pay down ASAP and move in when she can and then use her equity to finance the next property.

At the end of the day we also have ownership of a half duplex.

Anyone care to comment on drawbacks of this plan.
 
This is a great thread. We're in the same process atm.

Our plan is buy a duplex, shares with our daughter. At the end of the day strata title it and she gets to do what she wants with her half. She can aford the payments with rent added. At present she lives in a unit under our PPOR. Her plan is to pay down ASAP and move in when she can and then use her equity to finance the next property.

At the end of the day we also have ownership of a half duplex.

Anyone care to comment on drawbacks of this plan.


Novar
We are in the process of purchasing a block of land 50% / 50% with our 24 year old daughter, we will put in a DA to build a duplex, daughter will own 1 unit and we will rent out our unit.

This is a start for her, she has her 20% cash deposit. I looked around for 12 months for a house for 250K for her to buy before we went down this road.

All houses were old, needed repairs, most had sloped yards and I could not see her doing any maintenance etc.

Duplex will be 3 x 2 with double garage underneath.

Our 26 year old son has an Expression of Interest in to buy a house and land package in QLD as a PPOR.

Both children were encouraged to save half their pay from age 16 and I helped out by filling out the forms, getting children to sign so direct debit occurred each pay.

Children stay home until 25 years and paid $50 per week board once they left school.

Drawbacks
If we do not strata units daughter may not get FHOG - cost of strata about 8K but once strata'd you pay 2 lots of rates instead of one.
 
Sheryn
This is a start for her, she has her 20% cash deposit. I looked around for 12 months for a house for 250K for her to buy before we went down this road.
Same .. too much maintenance and payments out of reach on single income.

Drawbacks
If we do not strata units daughter may not get FHOG - cost of strata about 8K but once strata'd you pay 2 lots of rates instead of one.

Thanks .. I didn't know the cost involved in strata.

Tricky one about FHOG, I read on here or somewhere that someone can still get FHOG on their PPOR even if they have investment property.

Looked at a duplex this afternoon, haven't ruled it out but haven't ruled it in either. I'm of the thought that it's better to hang off a few months, look around further and wait to see what the economy is doing. No rush :)
 
Hi Rambada

The trouble is she is about to start a PhD, which will earn her just $25000 tax-free. That's not very much to service a $400,000 - $500,000 house mortgage!

Carol

I purchased 3 properties on a $15,000 PhD scholarship (also tax free)! The total amount I spent on 3 properties was around $350,000 in the late 1990s. The difference between 3 properties worth $350,000 collectively and one worth that much is the shortfall between rent and mortgage for the 3 is less and therefore more servicable.

It was doable for me because I lived with my parents so had no bills and the total scholarship plus lecturing income went to service the loans. Lecturing for me at that time was $120 per hour and tutoring 1st year med students was $90 per hour. This meant that there was little time spent for a higher gain. If she is at PhD level she can look for higher paying jobs such as these to help out with loans.
 
I suspect that atitude to money is well formed by the time you reach 20. I think that if you have been giving them handouts for their entire lives then giving them a house is probably not that great an idea.

That being said if they have grown up without a sense of entitlement then assisting them with a house (maybe even 100%) is not as crazy as it might seem.

I know a 19 (at the time) who was given a house in Kew, Melbourne by his father. The son renovated it himself, let it out and went off to uni as per most kids.

He aslo had a part time businessess. Renting a vacant piece of land and then renting it out as a car park on football days.

This young guy did not take money for granted and has certainly been taught that he needed to work hard and smart to do well.

Me personally I ran a market stall at 12 to buy my own bike. It took me 3 months. I borrowed the setup costs from mum and paid her back. If I had been given a house at 20 I would have been over the moon. It would have givne me such a head start.
 
I would be very careful about having one's children as landlords and expecting them to collect rent from friends. Couple I know did this for their boy and it went OK for about 2/3 mths, then the friends started being broke when rent due, had car expenses etc., pay next week. Slowly dribbled off till they were'nt paying at all. House became disgusting mess, etc. They had to sell in the end. It takes a special kind of toughness to get rent once a week from friends or even aquaintenances you are living with.

Back to helping kids with buying first houses. I wondered if the Rick Otten deal would work with our kids. I buy house, son does it up in given time, we revalue it, he gets loan from bank for new amount, then buys it off me for first amount plus expenses. In Michael Claytons Hot Property, Otten supposedly made $26, but they didnt take stamp duty out, and when I did the calcs it was $24 but obviously you would leave that in for the kids. As long as you got all your expenses back, they would have a deposit.
 
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