It can be so difficult to get ahead with a young family. So I’d like to give you a headstart with a few powerful property strategies every young family should know. Also included are 4 tips we often use to help families find a good investment property.
As parents, it’s our natural instinct to make sure our kids are happy and healthy. Not just now, but tomorrow, next week, next month…. and in 15-20 years when they are ready to leave home (if they can afford to buy a home). Are you worried about how they’re going to afford the great Australian dream of owning a new home? Prices seem to be skyrocketing every year.
$1 million houses on the rise in Australia
I met with a couple recently that had read an article explaining the increase in suburbs across Australia that has a median house price of over $1m.
In fact according to Core Logic RP Data the figure increased from 406 at the end of 2014 to a current total of 530 suburbs.
This fact struck a chord with the couple. They became concerned. How would their kids afford a property?
Is home ownership really dead for the next generation?
Similar to my situation they have 2 children aged 6 and 3. They don’t want their children to have to wait to inherit their home before they can be in the financial position to enjoy home ownership.
That could be another 40+ years based on average age expectancy – and how many suburbs will be over the $1m mark then?
They want to help give them a leg-up when the time is right, so what can they do?
The financial situation
There are different strategies with how they can do this through investing in property – however they all require purchasing smart investments and allowing time for them to increase in value.
Current home mortgage balance: $210,000
Home value: Approx. $650,000.
Capacity for investment: 2 properties under $500,000 (after consultation with finance broker)
With interest rates at an all-time low, if they choose wisely, they may:
- get into a cash-flow positive situation
- potentially borrow 100% (using equity in their home)
- not have any cost to hold.
They should definitely keep in mind that interest rates will go up at some point and make sure they have the ability to afford to hold them in that eventuality.
If they were to fix their interest rates for 3 or 5 years this will give them certainty over that period from a budgeting perspective.
4 Strategies to give the kids a step up
If this couple proceeds with this scenario and does nothing else, in 20 years time these 4 strategies are good options based on their situation at the time:
Strategy 1: Sell one property
Sell one property, realise the capital growth and gift or lend to their children.
Hold the other for their retirement.
Strategy 2: Sell both properties
Sell both properties, realise capital growth and gift or lend to their children.
Use left-over funds to supplement superannuation/retirement.
Strategy 3: Keep both properties
Keep the properties and borrow against the equity that has built over time in the investment properties to the value of what is required as a deposit (or more if need be).
Once again this could be gifted however if it is set up as separate loan facilities for each child and specifically for that purpose, the child could be responsible for repaying that portion – this is still giving assistance however it encourages them to be self-sufficient.
Just make sure parents can make repayments in case a child can’t – parents are responsible for the loan.
They may benefit from learning a few simple saving tips to save up to $20k a year.
Strategy 4: Give them a property each
Give them a property each. Note: they would be liable for stamp duty if they transferred into the children’s name.
Tips for a wise investment
1. Purchase around the median price of that macro-market (city) and micro market (suburb)
For example if the city has a median of $470,000 look for properties around that price. This gives you a good indication of where the majority of the population are – good for both renting and future selling.
The higher you go above the median: the more susceptible you are to market fluctuations
The lower you go below the median: the more likely you could have tenant issues due to the socio-demographic it may attract.
2. Ensure there is both a scarcity of land and scarcity of properties in the areas you are looking
Make sure there isn’t going to be an over-supply hitting the local market. Check what is planned for the area.
3. Do your homework to find out what is causing population growth in the area
… and what that typically looks like. For example, are they predominantly families, singles, retirees or sharers?
Then focus on the most common type of property that suits that demographic.
4. Check the amenities around the area
Once you understand the most common demographic, it’s important to make sure the area is well set up with all of the amenities which support it.
For example, if the most common is young families, they will need:
- Pre-school and primary schools as a priority
- Easy access to shops
- Public transportation they can walk to
- Medical clinics and other healthcare services.
These 4 tips are a good start to understanding how to purchase property. But successful property investing really comes down to 3 important things…
- $1 million dollar houses have been rising
- Parents are worried about how their kids will afford new homes
- Parents may be able to give their kids a leg up
- Plan now so you know what options you have
- Choose properties wisely: purchase at the median price, do research on scarcity, population growth, and amenities.
- Are you worried about how your kids will afford a home? What else worries you about the future of your kids?
I hope this has given you some food for thought about how you might give your kids a leg up. Please note that every situation is different.
As many of you know, I’m always happy to have a coffee and chat with you about your situation and dreams for your kids – and create a few strategies to make those dreams a reality. There is never any obligation or fees for our services – hey I’ll even shout you the coffee! 🙂 Give me a yell if you’d like to catch up.
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