As parents, we want our children to be happy, healthy, successful, and financially secure. Many Australians view buying a property as a solid investment they can pass down to their children. Taking it a step further, many buy investment properties for their children.
While this is a different approach than buying a family home that you’ll live in, it provides even greater capital growth potential if you view it as a long-term investment you’re holding for quite a substantial amount of time.
Buying in an area that has not yet reached its full potential could cause you to reap tremendous gains. Because your perspective is long-term, you’ll want to have as much control as possible over your property, which means purchasing a house is probably the best decision. If you purchase an apartment, you’ll have to rely on the body corporate to maintain the apartment over the years. With a home, you can maintain the property at your own discretion and renovate as necessary.
Property can be a great investment for your child as it grows in value and helps secure his future. Even if the property drops in value, you or your child can continue to hold onto it during the down time until the market picks back up.
An important aspect of buying a property for your child is teaching him the value of money. These tips can help you not just plant the seeds of financial growth in his future, but also help you teach him—on a very practical level—about money, so he can handle it responsibly.
When your child is old enough to understand:
- Teach him about saving and how to set financial goals—Help him understand that whether it’s investing in property or something for himself, it’s best to save rather than rely on credit cards.
- Explain the basics involved in the home purchase—Discuss costs, such as: stamp duty, mortgage insurance, rent or mortgage payments, rates, taxes, moving costs, etc. Help him understand the costs involved when you purchase a property and the costs of owning a property and maintaining it.
- Talk to him about his income and repayments—Help your child understand just how much he’ll have to earn in order to live in the property and what his budget will have to look like. If the property is paid off by that point, help him understand what a realistic budget looks like and just how fortunate he is not to have to pay rent or a mortgage fee. Show him what comparables look like, so he can see the bigger picture.
If your child is already an adult and you’re thinking about co-signing and co-owning a property with him now, talk openly about the details and be sure to discuss anything he doesn’t understand. If you have doubts about your child’s ability to repay the mortgage payments, it’s probably best you don’t sign as a guarantor.
If you’re thinking about purchasing a property and later gifting it to your child, consider the tax considerations. There will likely be a hefty capital gains tax involved and stamp duty.
Also, if you’ve purchased a property and it isn’t fully paid off, allowing your child to live in it rent free could deprive you of rental income and the depreciation benefits or benefits of negative gearing.
Whether your child is young or ready to step out into the world as an adult, buying an investment property is a great way to begin sowing the seeds of financial growth into his future.
If you have questions about purchasing an investment property for your child or would like to speak to a qualified real estate professional, contact us.
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