We’ve all read the headlines…‘foreign buyers are pricing young Australians out of the property market’. Whether there’s truth to this headline, or it’s simply the result of our younger demographic having the habit of quite literally pissing their money away (i.e. after work drinks), we are seeing increasing demand from parents looking for ways to help their children into the property market.
While I don’t yet have any children myself, I’m regularly speaking with clients to put in place strategies for them to help their children in a smart way onto the Australian property ladder. Studies have shown that a staggering 86% of parents are providing their adult children with some form of financial support. It’s only natural to want to help your family, but it’s important to recognise that these strategies require a significant amount of thought beforehand.
While every case is slightly different I’ve highlighted some of my top tips for you below:
Consider a loan…and document it
If you’re retired or close to, chances are you may have a reasonable amount of your wealth sitting in term deposits, generating a return of approximately 2.5% at current rates. Why not consider providing the financing for your children at a rate of 2.5%, which will save them a significant amount when compared to a bank loan, and put you in the same position.
If you do plan on considering a loan strategy, it’s vital that you document everything clearly. This will assist for both tax planning and ensuring that you’re not leaving yourself exposed to your son or daughter being in a relationship that comes to a bitter end.
Take a small ownership share in the property
As a similar alternative option to providing your child with a loan, you could also consider taking an ownership share of the property with them. You can outline in your Will that this is to be gifted to them in the event of your passing, as their inheritance, or part thereof.
By taking a small ownership of the property, which could be as little as 1 – 2%, will ensure that any transaction decisions relating to the property must be cleared with you before they can take place. This can also minimise the risk of your child blowing themselves up financially, if you have some concerns about their financial intelligence.
Take care if considering gifting
Gifting is a common, although often poorly planned, option among many parents. While it can be a reasonable strategy, it’s important that the right documents are put in place and that you understand the ramifications. It’s also important that you understand the gifting rules if you’re considering this strategy as part of your pension planning.
Be sure that you put the right documentation in place, and considering if a gifting strategy is right for you.
Take your time
By taking the time to plan and obtain the right advice, this can save you significant amounts of time, money and heartache. It’s important to ensure that not only have you considered your options before selecting the right strategy, but that you also have your own finances in order before opening your wallet.
To your financial success!
Jarrad Brown is an Australian-trained and qualified Fee-Based Financial Planner with Australian Expatriate Group, division of Global Financial Consultants Pte Ltd providing specialist financial advice and portfolio management services to international and local professionals in Singapore. Jarrad Brown is an Authorised Representative of Global Financial Consultants Pte Ltd – No: 200305462G | MAS License No: FA100035-3
Australian Expatriate Group is licensed by Global Financial Consultants in Singapore, with a team of Australian-trained, experienced and qualified, allowing us to provide specialist advice to Australians living abroad.
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General Information Only: The information on this site is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision.
*Please note that Jarrad Brown is not a tax agent or accountant and none of the content outlined here should be taken as personal advice. You should consult your tax agent and financial adviser to review your current personal finances and financial goals to consider whether this strategy is appropriate for you.