With housing prices reaching soaring heights in 2015, young people see owning their first properties as far off dreams instead of attainable realities.

 

According to data published by the Real Estate Institute of Australia (REIA), home ownership rates have declined from 68.1% in 2006 to 67.0% in 2011. Over the same period affordability also fell, with the median income required to meet loan repayments rising from 33.2% in 2006 to 35.2% in 2011.

 

Whether young people are looking to begin investment portfolios or to purchase their first homes, one thing is for sure, Mums and Dads all over the country are enthusiastically lending a helping hand. With Pina Colada’s and balmy beaches on their minds, who wants their 25 – 35 year old children sharing the remote?

 

Here are five ways in which parents can help their children onto the first rung of the property ladder.

 

Cash gift or loan

One method that is gaining popularity is for parents to withdraw money from their superannuation or from other investments, according to the REST industry Super Survey. What parents need to consider is that if required at a later stage, cash gifts cannot easily be accounted for and if parents receive a government pension, cash gifts are limited to $10,000 per year.

 

Guarantor

Parents can also use the equity in their own homes or investments as security for their children’s loans. This can increase the child’s borrowing capacity and remove the need to pay a deposit. This avenue depends on the child’s ability to make loan repayments and you may be at risk if they are unable to do so.

 

Joint venture

If parents have the financial ability to do so, purchasing a property as part of a joint venture with their child may be an option. This option also means that the parent’s property is not at risk by being a guarantor. There is considerable flexibility with a joint venture; parties to the agreement can personally decide on the financials and repayment expectations.  There is however the potential for conflict between parties. Bills, maintenance and any other issues should be discussed upfront.

 

Purchase the property

Again depending on their financial situation, some parents are choosing to purchase their children’s homes outright. Children live in the property and pay rent like any other tenant, though the rate is usually below the market rate, allowing the child to save money with the intention of fully purchasing the property in the future.

 

Education

Even if none of the above options are viable for you, teaching your children the importance of budgeting and saving is priceless. Before parents decide on financially supporting their children, they must ensure that their children understand the obligations involved in property ownership. At the same time, parents must assess how financially assisting their children will affect their own wealth and financial goals.

 

Want to live the life you really want? The team at Infinite Wealth can provide the education, direction and on-going support you need to reach your financial goals. Get in touch with us today on 08 9438 6333 or click here to contact us.

 

The information provided is of a general nature and is not intended to be constituted as financial advice. We recommend that you seek independent advice from qualified professionals before employing any strategies outlined.