In today’s housing market, young people face many challenges in securing a property of their own. With soaring property prices coupled with the staggering percentage of income required to secure a home make it 10x harder for this generation to enter the property market compared to their parents and grandparents. Add to that the high cost of renting, many young Australians find it difficult to save a deposit, leaving them stuck in a cycle of paying rent with little hope of becoming a homeowner. However, there are still reasons to stay optimistic.
While the landscape has changed, the reality is that so too must our strategies for entering the market. A different mindset, paired with a clear and proactive strategy, can position your kids to achieve property ownership. The key lies in leveraging available resources of older generations.
Here’s a breakdown of some practical steps parents can take:
- Equity Loan Assistance: Parents who have available equity in their home can take out an equity loan and gift it to their children to help with all or part of their deposit. This can significantly reduce the time needed for young people to save and help them secure a property sooner. Additionally, a structure can be set up where the children pay the interest on this loan, leaving little impact on the parents’ own financial situation.
- Utilise Trust Structures: Setting up a trust can protect the investment and ensure its managed effectively. The trustee (often the parent) can control the property, while the child benefits from it. This structure also provides a clear plan for future sales and profit distribution, preventing potential disputes among siblings and family members.
- Co-Investing: Parents and children can purchase a property together, with both parties contributing to the deposit and mortgage repayments. This shared responsibility can make property ownership more attainable.
- Going Guarantor on a Loan: If parents have equity in their home, they can utilise this to help spread the risk within their kids’ property investment journey. Acting as a guarantor can help secure better loan terms and make the initial steps into the property market less daunting.
As a father of adolescent children himself, OpenCorp CEO, Cam McLellan, has been faced with the reality that his children might struggle to enter the property market in the future. Taking advantage of the fact that well-chosen properties double every 10 years, Cam and his wife decided to utilise a trust structure, with the purpose of selling down the line and using it to help his kids get into the market. By doing so, they are helping them avoid the daunting task of saving a large deposit in a market where property prices are continuously rising.
Cam’s decision to invest $120,000 in a property now, with the expectation that it will double in value over the next decade, is a strategic move to secure his children’s future. This approach demonstrates how parents can leverage their resources and knowledge to give their children a head start in the property market, ensuring they don’t miss out on opportunities in a rapidly changing landscape.
Additionally, Cam’s approach includes an agreement that his children will contribute financially to the property as they begin their careers. This fosters a sense of responsibility and teaches valuable lessons about the importance of financial planning and investment.
In a world where property prices continue to rise and the gap between the ‘haves’ and ‘have-nots’ sadly widens, it’s crucial for parents to think strategically about how they can support their children’s journey into property ownership.
Whether it’s through equity loans, trust structures, co-investing, or going guarantor, the steps taken today can have a profound impact on the financial stability and future success of the next generation.
If you would like to explore how you could implement a strategy that sets up your children for the future, schedule a Discovery Call with our one of our Investment Consultants today.
