How and why you should be helping your children get onto the property ladder

All parents want the best for their children, and that means helping them make responsible life choices and plan for a secure future.

One of the easiest ways to do this is to encourage sound, long term investments like property, but getting a foot onto that ladder can be daunting when you’re just starting out in the adult world.

“It definitely pays to become a property owner as early in life as possible,” says Bill Rawson, chairman of the Rawson Property Group, “but trying to get a bond on a starter salary – even in a high-paying career – can be difficult. A sectional title unit in a good area with good growth prospects can easily cost R1 million and more – that’s nearly R10 000 a month in bond payments, assuming you can secure a 100 percent loan, which is extremely rare these days.”

To qualify for a bond of that size, your child would need to be earning around R35 000 a month. Needless to say, not many recent graduates have that many zeros on their payslip, but that doesn’t mean property is out of their reach – at least, not with a little help from you.

“There are two main ways parents can help their children become property owners at an earlier age,” says Rawson. “The first is to sign as surety for your child’s bond. This can help them qualify for a much larger bond than they otherwise would have been able to access, as their income will be added, but it does come with a lot of risk, which isn’t ideal.”

If high risk doesn’t thrill you, Rawson recommends the less risky option of a parent-to-child loan.

“A bond may be the cheapest type of formal financing available to most people, but that doesn’t mean it’s inexpensive – especially these days with interest rates on the rise,” says Rawson. “As a parent, if you have access to capital, loaning some money to your child to put towards a property at a lower interest rate can go a long way towards increasing the affordability of the investment.”

To illustrate his point, Rawson extrapolates from a hypothetical R1m property.

“With a 100 percent bond at 10.5 percent interest, repayments on a R1m home would currently be around R9 984 a month,” he says. “If your child can immediately deposit R500 000 into the bond account, borrowed from you, those repayments drop to R4 991 a month. Of course, they’ll still need to pay you back, at around R3 300 a month assuming a 5 percent interest rate over the same length of time as the existing bond. In total, that means the payments add up to about R8 290 a month, or R1 692 less than they would have paid without your assistance. That can save them as much as R400 000 over the lifetime of the loan.”

To further protect yourself and your child, Rawson recommends drawing up a loan agreement allowing you to take over the property should your child fall into serious arrears on repayments.

“This gives you the opportunity to rescue the investment in an emergency, rather than see it repossessed by the bank,” he says.

On a related note, Rawson says that property can also be a great way to protect your child’s inheritance from reckless spending.

“Bequeathing a rental property to your children instead of money, and restricting the sale of that property for a set period, can be an ideal way to supplement their income without allowing them to squander the main bulk of capital,” he says. “I’ve seen many cases where this kind of income has seen a reckless beneficiary safely through a difficult period when large amounts of cash would have only have fuelled their irresponsible behaviour.”

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