select
|

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

As parents, we all want the best for our 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 on 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 to do. 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% 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 per 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 their property at lower interest rate can go a long way towards increasing the affordability of their investment.”

To illustrate his point, Rawson extrapolates from a hypothetical R1 million property. “With a 100% bond at 10.5% interest, repayments on a R1 million home would currently be around R9983.80 per month,” he says. “If your child can immediately deposit R500 000 into their bond account, borrowed from you, those repayments drop to R4991.90 per month. Of course, they’ll still need to pay you back, at around R3299.78 per month assuming a 5% interest rate over the same length of time as their existing bond. In total, that means their payments add up to R8291.68 per month, or R1692.12 less than they would have paid without your assistance. That can save them as much as R400 000 over the lifetime of their 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 their 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 points out that property can also be a great way to protect your child’s inheritance from reckless spending. “Bequeathing a rental property to your child instead of money, and restricting the sale of that property for a set period of time, can be an ideal way to supplement their income without allowing them to squander the main bulk of capital,” he explains. “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.”

“As parents, our job is to protect our children’s interests as far as possible, and help them access the tools to build a life,” Rawson concludes. “What better way to do this than help them kick off their financial future with a solid investment like property?”


  Comment on this Article

  Please login to post comments

Post to my facebook wall
  
2000
Characters remaining


    Latest Property News
    • 22 Feb 2018
      An excellent credit score is one of the most priceless assets a potential home buyer can have. This tool has the power to secure favorable mortgage and refinancing rate, influencing everything from the size of the loan repayment to the interest rate on the home loan.
    • 22 Feb 2018
      What do you do if you love your home’s location and the area, but the home no longer fits your growing family’s needs? Do you stay and renovate your existing home or find a home that meets your developing criteria?
    • 22 Feb 2018
      While every owner wants to sell their property at the best possible price, overpricing a home can be the kiss of death for a sale.
    • 21 Feb 2018
      Given the hand they were dealt, government has performed a delicate balancing act which it is hoped will serve to reignite confidence in investment in South Africa, regain our global credibility and satisfy the credit ratings agencies, says Dr Andrew Golding, chief executive of the Pam Golding Property group.
    • 21 Feb 2018
      The real estate mantra, ‘location, location, location’ remains a strong market influence regardless of the prevailing economy, with suburbs like Rondebosch enjoying the buffering benefit of being ideally situated.
    • 21 Feb 2018
      These days most buyers are using online property portals like Private Property when house hunting due to the convenience, up to date information and variety on offer. “The property portals have revolutionised the way buyers shop, but they do need to be cautious – viewing photos online is no replacement for viewing the property in person,” says Bruce Swain, CEO of Leapfrog Property Group.
    • 20 Feb 2018
      Owning a home is a milestone that most South Africans aspire to. Becoming a homeowner is a step towards growing personal wealth and owning an asset that appreciates in value over time, provided of course that the correct principles are applied during the buying stage of the process, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
    • 20 Feb 2018
      The suburb of Greenstone in Johannesburg east came to be over the last two decades. “In the beginning, it was literally just a hill with not so much as a shopping centre,” says Michael Levy, Property Consultant at Jawitz Properties Bedfordview. Today it has plenty shopping facilities and is fully built, boasting high-density, upmarket housing and residential estates, though still has a few pockets poised for commercial development.
        
    X
    Subscribe to the MyProperty Newsletter

    Name  
    Last Name  
    Email Address  
    Email Frequency
    select
    X
    Share this Page

       
    For Sale Property
    Rental Property
    More Options
    About
    Connect with us
    FEEDBACK