Buying A Property For The Kids

I was going to wish you a happy New Year until I walked into Coles the other day and saw hot cross buns for sale and then got all confused. I mean, how does a bloke respond to that? There’s obviously big bucks in little buns.

So I gave it some thought and decided on this…Happy New Easter!

I know, I know. I hear you. Perhaps you could shout yourself a Christmas present at Easter and square it all up.

Anyway, its damn good to be back and I hope this finds you well.

There’s something transformative about discussing family finances. As soon as the children are mentioned, Mum often assumes the driver’s seat and the discussion changes gears immediately. The atmosphere is palpable and is usually enough to soften the hardest of men.

When parents wish to get their finances organised, it’s the kids who often become the elephant in the plan. Their foot prints can be seen on every page, although some forget to take their shoes off!

And that’s not to lessen the importance of anyone who is not a parent. I’m one of them. It’s just that children bring every parents priorities into sharp focus, as any parent could attest.

Dingo and Donna were no different (not her real name).

The Situation
Dingo is fifty two and works at a nearby saw mill carting logs while Donna is forty nine and works at a local pub pulling beers. Their son and daughter are twins, aged twenty. Both live at home but don’t pay any board.

Their house is paid off and they have approximately $100k in cash. Dingo is keen to plan for his retirement and has age 60 in his sights. The problem is Donna would like to buy a unit for each of their kids. She is desperately worried they will never get a foothold in the property market.

You see, when Dingo and Donna bought their first house twenty five years ago, house prices were about 3-4 times wages. I.e their house cost $120,000 and Dingo was earning $30,000pa. Donna could afford to be a stay-at-home mum.

Today most house prices are at least 6-8 times earnings, often higher. Kidlets are struggling and parents are worried.

The Solution
Dingo and Donna have sought my advice on what to do. I decide to share a very simple idea I have shown other families in their situation. Importantly, the strategy is predicated on a profound truth…

If you give someone everything they do nothing, but if you give them something they will do everything.

The strategy assumes Mum and Dad are happy for the children to keep living at home for at least three to four years, which they are. They’ve become part of the boomerang generation.

My directions are as follows:
• Charge your children what you consider to be ‘fair and reasonable’ rent. E.g. $100pw
• Deposit those funds into a cash account (name to be advised)
• Make an agreement with your children that for every dollar they save in addition to the rent they pay each week, you will gift that amount of rent money back as a deposit. I.e if children pay $100 rent a week plus save another $100pw, they receive all rent money back at the end of the period.
• It’s therefore possible for your children to save $10,000 pa or $40,000 over 4 years.

Benefits
• Dingo and Donna can focus on their retirement
• Children learn the value of saving and build a habit for life
• The higher the rent paid by each child the greater will be their deposit
• Dingo and Donna can still assist their children without being out of pocket
• Strategy does not rely on parents gifting their own money or taking out a line of credit

The Caveats
Central to this strategy is getting the tax planning, asset protection and estate planning right. As with all things financial, when you pick up one end of the stick you pick up the other.

So I contact the clients accountant with some tax planning and asset protection ideas to make sure everyone is singing from the same song sheet. Accountant says, ‘I like’.

Afterwards, I point Dingo and Donna towards a very good solicitor to discuss their estate. It’s now water tight.

Dingo and Donna are stoked. They can now focus on their retirement and still assist the kids. We also agree to some follow up meetings just in case anything needs to be re-calibrated.

This strategy can be reconfigured any number of ways to fit most families, and to great effect. It’s just a matter of mastering the power of constraints.

Have a great week!

Adam

P.s. All the way up to Christmas I was still receiving emails from people I had never met just to say ‘thankyou’ for bringing the plight of drought stricken farmers to their attention. The Moowsletter, An Early Christmas Present covered a lot of territory and fell into the hands of some truly wonderful people.

So now it’s my turn. THANKYOU very much to all those people who donated and/or forwarded on the Moowsletter. It was much appreciated!

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This information has been prepared without taking into account your objectives, financial situation or needs. Before making a decision based on this material, you should consider its appropriateness in regards to your objectives, financial situation or needs. You should seek advice about how the relevant laws impact on your particular circumstances. Suncow Wealth Pty Ltd is a Corporate Representative No.441116 of AFSL 393254.