With the way the housing market is today, it’s no surprise that many parents are doing what they can to help their kids into their first home. It’s not easy to conjure up a 20% deposit when the median house price is $780,000*. (let alone afford the interest payments, but that’s another story.)
Research conducted by Consumer NZ in 2022, showed that 14% of NZ parents have supported their kids financially to help them into their first home, paying out on average $108,000. That’s a whopping $22.6 billion dollars!
But is giving your kids money to help fund their house purchase the best option? While many people may consider it the first port of call, forking out a casual $100,000 isn’t an option for many people, and could come at the cost of your retirement savings.
So then, what are your options? How can you make sure that you can provision for them as you also plan for your retirement?
Enter property investment.
While it may not be the first port of call when thinking ‘How can I help my kids’, property investment is certainly an option you should consider. The question then becomes – what does this look like?
Do you invest with them or for them?
By investing with your kids, you’re opening opportunities for you both to benefit from the investment – and it means your kids are as invested – literally – in the success as you are.
This could be a case where you have the deposit (either in cash or equity) while they have enough surplus to pay for any mortgage top-ups. Neither of you lives in the home, but the equity you build up in the property could then act as the deposit for a home for them to live in, and/or you could later split the profits when the property is sold.
Or you could split the deposit and top-ups right down the middle and split the gains equally too, potentially achieving a greater return than what was possible on your own.
But if you’re more of an invest ‘for’ them type of parent, there are a few options for you to consider.
Do you purchase the property with the intent …
- … that when you sell, you give them some of the profit?
- … that they’ll get the full profit when you sell (but maybe you benefit from the rental yield for the duration that you own it)?
- … they’ll live in it and eventually buy it off you, or at some point, do you sell and split the profit?
- … that you’ll pass the investment on to them at a later date?
There’s more than one way to peel an orange, so seek advice and research the best way to approach your investment strategy to mitigate the risks and improve your chance of success so you fulfil your goal of helping your kids without putting you in financial strife or your retirement in jeopardy.
If your kids are involved in any way financially, make sure the expectations are made clear and an agreement is drawn up so you’re protecting your own financial interests.
And keep these core investment principles in mind.
Regardless of whether the property you’re buying is to help your kids today, later down the road, or you’re hoping to get a two-for-one and have the investment help with your own retirement, there are some core investment property purchase principles we encourage you to keep in mind.
So, we recommend you:
- Ensure you’re in a financial position where you can buy and hold for the long term.
- Don’t lose sight of the goal that the property is helping you achieve – as this can influence the type of property you buy and where.
- Ensure you’ve evaluated the financials of any property you choose to invest in
Property investment can be a great option for growing wealth – whether that’s to ensure you can live a comfortable retirement, or to help your kids. But it still requires careful consideration to make sure it’s the right solution for the goal you’re trying to achieve. After all, it’s a lot easier to buy a ‘lemon’ than it used to be and just any old property won’t do.
If you’re interested to get professional advice on how to best help you kid with property investment, book a consultation with an enable.me financial adviser today. They’ll be able to advise you on the best option to help your kids without putting your own financial position at risk. Book a consultation today to get started (a fee applies).
Disclaimer: This blog post is for informational purposes only and does not constitute individual financial advice. If you’re interested in receiving personalised financial advice, you can book in a consultation with an enable.me coach. Costs apply.
