Investing in property can be a great way to set your kids up for life. After purchasing an investment property, you can use it as an investment for yourself and then – eventually – as your kids’ very first home.

In a time when it’s becoming increasingly difficult for young people to purchase their first home (especially in large metropolitan areas like Melbourne and Sydney), an investment property purchased by mum and dad can go a long way. Buying your child a property can indeed be a wonderful investment. However, it’s important to consider the following:

Your child may not understand the value of money

You’re buying a property for your kid, but they don’t understand money’s true value just yet. They don’t understand the property market, investment strategies, capital gains tax and all the rest of it.

To avoid problems arising from this, we suggest:

  • Teach your kids the value of money and good savings habits from an early age;
  • Maintain complete ownership of the property you buy until your child is responsible enough to use it and make wise decisions;
  • When transferring title to your kids, maintain an interest in it (such as in the form of a caveat). That’ll give you some control and can help prevent your kids from making an awful mistake of judgment; and
  • Get your kid involved in managing and maintaining the property from an early age. Send them to Annual General Meetings, keep them on the email list and keep them engaged. That way they’ll be in a good position when they take over the property themselves.

Some other things you could do to help your children when setting them up with a home includes:

  • Helping out with the deposit for a house – this will fast-track them to having their first home;
  • Personal, interest-free loans – you could loan your child money on an interest-free basis to purchase a property. That way, they’ll avoid being a slave to a bank;
  • Offer a family guarantee – this uses your property as security. If you kid defaults on a loan, the repayment responsibility goes on you as a guarantor.
  • Consider purchasing a house together with your kids – if you don’t want to provide a gift or a loan, you could purchase a property as joint tenants or tenants-in-common with your kids. That’ll also boost your kids’ borrowing capacity and also help you build your own wealth with an investment property.

Beware of the taxes

Buying an investment property for your children will get the government interested. By purchasing a house for your kids, you’ll have to pay stamp duty and quite a large capital gains tax. Keep that in mind when investing in a property, and always make sure you get proper financial advice to discover how you can minimise your tax burden.

At EDA Property, we specialise in providing tailored property investment advice. Don’t hesitate to contact us today if you’re eager to set up your kids’ future by purchasing an investment property.