Does anyone have any sense of how much of the growth in property investment might be from parents who are helping adult kids into the property market, either through some form of lease option or simply by keeping rent in the family.
I don’t know how this would show up in statistics, but I know several families who’ve used equity loans to help kids into the property market. It occurs to me that these investors are just as likely to hang on for the long term as owner occupiers. If they’re a substantial proportion of the growth in property investors (which seems possible if many of them are boomers), they might mitigate a downturn in prices. Or they might make a downturn slower and longer. Or….?
Comments or information anyone?
Ghoti
Hi
I’ve seen a few cases of parents gifting or lending 20% deposits to the offspring! It does happen a bit, but these days some people are worried that if they don’t get into the property market soon, they may be priced out as prices rise. So it may be on the increase.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi,
I’ve also seen parents set up formal loans with their newly working adult children who just lack a deposit where they have a contract with the child. The child is the borrower and just needs to show enough income (or not in low doc situation) to service both the bank loan and the parents loan to pass. Quite a few lenders will lend to 90% in this case full doc or 80% low doc (90% low doc but high rate).
There are other products which allow the parents and children to all invest together where the parents income services the children’s debt, but the child’s name is on the title and they are still eligible to get FHOG etc. Handy the first time, but can be restrictive long term as all parties are jointly and severally liable for the full debt making investing outside this group loan structure difficult.
Basically there are lots of options, and often extend to include companies, trusts etc as well. As for what portion of the market it is, very hard to tell. I see monetary gifts of some fashion in about 30% of young home buyer purchases.
actually i can help you here, my mother first helped me in gettin my first IP, im 21 years old, and only have been property investing for 9 months and have had the opportuntiy to buy many more IP, just turn 21 by the way, but aside from that, my mother and i went in together as in a joint purchase, loan and all and everything. To be honest, it is very hard for young people now to get into the market and statistics show that, people who are in high school now, will never have the chance most likly in sydney, melbourne and brisbane of ever enterin into the property market, prices are at a point of where they will not be able to get a deposit as such or be able to keep up with repayments. I mean have a look at it now, people are barly able to pay repayments.
To be honest, i dont know how many young people on here own a property but if you ask, maybe you can find a respones.
But here is another statistic.
92% of people who own property own just 1
8% own over 2
5% own over 3
1% own over 5
.02% own over 10This is across australia so, i wouldnt be too worried.
You can always check this out for your self at; ABS – 2001 Census of Population and Housing ABS Census free data.
this link is found on this website – follow ‘Web Links’ on the left side of this screen and scroll down and look for the ABS link (:
These are the data I have for that same statistic:
78% of people who own property own just 1
13% own 2
4% own 5 or moreSource: Australian Social Trends, 1995, Housing- Housing Stock: Investment in Residential Rental Property.
People flogging off these statistics at investment seminars might recognise that the collection of this data is way old. 1995 – 8 years ago- does *not* represent the current amount of people with RE IP’s. I wonder if they’re still collecting those stats. It would be good to know how many people- 8% or 13% or man more (my guess) own a couple of IP’s.
kay henry
We would like to help my husband’s son own their own home. He is 30, married with three kids, currently paying $200 per week in rent.
Apart from if we win lotto and can gift them the deposit, we will have to recoup our contribution. What is the best way to do it?? Wrap? Lease agreement?? Lend them the deposit?? Other??
Fibejebe
[8D]G’day Fibejebe….
You could do one of the following:
(1) If they require the deposit I guess you simply lend it to them and get repaid as their equity increases with CG.
(2) If they already have the deposit(or most) then “park” what you can afford in their offset account to reduce the interest and monthly payments. Again, you could get it back as it becomes more affordable for them in time.
Why not “pool” family resources…Grandparents and others to “park” funds in this manner and then everyone does the same in turn for others in the family.
Cheers
Bill
Bill O’Mara
Real Estate,Mortgages,Share Market Strategies.
[email protected]Hi Ghoti,
On one point. Rentals need to be “arms length” for tax purposes. Reduced rent for family to %5 a week for tax purposes will not sit well with the ATO.
Kind regards, Phil
Bill,
My parking space is still available and in need of a tenant.
Go you 70/30 and at call.
Regards, Phil
Thanks for your comments people.
Chris, I think I misworded my original question a bit by being too specific about the methods parents might have used to help kids. I should say that I’m in Sydney and I’m thinking about the Sydney market, and also that I can’t claim to be familiar with the superb range of information that the ABS provides. I’m working on both those things, but at the moment what I’m wondering is:
1) Is my impression that a large number of boomer parents are helping their children step onto a property ladder accurate?
2) If so,
(a) Is the proportion of parents providing this kind of help greater now than it’s been in earlier property cycles? And…
(b) Is the number of properties purchased with the intention of helping family members great enough to affect the reaction of residential property markets to changing circumstances, including rising interest rates and yields lower than cash?
I don’t see a reliable way to identify these cases from the ABS stats (it might be there, but I don’t see it). Here are two examples that might not show up:
1. Child owns an IP, with or without help to raise the deposit, and lives in the parental home. The property counts as an IP. The family response to a downturn might be to sell the parental home (they would have downsized years ago if the kid had any chance of buying a home), buy two inner city apartments for cash, and form two households.
2. Parents own a property and the child(ren) live in it and pay them a market rent with the understanding that at some time the property or the rent will assist the children. The property counts as an IP and the children count as renters. But both parties feel that the property is a home rather than an investment and the parents are prepared to support the tenants and hold the property even if financial logic says they should do something different. (I think one might apply in a lot of cases where the child is divorced and has children themselves.)
I’m not suggesting either of these are smart scenarios, but Melanie’s post shows that demand for mechanisms that enable parents to help kids buy property, especially buy a home, has been great enough to provoke some finance providers to develop products to meet it.
Is it possible to identify formal family loan and group loan structures such as Melanie describes from the ABS (or other) statistics? That might give some indication of how significant parental assistance has been in this property boom, though it wouldn’t say anything about informal cases such as my examples.
And again, if family help is more significant this time than it has been before, might that make this downturn take a different shape from earlier ones?
S_i_S, I think you’d be a bit of an exceptional case. I’m thinking more of families where everyone’s income is mostly salary and parents can afford to help mainly because they started buying their home 20 or more years ago.
Thanks again everyone
Ghoti
We fit into that category. 12 months ago we purchased a 2-bedroom unit $86K for our 18 year old daughter in her name so she could take advantage of the FHOG. We put in $18,000 to avoid LMI. She’s on a yearly $10k uni scholarship so could prove to the bank she had an income. She rents out the other bedroom and the arrangement is working out well.
We’d like to assist our son the same way but Sydney is so difficult. He’s moving to Canberra soon and from what I’ve read, it’s very expensive there too.
I’m sure most parents would assist their kids if they could financially.
Shirley
Shirly,
I live in Canberra, and have been looking at the price’s of 2 beddy units in queanbeyan. for those who dont know, queanbeyan is considered a less than desirable area to live. I dont mind it here as long as you know which area’s to live in (i’m a 4 minute walk to the main street and pub)
but i digress.
2 beddy units are coming down in price as are town houses.
try this web page called all homeshttp://allhomes.com.au/c/ah?a=buy
hope this is some help. i’m keeping an eye on it carefully and will be ready to pounce when billfromoz says so.
hope this helps
shaunThanks, Shaun. I’ll check the website and will keep on eye on things for the future. We couldn’t do anything at the moment in any case as we’ve reached our limit for a while. Wish we’d started investing many moons ago!
Shirley
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