Great parent wants nothing but the best for their children. We want to nurture, protect and provide for them, but also serve up ‘tough love’ when needed to ensure they become resilient, independent humans.
In the process, we’ll discover myriad ‘teachable moments’ around, school, friends, family and work.
One area where they’ll gain a crucial education is in finance and investing – and there are few better chances to tackle the subject than through homeownership and property investment.
Here are the five essential life lessons delivered to kids via real estate ownership.
- Good things come to those who wait
One of the key tenors of investing is the advantages delivered by time in the market, and no cohort can profit better from this than youngsters.
But they first need to get into the market before they start making returns.
Government assistance, such as first homeowner grants, stamp duty discounts and building boosts, all help kids get toward that 10 per cent deposit. Parents can also step up and assist – either via using the equity in their home and going guarantor, or making cash available as a gift or loan to their children.
Some of the more cynical members of society are quick to condemn parents who do this. “It’s a handout!” they cry.
I don’t see it like that.
First up, it’s a way to show your children the advantage of getting in early on a property – especially in the current environment where vacancy rates are tight, rents are sky-high and interest rates are low. In many instances, it costs less each week to own a home than rent one.
But here is the real lesson – kids will, over time, learn the value of the long game. Many investment savvy parents will encourage their youngsters to enjoy their first home for 12 months or so, then retain it as an investment as the upgrade to their next property.
It’s a savvy move called ‘Livevesting’. It helps reduce their capital-gains tax burden and lets them use the property’s equity gains to finance the next real estate purchase.
Best of all, as the years’ pass, your kids will see how smart it was to hold onto that first asset and enjoy the magic of compound growth.
- Budgets and finances are more important than you realise
Despite pushes by me and others in this industry, schools still don’t teach kids enough about the mechanics of doing a budget and planning for financial challenges.
But as a homeowner and/or investor, they soon get the gist.
Property assets require ongoing monitoring and upkeep. They must plan out when to do works that ensure their home retains value, or their investment generates maximum rental and minimum fuss. They’ll need to financially allow for future repainting, air conditioning servicing, floor covering replacement etc.
They must also learn about setting aside funds for emergencies. A broken hot water system or leaking pipe will likely result in an expensive repair or replacement. That can hit their funds hard if they haven’t learned to put aside some contingency money in advance.
- Good relationships are essential in your life
Networks and relationships are keys to success in life and career, and property ownership is full of opportunities to forge valuable contacts.
Once your youngsters own an investment, they are going to need to deal with a range of people from all walks of life. There’ll be conveyancers, accountants, agents and mortgage brokers. They’ll also be talking with property managers and learning about the ways of tenants. They might also need to deal with buyers, sellers and renters as part of their journey.
Then there will be people like investment advisors and property mentors on their speed dial.
All these relationships will help them build confidence and create connections that will assist them in future endeavours. They’ll also learn about assessing the people around them – determining trustworthiness, and the value of advice dispensed to them.
- The ability to strategize is all important
As we’ve already mentioned, property investment is a long-term game. Those who start early and catch the bug rarely want to sit idle once they see how well their property is doing in terms of value. They’ll be keen to grow their portfolio and monitor its progress. That way they can take advantage of opportunities as and when they arise.
Talk to your children about what their journey will look like. Ask them how long they plan to live in their first property? When would they like to buy their next home? What about investing? Will you need more cash flow or can you go for capital gains in your investments? How will real estate purchases fit in with the various stages of the life you imagine for yourself?
Ask then to plan ahead for properties three and four. What will they look like? What kind of freedoms will they deliver to you?
Real estate ownership and investment can help them foster a strategic mindset they can apply to other aspects of their lives as well.
- Lending knowledge is powerful
There is nothing quite as daunting for youngsters as their first foray into the world of banking and finance.
Understanding the concepts of good debt and bad debt will become key. Going through the loan process helps with this immensely. They discover that a maxed-out credit card can be the difference between a ‘yes’ or ‘no’ on their home loan approval.
They also learn how to compare interest rates and things like fees and charges, and break-free costs. They learn about Interest Only loans, Principal+Interest loans, and Loan-to-value ratios. The differences between investment loans and home loans. They’ll learn about fixed and variable interest rates, and what drives the RBA to move the cash rate.
These are concepts they’ll work quickly to understand when it’s part of their future financial success.
So, the next time someone takes a cheap shot at those helping their kids break into the property markets, pause – catch your breath and think.
This is not a handout – it’s a hand up. These kids will have skin in the game and that’s an extraordinary motivation for learning to thrive and striving for success in all walks of life.
Always review any property location research and investment analysis data, with a professional, QPIA (PIPA Member) qualified & accredited ASPIRE Property Advisor Network Advisor. Never rely on glossy sales brochures or property marketing information, ensuring a property is right for your strategy. Property Investing is about BUYING a property that matches your goals and aligns with your investment strategy, never be SOLD an investment, know your numbers!
Visit www.aspirenetwork.com.au or call our office to be connected with an accredited and independent Property Investment Advisor on 1300 710 933.