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How to help your children step on to the property ladder

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Happy Ngale, a financial planning consultant at Alexander Forbes, offers a 10-step plan to help your children make one of their biggest investments:

With house prices increasingly unaffordable, the number of children turning to the Bank of Mom and Dad for assistance in getting on to the property ladder has increased.

Parents must, however, consider vital points before they hand over the cash, says Happy Ngale, a financial planning consultant at Alexander Forbes.

One of these is the importance of information. Parents will need to learn as much about the property market as they can, including the different types of property investments, such as listed property, unlisted property, and immovable property. 

Ngale offers a 10-step plan to help your children make one of their biggest investments:

1 Educate yourself.

2 Start preparing your children as early as possible by having money conversations at their level.

3 Pass on the knowledge you’ve acquired. This will help them determine in which property market they want to invest.

4 Teach them how to save for a deposit for property.

5 Educate them about what it takes to finance property.

6 Property is not just about buying, but also about maintaining it. Teach your children from a young age what sort of maintenance a property requires. 
Information you share should include budgeting, goal-setting and saving as well as the basics about compound interest, risk and return and the assets for which you borrow.

7 Invest in property funds or portfolios for your children. Ngale says this form of unit trust is an alternative way to invest in property. 
“Investors buy ‘units’ in an investment property or properties, which are managed by a professional investment manager. This could provide your children with future cash flow or be used to supplement their retirement investment.”

8 A long-term investment plan will help them invest on a monthly basis and save for the deposit. Parents should encourage this.

“This should be done as soon as your child secures their first job to ensure they have a deposit for property and can proceed with monthly housing loan repayments. With the investment, your children already have an incredible future in property investment set for them. If you start with an entry level property, the repayments towards the loan will be affordable,” she says.

9 If parents are providing their child with a lump sum, either as a loan or gift, they should be clear about which it is. “If it’s a gift, parents must consider the tax implications. If the money is given as a loan, it’s an advantage for your child because as a parent you can decide whether or not to charge interest.

“You can also, together with your child, decide on the repayments while ensuring they are within their means.” 

Parents and children should sign a legal contract that stipulates all the terms and conditions. They will also need to specify such loans in their wills, especially if they wish to convert the loan to an inheritance in the case of death.

10 In cases where a child may have the capability to pay for the bond but does not have enough credit history and is therefore not eligible for a home loan, a joint home loan application can be made at some banks, Ngale says.

“The financial credit history and financial position of the parent will be beneficial at application stage. Parents should know in such cases they are equally liable for the bond as the child.

“A level of understanding must exist to ensure the child does not default on payments towards the bond. Parents should ensure they are financially healthy and capable of taking on the risk.”

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