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Over the last few years, getting a foothold on the property ladder has become more difficult. With housing prices increasing, minimum deposits have reached a level where they are restrictive for many, and unobtainable for some.

 

The formula is intimidating:

An individual earning $65,000 a year is required to come up with a $35,000 deposit for an entry-level property. Once taxes, costs of living and other expenditure is deducted, savings per annum is far less than is required. Even if the individual returns home to avoid paying rent, it will take many years for the $35,000 figure to be reached – not taking into account increases in housing prices that may mean an even higher deposit is required. The result is a generation of young people who face a constant battle – save for a house they can’t afford while watching the value of the home they don’t own continually increasing.

 

So, should parents help their children buy property?

This question, obviously, can only be based on individual circumstances. If, for example,  parents and guardians don’t have enough capital or equity to help their children comfortably, it may cause more family tension than it’s worth. However, today we are asking this question on the basis of the optimisation of available equity.

You see, for parents who own their own a property and have a substantial amount of equity, the decision isn’t necessarily one of “gifting,” an amount of money to a family member, but merely securing a loan against a percentage of the existing equity in the home. Importantly, this does not increase the debt on the parent’s property but secures that equity as a guarantee for the bank. No physical currency needs to change hands, and once there is enough equity in the new property, the security can be released.

 

But why bother? Isn’t it better to allow children to learn valuable life lessons by saving up enough money on their own?

In the current property climate, the longer it takes you to purchase a property, the more expensive it will be. This wasn’t always the case; property prices during the 80s and 90s were relatively static (certainly when compared to now) and people could afford to take their time, build up a good deposit and choose the right house. As prices increased, demand was tempered, and for a period of time buyers remained in the driver seat. Then, prices keep going up and demand didn’t slow. Despite a few market corrections – including a massive one with the Global Financial Crisis – this has been the story for an extended period, and one that seems destined to continue. The result of this is a robust property market with high prices, underpinned by a good percentage of foreign ownership which acts as a hedge in the event of a localised crash. Property markets are destroyed by a lapse in confidence, and this doesn’t seem likely, so the general consensus is that the sooner the next generation can purchase a property the better.

It’s been said that parents need to begin looking at property ownership as a multigenerational gift – something that their grandchildren can profit from. In the current economic climate, for many people that will be the only way they can gain access to a property in their lifetime.

 

To learn how you can build wealth through property, speak to one of our consultants, by clicking here.

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Dream Design Property (DDP) is a unique wealth creation mentoring program that is designed to help Australians gain financial freedom, offering each client an ongoing personalised service catering to their changing circumstances and needs. DDP has helped purchase over 1,000 properties for its clients.

For more information please visit //www.ddpproperty.com.au/contact.html

Zaki Ameer | Founder | DDP Property

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