Buying an investment property for your kids

A common conversation I have with my clients is whether they should buy an investment property with the goal of eventually helping the kids.

This can be a great way of building wealth to pass down but there are a couple of common traps to watch out for.

Trap 1: They aren’t going to live in it

The first big hurdle most people come up with is trying to pick the perfect place so that their kids can live in it when they grow up.

They’ll be debating whether a unit suits them better, or a house, or whether they should look to buy a duplex because they have two children.

I’m here to tell you now, the chances they are going to happily live in this property a large portion of their life is slim to nil.

Your kids are going to get older. They are going to meet partners, they are going to get jobs, they are going to move cities. If they’re successful in life, they are going to have rich, full lives and there is little chance that the house you picked out for them when they were young is going to suit those lives.

Instead, think of the property as an investment which keeps pace with the rising cost of housing. The investment property works as a ‘hedge’ preventing property from ever rising so much in value that they can’t afford one themselves.

When you’re ready to pass it to them, you’re most likely going to sell it and gift them money for a deposit so don’t get caught up in whether the house may suit them.

Trap 2: Apply your own oxygen mask before assisting others

We all know the plane safety announcement where they announce you should fit your oxygen mask before helping your children?

The reason they tell you to do this is because if you pass out before being able to assist your kids, you’ll be no help to anyone.

The same applies to finances. Are you on track to pay off your house prior to retirement? Will you have enough super to last your retirement? Do you have investments outside of super to fund early retirement?

You need to make sure your finances are squared away before looking to help your kids. Whilst your kids would appreciate the assistance with a deposit, the gift may not be so well received if they then need to help you through your retirement.

The best thing about this strategy is you can decide later in life whether the investment property is to go to the kids or whether you intend to use it yourself. You don’t need to make up your mind from the start.

Bonus Discussion

Not only do I speak with a lot of parents who want to help their kids out, I also talk to a lot of adults worried about their older parents.

The most common thing I hear from them is they’re worried their parents aren’t living their life. They tend to have little interest in receiving money from their parents and instead want to see them have fun and enjoy that money.

Whilst gifting money to your kids can be fulfilling and really set them up for life, make sure you put aside enough for you to have some fun too.