It’s no secret that entering the property market is challenging here in Australia, particularly for our younger generations. Property prices have outpaced wage growth, the cost of living pressures are mounting, and interest rates have risen, making lending conditions challenging. However, some young adults have a glimmer of hope, and that comes in the form of intelligent investment decisions made by their parents.

For some parents, investing in securing their children’s future is a given; however, for others, it might be given little thought or assumed to be outside their scope of responsibility. Wherever you sit on the scale of willingness to assist your children financially, there are plenty of great reasons to invest with them in mind and, equally, plenty of ways to support them in building a stable financial future.

The how and why of investing with your children in mind

Setting your children up with a solid financial future isn’t simply handing over the reins to your empire; it’s also about building a stable platform from which you will benefit. Here’s what you need to know:

• Focus on preservation and diversification

By investing in property early on, you’ll have the opportunity to achieve a few things all in one. Firstly, it diversifies your portfolio, protecting against inflation and reducing the risk of relying on a single property. An investment property will build equity for you and your family while generating passive income through rent, which can go towards paying off debts or simply accumulating wealth over time. Secondly, the equity from this investment property (or properties) can be used for your children’s future investments, contributing to their long-term financial well-being.

• Family trusts and leaving a legacy

Making calculated property investments over time can help you build a legacy of tangible assets to be passed down through generations and, as a result, a legacy of financial security.

Setting up a family trust is the best way to transfer properties to your children and grandchildren. Beyond the value of the property itself, the rental income generated will provide passive income for generations to come. It’s best to seek financial advice when considering setting up a trust.

• Financial literacy and education
Involving your children in the process of acquiring and managing property assets is a powerful teaching tool. They’ll gain firsthand insight, experience, and invaluable financial literacy that will prepare them to make smart decisions in the future. Beyond involving them in your journey, set them up with their own investment accounts from a young age. This will instil a sense of responsibility and help them learn the importance of saving over instant gratification. Many of these valuable lessons aren’t taught in the classroom.

• Tax benefits of property investment

Property investments often come with tax advantages, such as deductions on mortgage interest – by claiming the interest charged on loans – reduced property taxes, the ability to claim rental expenses and depreciation of the property, and much more. This allows you to save more over time, which can be reinvested in establishing your children’s financial future. It’s best to speak to a specialised property accountant to gain a thorough understanding of your tax obligations.

• The power of compound growth
The earlier you start investing, the more time your investments have to grow through the power of compound growth. Also known as the snowball effect, your money generates returns, which are reinvested to generate further returns over time. The key ingredients for achieving compound growth in property investment are investing time in the strategy and reinvesting the profits.

How can you support your kids in building a financially sound future?

We’ve all heard the saying about teaching a man to fish, and the same rings true when it comes to preparing your children to stand on their own two financial feet. Here’s how you can assist them towards building a solid financial future:

1. The right time to start is right now

Alongside those milestones, like first words and first tooth, should be a first bank account. It really does ‘all add up,’ and a bank account is a much better home for that yearly $20 grandma slips in a birthday card than a senseless shopping spree at the toy store. You’ll be surprised what you’ve saved by squirrelling away money as it inevitably appears, and if you pop it in a term deposit, their nest egg will continue to grow alongside them.

2. Pay or loan the deposit

If your financial position allows, helping your young adult children into their first home will give them a huge leg up. Whether you gift them the 20% deposit or loan it interest-free, this will ease the initial hurdle of getting on the property ladder, allowing them to focus on repayments. They’ll still be required to demonstrate financial responsibility to the bank with their savings habits and employment history but helping them out initially will often pave a smooth path for their future.

3. Partner on the purchase

Another great way to help ease the load on your kids and get them on the property ladder is to become co-owners of a property. You will retain a percentage of ownership, contributing to your capital, and with the combination of your previous assets, the borrowing limit will be increased, meaning your children will benefit from better buying power. Co-ownership can become complicated (even amongst the best of family relationships), so ensure everything is done legally, and you have a robust agreement in place.

4. Be the home loan guarantor

A relatively reasonable and extremely helpful role you can play is to be your children’s home loan guarantor. This allows them to retain their independence, paying for everything themselves, with your backing as their financial safety net – should they need it. This requires a level of trust on your part, as you need to be prepared to put your assets on the line if issues do arise.

5. Provide guidance and education

As mentioned already, ensuring your children are equipped with a solid financial education is the single best thing you can do to prepare them for the future. This education can come directly from you as a mentor (and you don’t have to be a property guru; there are plenty of fantastic resources available like this Guide for First Time Investors, How to Choose The Right Investment Property and Property Investment for Future Generations to keep you informed). Alternatively, enlist the assistance of local property experts, like First National Real Estate, and don’t forget to seek financial advice from your accountant or trusted advisor, too. Working with a good financial advisor is invaluable – they’ll set you up to maximise returns and arm you with all the relevant tax benefit information.

6. Let them stay a little longer

While you might yearn for the freedom of an empty nest, consider giving your kids a few more years at home to help with their savings. If they’re likely to squander this money rather than save it (or you believe in them paying their way), consider charging them rent and depositing it into a savings account or term deposit. Pass this over to them when the time is right, and watch them fly the nest!

Your support = their future

It’s so important to support your children in any capacity you can in their journey to building their dream lives. And there’s no time like the present to lay those foundations. If you are looking for your next investment property or your children’s key to happiness, reach out to your local First National Real Estate office. We’ll be there with you every step of the way to help you reach your property goals and build a stable financial future.