The surprising way you can downsize *and* get your kids on the property ladder in the same move...
We’ve all heard about how tough it is for young people to get on the property ladder these days. You might have kids in the same position. While they might have stable incomes, it’s incredibly difficult to build up a sufficient deposit, particularly as house prices keep increasing while wages are stagnant: the goalposts keep shifting! And, despite what everyone says, it’s got very little to do with their addiction to avo on toast and more to do with the growing disparity between house prices and average salaries.
So, how do we help out the young’uns without giving them a handout, or putting your own retirement savings in jeopardy?
Build your nest egg and help your kids at the same time
The Bank of Mum and Dad, as it’s not-so-affectionately known, is actually one of Australia’s largest lenders with an estimated $35 billion on its books. So, of course, one way you can help your kids get a foothold on the property ladder is to go down the well-trodden path of lending cash or going guarantor on your kids’ home loan.
But we think there could be a better way. One that can help to build your nest egg, while also giving your kids a helping hand: you could build an asset together.
There may be the potential to develop the land you already own STCA (subject to council approval), particularly if you have a large backyard or if the home doesn't have any restrictive overlays. You may be able to subdivide a portion of the property or knock down the existing house and build two or more homes in its place. Side-by-side developments, building a second house or granny flat in the backyard or renovating to create a multi-generational home are just some of the ways you might be able to work together to downsize and help your kids get on the property ladder.
This strategy has a number of benefits:
Unlock capital in your current property
If you've managed to pay down (or pay off) your mortgage and you've enjoyed years of capital growth, you may have amassed a surprisingly large amount of value in your property. That capital typically can't be accessed unless you sell or refinance. But what if you could direct that capital towards developing your property to better suit the needs of both you and your children?
Developing property can help you not only unlock capital in your property but increase the value as well. And, done well, it can help you build your nest egg or provide a cash injection that will make your retirement more comfortable.
By combining your finances with your children, it's possible to generate much larger buying power and create a lot more opportunities for your family. Here at Northbourne, we work with a range of professionals who can take your situation and personal needs into account and help you achieve the best outcome for you and your family where the interests of each party are considered and protected.
Minimise tax
There are numerous tax implications when it comes to buying, selling, or passing assets on to your children. Now, we are definitely not tax advisors, but, when combined with a strategy to suit your needs, developing a property could be a great way to minimise your tax obligations in a way that benefits both you and your children. Just as a starting point, if you and/or your children don't need to buy a property from the wider market, there are tens of thousands of dollars of savings in stamp duty alone.
Think beyond the granny flat
Building a granny flat in the backyard can be a great way to increase the flexibility of your property, but it's not the only way to create a home that suits your needs while also helping your kids.
It's worthwhile engaging a design expert who can help you determine your needs and ambitions and develop the best strategy to help you achieve your goals.
Perhaps the answer is a side-by-side development, where you demolish the existing house and build two identical (or similar houses) next to each other. They may share a boundary wall or they may be standalone. This option is great if you have the right orientation and a wide street frontage.
Alternatively, you may be able to retain the existing house and build a new house in the backyard. This is a great solution if you have side or rear access thanks to a corner site or rear laneway.
There may even be a way to add a small addition or reconfigure your existing house so that it's more suitable.
Some sites even have the potential to develop into three or more houses if they're especially big or have great access.
This strategy is also a fantastic way to plan for the future and design a home that will allow you to age in place. The longer you can live safely and independently, the better, and one way to increase the potential of that is to create (or renovate) a home with aging in place in mind.
A strategy that suits your needs
By creatively developing your property, you can create an additional income stream and/or increase the value of an asset you can sell off at some point. Ultimately, your strategy might be to live in one of the new houses while your kids move into the other. You might rent one of the houses so you have an ongoing income stream. Or you might want to sell up and move somewhere more appropriate while benefiting from the increase in your property's value. Regardless of what your needs are, there's a strategy that will be able to help you achieve your long and short-term goals and help you downsize while simultaneously helping your kids get a foothold on the property ladder.