For parents who are willing and able to help their adult children buy their first property, here are a number of options with varying degrees of risk and control.
Gift – A simple option if you have spare cash and are happy to hand it over as an unconditional gift.
Tenants in Common – By buying a property with your son or daughter, as tenants in common, you become shareholders of the property. Tenants in common are not necessarily set up with a 50:50 share – you can nominate whatever share in the property that is appropriate. You could draw up an agreement to state that they are responsible for the running expenses of the property. The main advantage of this scenario is that if your child is sued in the future and their personal assets are targeted, your share of the property cannot be included in the lawsuit. If your child defaults on the loan, then you would be responsible for stepping in to make repayments. Often the parents will gift their share of the property to the child in their will.
Guarantor – Being a Guarantor on your child’s loan with the bank effectively means that you will assume responsibility for the loan if your child defaults. If you can’t pay off the loan, your assets may be sold to meet this obligation.
Lend Money – Lending money to your child is one option that removes your liability for their bank loan. If you are lending money and therefore expect it to be repaid, we recommend that you sign a legal agreement documenting the loan and repayment expectations. We have seen too many disputes resulting from verbal
loan agreements between family members.
Buy a Property for your Child to Rent – Some parents opt to buy a property in their own name, and subsequently rent it to their child at a lower-than market
rent, allowing the children to independently save for their own property in the future.
Note that the above options may have land tax, stamp duty and capital gains tax implications which have not been discussed here.
Contact us on (02) 9908 9888 or firstname.lastname@example.org to discuss your options.