Brackenfell - 021 982 0965
  Eersteriver - 021 902 0246
property-logo

Clients for life.

This is FPS.

Why you should help your children buy a home

As parents, we all want the best for our children, and that means helping them make responsible life choices and plan for a secure future.



Bill Rawson, Chairman of the Rawson Property Group, says one of the easiest ways to do this is to encourage sound, long-term investments like property, but getting a foot onto that ladder can be daunting when you’re just starting out in the adult world.

“It definitely pays to become a property owner as early on in life as possible, but trying to get a bond on a starter salary - even in a high-paying career - can be difficult to do,” says Rawson.

“A sectional title unit in a good area with good growth prospects can easily cost R1 million and more - that’s nearly R10 000 a month in bond payments, assuming you can secure a 100% loan, which is extremely rare these days.”

To qualify for a bond of that size, Rawson says your child would need to be earning around R35 000 per month.

“Needless to say, not many recent graduates have that many zeros on their payslip, but that doesn’t mean property is out of their reach - at least, not with a little help from you,” he says.

Rawson says there are two main ways parents can help their children become property owners at an earlier age.

“The first is to sign as surety for your child’s bond. This can help them qualify for a much larger bond than they otherwise would have been able to access, as their income will be added, but it does come with a lot of risk, which isn’t ideal,” he says.

If high risk doesn’t thrill you, Rawson says he recommends the less risky option of a parent-to-child loan.

“A bond may be the cheapest type of formal financing available to most people, but that doesn’t mean it’s inexpensive - especially these days with interest rates on the rise,” says Rawson.

“As a parent, if you have access to capital, loaning some money to your child to put towards their property at lower interest rate can go a long way towards increasing the affordability of their investment.”

To illustrate his point, Rawson extrapolates from a hypothetical R1 million property:

“With a 100% bond at 10.5% interest, repayments on a R1 million home would currently be around R9 983.80 per month,” he says.

“If your child can immediately deposit R500 000 into their bond account, borrowed from you, those repayments drop to R4 991.90 per month. Of course, they’ll still need to pay you back, at around R3 299.78 per month assuming a 5% interest rate over the same length of time as their existing bond.”

In total, he says that means their payments add up to R8 291.68 per month, or R1 692.12 less than they would have paid without your assistance.

“That can save them as much as R400 000 over the lifetime of their loan,” says Rawson.

To further protect yourself, and your child, Rawson recommends drawing up a loan agreement allowing you to take over the property should your child fall into serious arrears on their repayments.

“This gives you the opportunity to rescue the investment in an emergency, rather than see it repossessed by the bank,” he says.

On a related note, Rawson says property can also be a great way to protect your child’s inheritance from reckless spending.

“Bequeathing a rental property to your child instead of money, and restricting the sale of that property for a set period of time, can be an ideal way to supplement their income without allowing them to squander the main bulk of capital. I’ve seen many cases where this kind of income has seen a reckless beneficiary safely through a difficult period when large amounts of cash would only have fuelled their irresponsible behaviour,” says Rawson.
“As parents, our job is to protect our children’s interests as far as possible, and help them access the tools to build a life. What better way to do this than help them kick off their financial future with a solid investment like property?”

https://www.property24.com/articles/why-you-should-help-your-children-buy-a-home/26002
property-logo
icon
8A Gert Kotze Street,
Brackenfell,
Western Cape,
South Africa, 7560
icon
021 982 0965
icon
021 982 2509
property-logo
icon

23 A Plein Street,
Grand Central,
Eerste River,
Western Cape,
7100

icon

021 902 0246

icon
021 982 2509


ABOUT FPS PROPERTIES



Founded by Freddie P. Steyn in 2015, FPS Properties is one of the newest estate agencies in the Northern Suburbs of Cape Town. We are professional, dynamic and fully accredited estate agency. We strive to give all our clients professional and cost effective services to ensure that your property is rented or sold within the amount of time.

FPS Properties is supported by FPS Attorneys who will ensure that all transactions are correctly executed and furthermore will gladly assist with any and all legal queries to give you the added peace of mind.

Our agents are friendly and efficient and will gladly do free property valuations and provide sound property advice.

In short FPS Properties’ philosophy is simple… that by working closely with the client and becoming attuned to their business ethos, we can deliver pro-active and effective solutions thus creating ~ ”Clients for Life”

LEAVE US A MESSAGE