Property Investment Portfolio – Starting with Parental Assistance
We have a listener to our radio segment that would like to start a property investment portfolio with one of our $500,000 5 bedroom executive homes in Brisbane.
He has given permission for us to share his financial situation. He earns $80,000 per annum, has savings of $10,000 and no debt. He is 21 years of age and his parents are willing to be his guarantor.
Can we help him start his property investment portfolio?
No, not yet. A wise old banker once said to me “Steve, you do not lend to anyone who does not have “hurt money”.
What do I mean by “hurt money”?
If you have saved for years for the deposit on your first investment property, you appreciate the opportunity to start a portfolio and do everything you can to pay it off. If you defaulted on your loan, it would really HURT to lose your savings.
He has saved $10,000 but it is not enough. If he wants to buy a $500,000 house, I would want him to have saved at least $25,000, which is 5%. If he is going to ask his parents to be his guarantor, it is important that he demonstrate to them, to himself and his Bank that he has the ability and the discipline to be worthy of his parent’s support.
There are several ways his parents can support him, but I would not suggest his parents lend him the balance of his deposit, which would be a minimum of 10%. If his parents don’t lend him the balance of his deposit, plus Legals, stamp duty etc., how can they help him? If they have the cash to spare, I would suggest that they put say $45,000 in an interest bearing deposit and have the Bank use this as security.
If his parents do not have spare cash, but are prepared to put their home up as security, would that be okay? Yes, but it’s a very serious matter for the parents, as not only are they putting their house at risk, they are also his guarantor. I would always suggest they get independent legal advice to ensure they realise the serious consequences of being a guarantor.
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Let us be positive and say the young fellow does the right thing and pays the loan off ASAP where does that leave the parents?
Let’s say in 3 – 4 years he has paid enough off his loan and the value of the property has increased with inflation so that he has 20% equity, the Bank will then usually release his parents from their guarantee.
So – bottom line – is it a good idea?
Yes, if he is fortunate enough to have parents who want to help him, it is a great way for him to start his property investment portfolio.
My advice to young people who have good savings is to start their property investment portfolio sooner rather than later. It will be a decision that they will not live to regret.
If you are interested in enquiring about becoming one of our property investment clients please contact our office to schedule a free, no-obligation consultation.
Steve Taylor
If you prefer to listen here is my radio interview on Emerald 4HI:
At the helm of Steve Taylor & Partners, Steve Taylor has been delivering expert advice and product knowledge to clients for over 30 years. Steve Taylor & Partners provide individuals, couples and families with the right strategies to create wealth and change their lives with solid bricks and mortar.
DISCLAIMER
Steve Taylor & Partners blog is opinion and not advice. Readers should seek their own professional advice on the subject being discussed.
