So many parents are helping their adult children buy homes, lawyers are scrambling to keep up.
“The reality is that the majority of 20 and 30 year-olds that buy a property in Auckland in this day and age will need some assistance and that usually comes from their parents,” Bryce Town from the Auckland District Law Society (ADLS) said.
Poor Parents! What’s even worse is when these parents have more than one adult child seeking home ownership around the same time!
While parents can help their offspring with down payments or being a guarantor, as long as they follow some or all procedures here, BUT is it really a good idea to do these?
- Properties for self-residence are not assets. Simply put, an asset is defined as anything that generates cash and puts it into your pocket; a liability is the opposite, ie takes money away from you. Based on this simple definition, self residence is not only a liability, it’s a giant debt that mortgagees will need to serve for the next 20-30 yrs, if their only source of income – employment income is secured. If they lost their jobs at some stage and failed to serve the debt, then sorry bad luck; not only jobless but also homeless too!
- Help the urgent needs but not the financially disable. This is not saying we should not help the financially vulnerable, we help only when it’s urgently needed (accidents, surprise etc). Here I’ll say home-ownership is not an urgent needs as these first home buyers can still afford to pay rents. The rationale is that these financially vulnerable can be a financial “Black Hole” – which carries on taking money away from their parents with no intention or ability to return them; if these vulnerable are not able to serve the mortgage from day 1, is it wise for their parents to risk bailing them out in the future?
- Teach them to fish. Instead of giving them fish, parents shall teach their kids to fish. What I m saying here is that parents shall help their children identifying assets from liabilities, needs from wants; setting financial objectives and strategies; executing and managing their financials until they meet their targets. Are these not more worthy than simply giving them money to buy liabilities?
Parents may love to help their adult children financially to home ownership; before they hand out their hard earned money or sign any agreements they’d better think it through: are they really helping their children? If not sure, they’re recommended to read and digest those 3 points under My Thoughts section.
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