Help your kids buy their first home

Crown Money, where we show you how to pay your home loan off in up to half the time of a normal bank loan. Welcome to the Crown Money Podcast. I'm Jessie Edge and I'm joined by CEO Scott Parry. Hello.

Hey, how's things?

Yes, good. Going really well. Very excited for the weekend. Looking forward to playing with my kids. Hanging out should be good. Yeah. Have you got any fun planned?

Quality time with quality people I think is one of the keys to happiness there. So, yeah, much the same. Much the same. What are we talking about today, Jess?

Look, we've had a lot of queries lately from our existing clients who've been on the program for a while and they've seen amazing results and now they're wondering, you know, their kids, their adult kids are starting to get to that stage of wanting to purchase their first home or looking at purchasing their first home, and they're kind of just coming to us and saying, hey, what do we need to do? What are the steps? You know, what should we be telling them? So we thought this would be an opportunity to kind of share that with the whole group.

So, yes, so pertinent. We have had many, many clients who have got phenomenal results, have even paid off their house using the system. And now they're kids. Where I remember meeting them, their kids are like five or in year seven, and now they're at this stage where they're 22 and ready to buy a home. So it's unbelievably, it's a huge compliment, actually, for people to refer their kids to us because it's the trusted adviser that we try to be. And they know that what we did for them worked. And they have always said to me, if only I wish I met you leaving school when I got my first time. I mean, the amount of times I've heard people say, if I hadn't met you when I got my first home, like, I'd be debt free by the age of 37. My life would have changed, my family tree financially would have trained, changed. So, yeah, very, very humbling to be able to help these young guns and put them on the right course from day dot. So, as a parent, you always want what's best for your child. You want to help them any way, shape or form, give them a leg up. Just like our parents, we hope, would have given us more of a leg up. We've talked about how to start investing for your kids and putting money aside automatically every single month with roundups and all these different apps. But today, let's Talk about how do we help our kids get their first home?

Yes. Yep, Great question.

So there's two, three areas where the parents can help. One is with a deposit. And so these days it's a lot tougher for kids to save the 20% deposit to stay away from mortgage insurance.

Yeah. Because the property prices are just going through the roof and going through the roof quickly and they're just so high. And a 20% deposit is just gigantic. Like, it's a big ask.

It's a huge ask. And these kids have got mobile phones, they've got like credit cards or buy now, pay later. They've already got existing liabilities.

So.

So it's not like coming in with no debts. A lot of them have already got existing expenses. They could be renting and trying to save that amount of money when you're already renting, it's just difficult.

So as a parent, actually on that note, when you said other debts, especially things like after pay your car loans, just remind your kids that when they turn 18, they're going to get a letter from CBA or whoever they've got the transactional account with saying you've been pre approved for a 2000 or a $5000 credit card and it's just a natural thing for a kid to go. Yep, sure, that sounds wonderful. That sounds like something I should do. Just remind, as a parent, remind your kid that that has a huge impact on any application that they have in the future, their serviceability. It also will, you know, hold them back financially. And if they can avoid those debts in those first years after kind of high school, it's going to set them on a much better path.

Yeah. You don't want to be taking out credit cards or car loans or personal loans before you got a home loan.

Yeah.

Or ever.

Or ever. Yeah, just ever. Full stop would be great. All right, so the first thing they can do is help with a deposit.

Deposit. And so with this, you have, I'm talking about you out there, our clients who have got huge redraws because you worked so hard and you've saved and you've just done phenomenal on the system. And let's say you've got $74,000 in redraw. You can actually lend the keyword lend your kids the deposit. So they pay you back with interest, which is important. They need to. I mean, there's two ways to look at it. One, you can give it to them, which is all well and goods is beautiful, but you're killing $74,000 deeper into debt which you've got to pay back with interest. I'm very big on like just teaching the kids the value of a dollar and not giving them anything. And they say, yeah, I'll loan you the money, but I'm the bank, you pay me back the same interest rate I'm paying. So you're not making any money out of it, just more the principle of it. So you lend them 74,000, you're giving.

Them access to the money, like giving them access to the money. They're not going to be able to get that anywhere else. So that is a massive gift in itself. But it's absolutely fair to say, okay, you pay back what I'm paying. That's 100% there for sure.

And so we just set up a direct debit out of their home loan every single month into your home loan to cover the repayment on that extra 74,000. And so they're paying it off at the same rate that you're paying off your mortgage. And it's very important that they realize that this is, we're giving you a helping hand. It's, there's a difference between a gift and a leg up. And so if you want to gift it to them, that's up to you. I just think parents have done so much to their kids already. I think they've got to really focus and worry about their own personal situation. I've seen so many parents give so much to their kids to their own detriment and now they've suffered and they're in a worse off position because of it. So that's just my view on it. Everyone's different, obviously.

So everyone's different.

We can lend.

And just talking about the mechanics of how that works as well, knowing that you can create a separate split on your existing loan with the deposit that you have loaned to your kids. So it's really clearly evident which portion is their debt. And we could even actually set up their own money management program on that split. If you wanted them to pay you back first before paying down any of their own loan, they can actually bank their income into it, have their own redraws going. We can set it up like that if you want to. Alternatively, we can just set a monthly amount and have that deducted and that'll go through automatically.

That's a great point. So yeah, you will get a separate statement for their 74,000 loan. Plus you've got your own existing loan, it's got its own bsb, it's got its own account number, it's Like a separate account. And so it's very clean cut. That's a really good point.

Yeah, awesome.

So we can lend the client. You out there can lend your kid the money for deposit or to help towards their deposit. You obviously want them to have something saved. You got to, I'm big on, I'll match you dollar for dollar. I love that. You save 30,000, you save 40,000, I'll lend you 40,000. So doll, dollar is really good. It's quite appealing and it just makes them work hard and know that they're going to be rewarded for that hard savings. The second option there is becoming guarantor. How does that work? So banks know that kids these days can't come up with deposits. And so they are allowing parents to use the equity in their home as the deposit for the kids purchase. What does that mean? That the kid basically on paper borrows 20% from you. The bank says, okay, mom and dad have got 20% equity in their home, so we'll use that 20 equity on paper to secure the new home. So there's no debt, there's no repayments. Your kid borrows 100% of the purchase price. So if they're borrowing a $500,000 house, they borrow 500,000. But the bank basically takes a second mortgage over your house for 100,000, which is 20% of the $500,000 purchase. And so there's no repayments going across your kids and you, the kid has the full mortgage there and then they want to pay that mortgage down over the years and eventually hopefully the price goes up as well. They can then release you as a guar. And so they have their own loan and let's say they paid it down to $400,000. So they got a 400,000 loan on their $500,000 house and it means they can release you and your property is no longer being used as security. However, the risk of this is kids go pear shaped, they flop, they just don't pay the mortgage at your house online.

Yes, absolutely. And that's a big risk, that's a big price to pay. I think. You know, when you go guarantor and you offer your security as security, you like if you're just loaning the deposit, your risk is the deposit and the deposit alone. But if you are handing over, you know, your property as security, your entire financial future is at risk as well. So they could take your house, you know, and this is a worst case scenario. No one wants to think that that's going to happen with their kids. But you just never know. I'm not a big fan of them. A lot of guarantor loans, they actually need your title to be a clear title, isn't that right?

Some banks are now, a lot of banks now saying, okay, that's not realistic for most mums and dads. They still got mortgages.

Yeah. I mean 60 allowing a second mortgage.

Yeah, yeah. 60% of Australians are retiring with a mortgage, which is a horrific stat because what you do when you retire and you've got a mortgage still, which none of you out there are going to, so that's good. But your friends are going to retire with a mortgage and they're going to have to cannibalize their super fund to pay off their mortgage. That means they've got no money left in super to fund their lifestyle in retirement because they've used it all to pay off the house.

Yeah, yeah, it's scary. And everyone tells themselves, oh, I'm going to downsize, I'm going to downsize when I retire. It's fine. You never do. Nobody does.

No one downsizes. I've done this for 20 years. People basically get a smaller block in a better location at roughly the same price what they sold. It's very rare. I'm not saying that no one does. There's obviously always exception exceptions. I'm just saying the general client of mine over 20 years has not downsized. They've just traded for a better quality located property on a smaller block, same price. So that is another way to help out the kids. From there it's they're probably the two main ways. The third way, if you really wanted to sort of help out your kids and you didn't have the equity and you're renting or you paid off your house and you don't want to give them the title, you could actually basically go as a borrower with your children on the title, on the purchase. That'll blow up their first homeowner's grant. They won't get access to it because you've already bought property. But the bank will then take into account your income. The bank will then take into account your asset base. And so you could buy the property with the kids. You treat it as an investment. So the kid, let's say you go 50, 50 with the kid. I buy a half million dollar house, my kid, they owe 250 on it. I owe 250 on it. But then you get your kid to pay you half the rent because you got $250,000 mortgage to worry about and so they pay you half the rent of what that place would rent for. And you obviously have some deductible interest because you're not living there. So it's part investment. So that's another way where you can actually.

It's harder to do. It's actually, you know, and you've got to remember that all of you must be on the title. So you can't go in there on there as a borrower loan. You must be on the title, which is tricky to unwind later on. So when you want to come back off the title, you know, you actually have to go through the process. They would have to refinance into their, into the name alone. You have to get a solicitor or conveyancer involved. There's potentially a stamp duty, you know, it might be a gift of love, but you might potentially have to pay stamp duty, all sorts of stuff. So that's my least favorite option. And a lot of lenders don't actually like it because it's all about the benefit to all borrowers. And it's kind of pretty clear that you are doing that to offer your income to improve serviceability. So it is a much kind of trickier situation and I would definitely avoid it at all cost if possible.

Yeah, it's the third and final option. If none of the other options are.

Possible viable, it almost be better off just buying an investment property with your kids and then them continuing to rent an owner occupied property in that scenario. So it's very clear benefit to all parties. And then you can, you know, just split the rent down the rent that you will definitely be receiving, just split that down the middle and it's really clear the deductible debt, all of it. So I think that's probably a better option.

Yeah. I've also had clients where they bought an investment property with a sort of play where the kids paying the mortgage on it and then they actually will transfer the title to the kid once they have basically got it to a point where they no longer need it. So if you say prime example, they were about 50, they said, okay, for the next 10 years we'll buy the property today, but in 10 years time we'll transfer you the property. But you keep paying the mortgage like you normally would, but everything's in the parent's name. And because the child didn't have enough income to service the full debt for the house that they wanted, so they got the better, bigger house. Now the parents got the actual tax deductions on the interest that they paid they had a really dream tenant because it was their kids. So they knew that it wasn't going to be trash. And then from that perspective, they just had a written agreement saying in 10 years time we'll transfer you this property. And I mean it was all going to go to them in the will anyway. And as a result of that, kid sort of had the property, but just not on paper.

I've seen people do that as an investment strategy is they buy each other's homes. So they bought each other's owner occupied properties as an investment property. They don't rent it back to each other, but they renting it back. So get all the tax benefits and you still got your house. Like it was pretty cool concept.

Yeah. So just to re. Rehash on that is I know the client you're speaking about. So there were two brothers. One brother said to his other brother, I want to buy this house over here to live in. And the other brother said, well, I want to buy this house over there to live in. And so they bought the house that their brother wanted and then they both rented their brother's house. So it's something where. Because it's investment, you know, so you've got no bad debt. It's not a home loan because you're basically renting your brother's house off him, but it's the actual house living anyway. And so, yeah, you just tweak it and there's nothing illegal about that. And as a result of that, you're in a position where you've bought a house that your brother wanted to live in and he's paying you rent and then he's bought a house that I want to live in and I'm paying him rent. And we both got investment pros and no home loans. Love that. So there's some funky ways. 20 years.

Yeah, lots of funky ways. Yeah.

We've seen everything. We know how to do everything. What's the fastest, smartest way to do it? We'll tell you. We certainly never crossed the line. But yeah, there's some clients out there that are certainly smudging it.

Yeah, that's for sure now. So getting back to our existing clients, wanted to hear about the kids. I think what we talked about is how they can help them financially. But I think there's some other ways that as a parent, you can be helping your child who's heading into that, that stage. And I think it's about getting them the right advice, giving them the right advice, like kind of helping them make those financial decisions. Then and there. As much as you know your 18 year old or 19 year old, 20 year old kid wants to listen to you, like it's kind of like steering them in the right direction. I think that's probably the best help you can actually give them. Would you agree?

That is, yeah, what you just said. There is no one wants to listen to their mum and dad and no one thinks their mum and dad's got any idea what they're talking about. But if it's coming from something else, someone else, even though it's exactly what the mum and dad said, all of a sudden it's gospel. So yeah, I think if you are a parent out there and you have a child who's late teens, early 20s and they're thinking about one day wanting to buy or invest in property, the smartest thing you could do would be say, hey, have a chat to the guys at Crown. They'll just map you out a game plan, a strategy on how much you need to say when you need to save, buy what you could potentially afford to borrow, what sort of properties to look at. Why we like these style properties versus those style properties. And as a result of that, you just putting them on the right foot. Even if they don't choose to go with this. Irrelevant. At least I've got the financial education about what other options are out there because they're going to be hearing the same spiel from the bank that they're hearing from a broker. It's all about rate, come on to the 30 year loan and refinance.

We all know that's just not the way we know.

So just get, I mean all you guys, imagine if you bought your first house with Crown, you'd be like, damn, what a flying out of debt on.

Your home before you're 40. Like what, what a, what a life setup that'd be.

Man, that is like unbelievably a dream for these kids. And so yeah, you can give your kid that flying head starting life and literally by the time that their friends have paid off one house, which would be the age of 60, your kid will own two houses outright debt free.

Yeah, amazing. And I think I'll kind of add in there that, you know, if, if you have a kid that you want just to have a sit down with us that doesn't cost anything, like we're not going to be asking them for anything. Like honestly we, we have such a, this is a passion of ours because we, we have such a belief that not enough is taught to kids about, you know, the real world and finances in school at all. And so, you know, we are very passionate about this as a company. So you can go to anybody, anybody in our company and say, hey, I want to have a meeting for my kid. Love to have a conversation, just, you know, how they can set themselves up, what they should be doing next, you know, when can they buy their first time? We will be very, very open to that conversation and not expect anything in return. Like, we think it's just, it's just such a good way to give back.

Yeah, I think financial education is everything and we learn money off our parents and they learn off their parents and most of our parents are pretty bad with money. So to learn in school the stuff that we're learning which is so relevant, like I can't remember last time we used algebra or trigonometry or chemistry or any of these things that we've basically forced down our throats in any way, shape or form in my day to day life. But the one thing we have to use every day guaranteed is money. And the one we think we have to manage every single day of our life is money. And we're never ever taught an hour on money. That's just horrific. And so I hope it does change. But what we can do is what we can control. And that is really just teaching your kids what we wish we'd been taught the age of 18 or 22. And just give them that baseline financial education so they know what their options are. But more importantly, they start to make the right moves. They're not making mistakes. Not getting car loans before they buy an asset. They're not getting credit cards before they buy a home. It's just so smart to do the right thing in the right order and it makes such a difference to their financial future. And you as parents, we as parents always want what's best for our kid. And I love nothing more than being able to give a young, upstart, 21, 22 year old motivated person some light and some hope at the end of tunnel saying you can have three properties by the age of 30.

Yes, imagine that.

That's insane. But that's, this is real, this is possible, this is how you can do it. This is the game plan, this is the strategy. We map it all out. We say, this is your borrowing capacity. Ben will help you pay the debt down, create equity, you can reload and et cetera, et cetera, et cetera.

Yeah, yeah. So if you have a kid that's getting to that stage, you reach out to anybody at crown. We'll set up a time to have a chat with them, and we'll just give them, you know, a bit of helpful coaching.

Just coaching. So, hey, we're just going to coach you on what we'll do for you and your position and why.

Yep. Love that. Awesome. Well, that's cool. Thank you so much, Scott. Really good advice. Hopefully that helps out some of our clients. And yeah, looking forward, looking forward to speaking to some of the, some of the kids. You know, it's, it's. Yeah, it'd be wonderful to kind of put them on the same path.

Yeah. Amen.

See you, buddy.

Sat.