I was having coffee with a group of friends who I have been meeting for coffee weekly for almost 15 years.
We were talking about our dreams of all wanting to give our kids a deposit for their first home … but we are all at that stage where we are channeling all the cash we can into our retirement savings.
I wonder, how can you do both?
Thinking it is not a good idea to simply give ‘cash handouts’ or big gifts (e.g. a house) to your kids – this type of giving denies them the satisfaction of having achieved financial goals for themselves, fails to teach them financial discipline, and contributes to creating a generation of “takers”.
I came away from my coffee with the girls thinking there must be a better way to solve this dilemma.
I couldn’t leave the thought alone until I ran some numbers and figured out a way to help the kids without simply “giving it all” to them.
The solution is so simple it’s ridiculous.
I figured out joint renovation projects were the answer.
My daughter has a fantastic job that pays well. This means she has high serviceability capacity to get an investment loan. It also means she works very long hours. She could not easily find the time to manage a Reno Project on her own. On the other hand, I DO have the time and can easily use my equity to fund the deposit and reno costs. It’s a great opportunity for a Joint Venture together – it is win-win. Her high-serviceability, my time and equity!
What would it look like? Well, as an example, you could find a $500,000 property that had Reno-Profit potential. Your aim would be to make a standard 10% profit using a predominantly cosmetic renovation. Such a reno-project would create a profit of $50, 000 that we share.
My new joint venture partner (AKA daughter) has the earning capacity to secure and investment loan for 80% value of the property.
We would need an additional $160,000 for the deposit and project costs which I can contribute from my equity in another property.
I manage the project management of the renovation and when it is sold, we split the profit. Win-win.
Of course, it is important with any property investment to be responsible and business-like in your actions, especially with family. This means it is important to make sure the appropriate legal documents are used and risk managed.
There are so many upsides – all without creating a generation of “takers”. First you are building wealth together, with your children taking active involvement and responsibility. You develop new skills together, and get to spend time together creating a magnificent and stunning reno … creating something beautiful in the world together. All the while, you are nurturing an entrepreneurial spirit in your offspring. What a winner idea!