more lucrative due to the ability to
manipulate that very valuable equity.
Parents now have the ability to put that
equity into a multitude of financial
benefits such as stocks and shares, investment properties, beneficial
loans such as loans of credit, trips around the world and that camper van
they always wanted. But there are also other opportunities. With these
selections in place, the ability to assist our children with getting into a
home is far better than in bygone years.
But… with that assistance a great deal of responsibility. If our parents
are to assist, we have an obligation to ensure that that assistance is
recognised in the highest possible way. Let me give you an example:
My daughter is about to embark on her own independent life, going to
university, working part-time, having relationships etc, etc. With that
comes some of life’s challenges, lessons, and hopefully the building of
some beneficial life skills. As a parent I don’t believe it is in her best
interests to hand everything over to her easily because resilience, drive,
and a sense of achievement is an important part of life. Then again, I
certainly don’t want her to be impoverished, struggling unnecessarily
and battling to keep a roof over her head either. So…
What is the best way around this?
The good old dollar-for-dollar incentive is one way of getting your
offspring to put the hard yards in. If my daughter went to work hard at
saving and managed to save $3,000 of her own money (plus the First
Home Owners Grant), I would help her out by providing a dollar for
every dollar earned. This would give her a healthy deposit of $20,000.
The $10,000 that I provided was made available by releasing some of the
equity in my home.
You may have a better, more inventive way of lending a hand, but it
all comes down to assisting our next generation into their own home
without giving it to them on a silver platter.
For the parents who are assisting by allowing the use of their equity,
they get the opportunity to see their offspring settled into a home,
hopefully with less of a struggle. This also provides an opportunity for
the older generation to experience the pleasure of being a part of the
venture instead of leaving the assets to the offspring when they die and
therefore missing the joy of giving and receiving.
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Can I get my inheritance early, please!
You could ask Mum and Dad to give you your portion of the
inheritance sooner rather than later. Or if the house they have is the
inheritance it can also be used without Mum and Dad having to move. It
is called the equity release mortgage which means the equity from your
Mum and Dad’s (or maybe old Aunt Myrtle’s) home is used to assist
you into your own home. This is an option that can be used but needs
serious consideration by all parties. In this case it is always a good idea
to get legal advice about what is involved and how it can work for you.
Gift giving
When giving an inheritance early it might be a good idea to GIVE AS
A GIFT, as a gift means there are no string attached.
Buying from your landlord
What about buying from your landlord? There are alternatives to
buying into your first home through one possibility now being widely
considered throughout Australia. It’s called ‘Tenant Buy Out’, which in
simple terms means purchasing the property you’re renting from your
landlord.
You may enjoy the house you’re renting and like being in the area so
would prefer to stay long-term. You know that to find somewhere
comparable may be difficult, so the ability to buy would be a preferable
option.
Conversely, the owner would also gain some significant benefits. By
selling to the tenant, the owner has an immediate sale without the cost of
a real estate commission and advertising fees. The owner may also be
considering a sale and in most cases will not consider asking the tenant
first so it’s up to you to make the first move and ask. The worst the
owner can say is no.
Other parties
As mentioned, buying into a home with other parties can be an
option.
Siblings may consider joining forces in order to get a foot into the
housing market. They may not be ready to settle down just now but can
see the increasing difficulty they will face of ever getting into the market
if they do not act sooner rather than later. This option gives them an
inroad to an elusive housing market.
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This concept has worked exceptionally well for European and ethnic
cultures but our western culture has always been reluctant to take it on.
Why? Maybe the time has come when our western culture needs to
adopt some of the more sensible attributes of our counterparts. This is a
very rational option if you take the time to consider it. This option
provides a way by which a person can achieve a home and an investment
with a minimum of financial stress and remember, as much as the profits
are shared so too are the costs. Yes, there are sacrifices to be made and
they generally come in the form of space and tolerance.
In the case of family relations, I have seen this concept work so
proficiently that each and every person who started out in the first home
ended up with their own individual property but the ownership of all
properties was held in the names of each of the original owners. Do you
follow?
In other words, from the first property purchased and paid for by the
members of the family, the family bought another property together,
which a couple of members of the family, (usually the eldest) moved
into. Again, the costs were shared and the income was under less stress
individually. The process continued until eventually everyone in the
family had their own home but the ownership of all properties remained
in the name of the family trust.
I have known throughout my life a number of Italian families who
have followed this concept religiously, all of whom have reaped the
rewards of their investments for their short-term sacrifice in the
beginning.
In Australia, the New South Wales Government introduced a new
initiative in 2007 called the First Home Plus Scheme which permits a
first home owner to buy with another party or parties, though the first
home owner must have 50% ownership of the property. The first home
owner is also exempt for 50% of the stamp duty on property priced up to
half a million dollars.
However, the concept must be given serious consideration because
the factors that may cause potential problems are many and varied.
Strategies and exit plans need to be put into place before the settlement,
and a great deal of discussion needs to be done, with procedures
notarised for when one party may wish to sell and the other party may
not, and for when new partners come on the scene and/or move in. Who
is entitled to claim any of the ownership and after how long? Issues such
as these mean there needs
to be a detailed plan, preferably under the
guidance of a solicitor.
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If this practice was to succeed, a commitment would need to be made
by each party with an authority such as a lawyer. In this instance, the
commitment need not be for a long period of time. However, a
timeframe should be decided on and committed to. If after that time one
or more of the parties want to move on, then the others have the
opportunity to buy that owner out with the increased equity accrued
during the occupancy. Or if the loan is structured accordingly it may
give someone else the opportunity to buy in.
Another future positive
Please note that the Baby boomer Generation never had this vast
array of choices because those choices didn’t exist. This is a ‘positive’
opportunity for the people of this generation.
When you are choosing a home loan it will be one of the biggest
decisions you will make so you need to approach the loan wisely and
with research to back you up.
The other notable consideration is the percentage of your income
needed to repay the mortgage.
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From separation to divorce:
building a positive financial
future for you and your
children
If you don’t think you can achieve your own home when you have
children and a reduced income, I’m going to show you that you can!
If you’re like most parents you want to give your kids the best of
everything, even when you’re on a relatively small income, so you buy
the latest Nintendo for their birthdays, take them to a theme park or
movies on a regular basis, spend money on an overpriced T-shirt simply
because it has a brand name, or top up their mobile every other week so
they can spend wasted hours at a ridiculous cost talking to their friends
about absolutely nothing of importance.
But do you realise that this supposedly thoughtful, short-term gift-
giving is actually preventing you from giving them something - a home -
that not only provides comfort for many years but also has the potential
to assist them in their own life goals and dreams? Not only that, but a
home provides a secure environment for your kids to develop, make
long-term friends and to become part of a community. They may also
ultimately benefit from the capital growth of your property when down
the track you will be in a position to help them out with their own
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homes. As time goes by, the property improves in value, which gives
you some bargaining power when times get tough and the equity is your
capital for that ‘just in case’ scenario. The best part is that the property
value will keep on growing.
Will the new IPOD Nano bring that much joy into your household,
and for many years to come?
I don’t think so.
Non-essential items that hold no value (other than momentary
pleasure) just eat away at your income and will never give a good return
on your investment.
On the other hands, a property of your own is giving your kids a place
to settle and a financially better future.
So before you buy the new gizmo that your child just ‘has’ to have,
recognise that you could be doing much more for them by using that
money to create a valuable investment for their future.
What are you going to do with your settlement money?
Okay, so you’ve finally got that settlement you’ve been waiting for.
You have probably worked out what financial commitments you need to
meet and plan on paying off whatever you can with whatever you get.
You might even be keen to spend up on a new car, a holiday or a pair of
silicon boobs. After all, you’ve been through a great deal of heartache
and pain and you’re tired of battling all the time, so its time to treat
yourself, isn’t it?
STOP!
Before you race out and spend up on yourself please
read the following…
If I could only turn back the clock to the time I was going
through the same scenario, I would. How I wish I had gained some of
the knowledge I know now. I would have been on easy street within a
couple of years because I had all the right components to make it work
but none of the know-how. Instead, I frittered away the small amount of
money I did get and sold the one remaining asset I could have used to
build wealth: my house.
Dumb! Dumb! Dumb!
After my divorce I wanted to give my kids the best toys, the nice
clothes and the right ‘look’ to show the world I was doing okay. I
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wanted to feel better about myself, so I invested in expensive cosmetics,
the latest CDs, lavish furnishings and lots of clothes.
But when all the money was gone, I had nothing left to fritter so I
sold my house. When the money from the house had gone away I was
left with nothing to fall back on and was forced to literally start from
scratch. Dumb and double-dumb!
My ego played a large role in why I irresponsibly squandered money
away. I twas all about feeding the egomania inside me. But in the end
that ego got more battered and bruised than was ever likely to happen if I
had been more responsible and savvy with my money from the
beginning.
What would I do now?
If I had my time over I would never, I repeat, never, have sold that
house. I would have moved heaven and earth to hang onto it.
Any child support and/or maintenance I received would not have been
spent on the children’s clothing, and toys or for decorating their rooms.
Secondhand items would have sufficed. Instead, I would have used that
money more wisely by injecting it into my mortgage as often as
possible. By paying off my mortgage with my children’s maintenance
money, I would have been investing in their future.
Furthermore, I would have done whatever I could do myself like
cutting hair or mowing the lawn to save an extra dollar. I would have
made sure the house was kept maintained and in a good appearance and
when things got a little touch I would have gone without!
The other monies I received from a Parenting Payment and part-time
work would have been divided up to cover regular costs such as
electricity, petrol, food and insurance to ensure I wasn’t hit with a high
unexpected bill that blew the budget.
I would ‘money manage’ every incoming and outgoing while
planning my next financial strategy from the outset, I could have bought
my second property within six months… six months! My progression
would have been quick simply because I had a part-time job with regular
income, I was receiving maintenance (which can be taken into account
when accessing a loan), and I had some savings (before I blew it), I
estimate that I could have reduced my loan down to less than $50,000 (in
1992) with the property value in the vicinity of $125,000. This would
have given me more than enough equity to buy a second, even third,
property.
The reason I am telling you all this is to demonstrate how quickly you
can lose the
small nest egg you might get in a settlement by playing the
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ego game. But if you’re smart, how quickly you could turn that capital
into a financial bonanza!
The 10 stages of separation - after the crying
1. Cathartic stage - clean the house, sort out the old
clothes… get rid of the ex’s stuff!
2. Revamp and shape up stage - If you’re a woman it
usually starts with a new quilt cover for the bed and
ends up with a complete makeover of the room. It also involves a
new diet and changing your body image. Cosmetic surgery is
definitely on the cards and a new hairstyle is a cert! If you’re a
man (bloke) you’ll do all the things your ex-partner wanted you
to do in the relationship but didn’t! You’re more likely to go out
(instead of falling asleep on the couch every night), you do get
up and dance, you’ll dress to impress, give up smoking, buy
flowers, and get a vasectomy!
3. Excess stage - Spend, spend and spend. Buy new
furnitures, new clothes for the kids, the latest CDs,
buy a new cat, get that ring you’ve always wanted,
and fill your life with retail therapy.
4. Mystic stage - You go and see fortune tellers, start trusting in
horoscopes, buy lucky charms and believe the feng shui in your
house had a lot to do with your bad luck thus far.
5. All about me stage - You need your space, you go out a lot,
party a lot, flirt a lot, become uncharacteristically sexually active,
even irresponsible sexually. The children get babysat a lot…
6. Travel and experience the world - Grand or small, you will
take the opportunity to go to places that you didn’t venture to
when you were in your marriage/relationship.
7. Reality and Regrouping - The shit has hit the fan financially. A
great deal of debt has accrued from all of the above steps and the
crunch has come for you to do something about it.
8. Look for ways out stage - You start looking at how to make
money or to get money. You start complaining about the ex and
his or her lack of support. If you’re living with the kids you start
to get resentful and bitter because you think the other party had
better opportunities and got out of the situation relatively easy.
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Goodbye Renting Page 14