Teach children that property is a business asset not a home
THE age of first-time buyers is rising and some may never be able to afford their own homes but Vicki Wusche, author of Property for the Next Generation believes we can change this by teaching young people about property as an asset and a business opportunity. Here are Vicki’s tips: We learn our values about money from our parents. “Money does not grow on trees” but what are you teaching your children? We need to teach them that there is good debt and bad debt.
Good debt puts money in your pocket. Bad debt costs you money.
Does your house put money in your pocket? No. It is a liability and yet we are taught that owning your own home is an asset. In fact, owning a property that is rented out to a tenant is an asset, but when you live in it then you have to pay the bills.
Let your children know that they do not need to own the house they live in. In some cases it makes sense to rent a property for a temporary period.
Start to think of property as a business opportunity as well as a place to live. Your children will face increasing house prices that come from normal supply and demand combined with the pressures of limited space on our island. This will need new thinking. What if they knew that property was a business opportunity and they could buy property that they could afford, perhaps in another location, rent it to tenants and then use the income to live a life of their choosing?
When you start to explore property investment as a business opportunity you must understand “return on investment” as a way to compare one opportunity with another.
Return on investment or ROI is an equation that helps you understand what you will get back in return for investing in a particular opportunity.
Understand the impact of inflation and house prices on your family’s wealth. For example, if house prices are not increasing and inflation is between two and four per cent then your home might actually be losing value in real terms. But if you invested in property and made 10 to 15 per cent return then you’d be borrowing money at five per cent to make 15 per cent.
These are just examples, you must do your own maths.
Always take responsibility for any investment you make. Never just hand money over to someone else. Always be responsible for your own due diligence and check the facts for yourself.
Make all your decisions in a non-emotional manner and do not be pressured into signing any deals or commitments.
Never sell a house – always consider it part of your portfolio. When you do have to move, maybe for work, always explore whether you can rent your property for a profit.
If you have cash resources or available equity start investing now. Property prices are cheap in relative terms. Interest rates will increase but that is why you need to find properties that will generate over 10 per cent return on investment. These are, more often than not, outside London.
If you have children under 10 then they will not be eligible for a mortgage in their own name for at least eight more years. By that time the recession cycle will have moved on and with that property prices will start rising. If you buy property now, with your children’s future in mind, you could either leverage (remortgage) or sell those properties in eight to 10 years and use the profit from the capital to pay for a deposit on a house for them.
If you don’t have money to invest now, start saving for the children and then buy smaller properties as soon as you can afford them.
As soon as you accumulate £30,000-£40,000, or release that level of equity, then you can buy a rental property. While you can’t buy it in your child’s name because they are too young, you can buy it with them in mind.