Advice on how to help children buy a 1st property.

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fraggle

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Age: 46
Spouse’s/Partner's age: 47

Annual gross income from employment or profession: 80000
Annual gross income of spouse: 3500

Monthly take-home pay 4300

Type of employment: self-employed

In general are you:
(b) saving? we can save easily but we tend to spend it after a while or we have recently had college costs.

Rough estimate of value of home 600,000
Amount outstanding on your mortgage: 105,000 @ 530/month
What interest rate are you paying? ECB + 0.25%

Other borrowings – car loans/personal loans etc 2 car loans total 300/month

Do you pay off your full credit card balance each month? Full
If not, what is the balance on your credit card?

Savings and investments: None

Do you have a pension scheme? Yes

Do you own any investment or other property? 5acre field in North Co. Dublin with no possibility of development

Ages of children: 22, 18

Life insurance: Mortgage protection, plus 1 joint life first death policy for 215,000


What specific question do you have or what issues are of concern to you?

We want to help our children get on the property ladder, only because it seems so unbalanced, however we have no savings.
If we put our minds to it we can save a good bit as we can be quite frugal, but there are 5 years of college ahead of us and a car replacement, although I can be frugal with that.

My son will be finished college in 1.5 years, and my daughter will be 4 years behind. One year is an expensive masters.
Once each is finished college I would to offer each one ~4 years of cheap rent, and yet not live at home, so they have some freedom and can still save.

My first thought was to build a granny flat. I have my own plans drawn up and a builder said they seemed fine for the site, but obviously process needs to be followed.
The idea is that an additional/extended mortgage for a max 100,000build (things are expensive!) would be about 500/month and I would charge that as rent. Considering rent elsewhere would be 1500ish then they could put aside 1000 as savings. They could have a partner with them for the same price I guess. So, after 4 years they would have ~50k saved minimum, possibly lots more between 2, and have had some independence. Repeat this for 2nd child. Following that it could become a granny flat for and aged parent(s) or a short term holiday let for us providing income into retirement. If things went south we could afford an extra 500/month ourselves but it's not ideal.

My 2nd thought is to buy a cheap property somewhere remote. We like nature/seclusion. Possibly a doer-upper to some degree, so the price could be 100-150 max. The mortgage on this could be 700ish I guess. We would move there and let our kids live in the PPR but pay rent for 4-8 years as above. Once done we could sell the country house or use it for holiday lets for retirement income.

I understand in both cases it would mean each child wanting to live in the same area for ~4 years after college, but the likelihood is that they will want to be near Dublin, and they are both keen to save to move out and if they move out straight away the alternative is to have a single room in a house share with strangers etc. So they are not opposed to this idea.

At some point we could rent out the PPR for 2500-3000/month but we're not really interested in being part of the high-rent problem. I don't agree with the concept of a 2nd home as it's just pushing up prices. I have turned down many chances in the boom and since then to acquire an investment property. I don't really mind doing it though if the 2nd home is something that is derelict, or is in an area with less population and might bring income to the area via a holiday let, and isn't taking away from the pool of houses that people need.

As you can see I'm at the early stages of thinking about this. I a bit overwhelmed reading on various bits and pieces for each option. I'm not really familiar with investment mortgages, or 2nd mortgages, or renting to family, or renting as holiday lets and all the nuances.

I'm just looking for initial reactions from people and obviously I could then create more specific threads.

An online calculator said I could borrow 290k, so I have about 180k equity.

One question I so have is, could I release 100-120k ish on my super low tracker, that I don't want to lose, and just buy a country cottage outright?


Many thanks for your input.
 
Hi fraggle,

Although admirable I wouldn't do any of those things, certainly not moving out to the sticks and letting your kids live in the PPR - you might never see it again! The granny flat idea could be as bad...you will never see that 100k again and worse still you mind end up in the granny flat yourself!

How about just saving for their deposits? No taking on of debt and if you hit a tough month or 2 it won't make that much difference if can't save:

If you can save 666 per month from now on, you will be able to give each of your kids 30k when they are 28 years old:

Child 1: 22 years old. 6 years x 5k per year = 416 per month
Child 2: 28 years old. 10 years x 3k per year = 250 per month

Firefly.
 
Yes that is certainly an option. However, I had an earlier original thought that I would like a holiday let business for retirement, and was trying to tie the two ideas together.

Also, moving to the sticks is actually appealing to us!
Also, yes indeed at some stage in the future we could be in the granny flat with a child minding us from the PPR!

The other thought, is that my son, for example, has a girlfriend. If they could both move in @500/month then they would save 1000/month PLUS she basically would save lots more probably 75% of a good salary (IT)

I suppose I could see them saving 80-100k that way instead of me giving 30k while they pay out 1500/month.
 
RE the granny flat..be careful. I know of two couples who moved from their main ppr into the granny flat and all was well. Next thing, the child and their partner split. The partner wanted their share of the assets. House and granny flat (because it was attached) had to go. grandad and granny had to go house hunting with their part of the proceeds and so did their child. The partner got their cut also and went off into the sunset. Give them cash as a deposit, and take care of yourselves first.
 
Thanks phoenix52 that is certainly something to consider. TBH I had already had an inkling of it and was thinking along the lines that my child would be the only one making any financial contributions to anything, and it would be planned to be affordable by one person, not two. But yes I'm sure there would need to be some thought put into it.
 
Your kids are only 18 & 22. Assuming one is finishing up college soon and will be starting a career, try to instill a good long-term saving habit for them from the get-go.

Would you consider something like matching all of their long-term saving commitments (up to a certain limit of course) to inventivise this?

The granny flat sounds all well and good but part of the growing up experience is living with friends, free from parents, having parties etc etc, none of which is quite the same when in your parents garden.
 
My son has 9k saved already :)
Yes that all sounds great but the burden to pay rent of 1500-1800 is too much and for the sake of a few years it might be worth it.

Matching savings it an idea.
 
fraggle said:
Amount outstanding on your mortgage: 105,000 @ 530/month

Other borrowings – car loans/personal loans etc 2 car loans total 300/month

Savings and investments: None
Click to expand...

Fraggle, your priority here is to look after yourself first and foremost.

You have not told us how much you owe on your car loans or when they will be paid off.

And we know you need a new car.

And you have children's education ahead of you.

So forget about helping your kids get on the housing ladder. It's a long way away anyway.

You do not need more borrowing - you need less borrowing.

Clear your car loans. Save up for a new car and for college expenses.

When the kids are finished college you can revisit the situation.

When one of them is ready to buy a house, it's likely that you will be able to remortgage your home at that stage to help him. This will mean losing the tracker, but I wouldn't worry about that as there won't be much left on it at that stage.

Brendan
 
And you have said very little about your pension fund.

You are self-employed. How much do you have in your pension fund?

I suspect that would be a higher priority than doing something now to get your kids on the housing ladder in a few years.

Brendan
 
I agree with Brendan. Your first priority is you and your spouse. Pay off your mortgage, look at pension planning for you and your wife.

You consider the burden of paying rent too much for your children after graduation but the choices should be theirs. They could probably find somewhere much cheaper than 1500-1800 as part of a house share. It sounds like you plan to spent a lot on the oldest’s college education already with the expensive masters. Perhaps if the oldest considers a masters essential to their education they part fund it from their savings as you will have your youngest going to college too. It looks as if the €3K fee for university will be waived soon so that will ease the burden a bit.

You are both relatively young so once the burden of putting your kids through college is done why not use the potential savings you have to spend on yourselves. Your children will make many choices in life to suit themselves and living in your ppr, you moving to the country or a granny flat may not be what they want.

You do have the option to gift them €3K each per annum which they could use to pay rent, save for a house, go travel etc.

I think you are trying to merge two things here. A possible lifestyle change for you and your spouse, and assisting your kids purchase a home within a few years of college graduation. I think you should decouple them. Consider with your spouse what you both want to do and the use your own income to make those changes, looking after personal savings, mortgage, & pension planning. Then either use the excess to gift to your kids to save as they wish, or spend as they wish. Or keep to help with a house deposit if they ever decide to purchase.
 
Your intentions are good but I 100% agree with Brendan. Let your children find their own way. You are paying for 3rd level and a masters for them. That gives them the opportunity for them to get a well paying job. Putting yourself under financial pressure to create a solution for something you can clearly not afford is not a good idea. There is nothing wrong with them living at home for a few years and they can save then and it won't cost you hundreds of thousands of euro. Paying for a good education is the best thing you can do. If you can save additional funds to help them with a deposit in the future, that is the thing to do. That way, they can pick the property they want to live in. Moving into a fixer upper in the middle of nowhere while your kids have the run of the family home is a mad idea.


Steven
www.bluewaterfp.ie
 
I comment as someone who still counts myself as young, and had some help to get on the ladder. The biggest gift you can provide is leading by example - promote an attitude to money, to saving, to spending. Supporting education.

In some cases, a parent rolling over backwards to fund a property on top of everything else risks removing their opportunity to grow, build character, learn the value of things (as opposed to the cost).

Likewise, kids don’t need to move out to grow and learn life. They can be loaded up with family responsibility and issues at home - unless they need to move for education paying rent to a 3rd party is madness in my experience. Of course if they are moving away, to a new location and challenge, that’s different, that’s development, it’s not just moving out for the sake of it.

Looking after yourself first is also leading by example. Everyone risk, stress levels, and stability suffers if things go wrong and you encounter debt issues having blown a load of money stretching for a property prematurely, or on needless rent.

It sounds like you are doing a great job setting them on the right path and giving them every opportunity. It’s up to them now. If you focus on your own wealth, then you will be best positioned to help them in the medium term if they require it.
 
fraggle said:
Thanks phoenix52 that is certainly something to consider. TBH I had already had an inkling of it and was thinking along the lines that my child would be the only one making any financial contributions to anything, and it would be planned to be affordable by one person, not two. But yes I'm sure there would need to be some thought put into it.
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Hi. Just another thought on this and i may be incorrect, but if your child and their partner are living in the main house and you are in the granny flat and they split, just because the partner has not contributed any money to the main house, does not necessarily mean they are not entitled to their share of assets if the partnership breaks down. I could be wrong but for me it would be way too risky!
 
Let them solve their own property issues, learning resourcefulness and problem solving ability in the process rather than you enabling dependency
 
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Brendan Burgess said:
Fraggle, your priority here is to look after yourself first and foremost.

You have not told us how much you owe on your car loans or when they will be paid off.

And we know you need a new car.

And you have children's education ahead of you.

So forget about helping your kids get on the housing ladder. It's a long way away anyway.

You do not need more borrowing - you need less borrowing.

Clear your car loans. Save up for a new car and for college expenses.

When the kids are finished college you can revisit the situation.

When one of them is ready to buy a house, it's likely that you will be able to remortgage your home at that stage to help him. This will mean losing the tracker, but I wouldn't worry about that as there won't be much left on it at that stage.

Brendan
Click to expand...

Sorry for the delay in responding.
- I owe 10k on the car loans.
- My current car cost 2k and is fine. I only ever buy 2k cars and keep them tipping over so I'm not concerned too much about that
 
Brendan Burgess said:
And you have said very little about your pension fund.

You are self-employed. How much do you have in your pension fund?

I suspect that would be a higher priority than doing something now to get your kids on the housing ladder in a few years.

Brendan
Click to expand...
I'm sorry I am actually employed with a 5+6% pension. My mistake.
 
I appreciate all the other comments, and I agree with them, but only up to a point.
I've given up on the "moving to remote area" idea.

The housing market is not operating normally. Surely there is nothing wrong with helping them out in such a case?
Obviously, I have to help them out so I'm not at (too much) of a disadvantage. With this plan, I would help them out, and also end up with a granny flat to use for aged parents, or short term lets. So win-win.

The reality is that when they want to get on the property ladder they will be looking at 250-350k needed. I don't think letting them live in a granny flat to save 50k to be OTT? The remainder is still, I consider, overly onerous and not how things should be. I'm a strong proponent that a family should be able to mortgage on one income. Even with my help that probably isn't possible.

Over the XMAS break I drew up plans for the flat, and I have had "finger in the air" quotes from builders. I have some builders coming to do a site inspection, and I am speaking with a planning consultant. I guess I will learn alot more from that process and come up with some realistic figures.

It seems to be ~70k + VAT + contingency. Plus 10K for fitout with me doing a lot of it.
That would be ~100k so about 500/month mortgage, which is what I had thought.

I had not thought about issues relating to me taking money from partners etc so will take that on board.

Please keep the comments coming. I'm just working through everything in my head and if it isn't to be then I'll figure something else out.
 
fraggle said:
Over the XMAS break I drew up plans for the flat, and I have had "finger in the air" quotes from builders. I have some builders coming to do a site inspection, and I am speaking with a planning consultant. I guess I will learn alot more from that process and come up with some realistic figures.

It seems to be ~70k + VAT + contingency. Plus 10K for fitout with me doing a lot of it.
That would be ~100k so about 500/month mortgage, which is what I had thought.
Click to expand...
You'll never see that 100k again, you'll be living in a granny flat and you are assuming your kids will be able to save the deposit themselves, all the while taking on more debt for your troubles. If it was me, I would save that 500 euro per month and give to them what ever it amounts to. You will have performed the heavy lifting and they should be able to save the difference themselves..
 
Like others have said, you may be well intentioned but your solutions are not well thought through and thankfully you have already given up on the "moving to a remote area" idea. Buying a "fixer upper" would be a money pit and would not allow you to help your children

The biggest mistake you are making is that you are making far too many assumptions about your children's future.

For example, their ability to save €1k a month is not the difference between market rent and what you charge them. How many 22 year old couples are renting apartments together for €1500?? My guess would be zero. They can easily find affordable accommodation as a room share and their ability to save is based on their income and expenditure. If you give them a really cheap place to live, they might waste a a few years career wise or waste a lot of their disposable income. Assuming they will save €50k in 4 years is not a good idea.

And as a side note, you are putting an awful lot of pressure on a 22 year old couple to live together effectively with their parents for the sole purpose of saving to buy a house together. That is one way to end a relationship. They are much much more likely to prefer living with their respective friends for a few years before moving in together. Or who knows, they might want to move abroad or away from Dublin for their careers. Just let them find their own way.

If you are to do anything at all, then you should ensure that your granny flat complies with the rent a room scheme so that you can rent it out for up to €14k tax free. It would be foolish to try using this for short term lets where the rent would be taxed. If you can build it for €100k, rent it out immediately under rent a room and increase your own savings. Let your children rent wherever they want with their friends and in 5-10 years, you should be able to help them with a deposit.

And as another option, if a rural property is something that you and your spouse would genuinely like, then why not sell up in 5 years time and buy a remote property for 300-400k freeing up whatever equity you have in your current PPR. But I can't stress enough that this should first and foremost be a lifestyle choice for you and your spouse as this is where you would likely spend your retirement.
 
_OkGo_ said:
Like others have said, you may be well intentioned but your solutions are not well thought through and thankfully you have already given up on the "moving to a remote area" idea. Buying a "fixer upper" would be a money pit and would not allow you to help your children

The biggest mistake you are making is that you are making far too many assumptions about your children's future.

For example, their ability to save €1k a month is not the difference between market rent and what you charge them. How many 22 year old couples are renting apartments together for €1500?? My guess would be zero. They can easily find affordable accommodation as a room share and their ability to save is based on their income and expenditure. If you give them a really cheap place to live, they might waste a a few years career wise or waste a lot of their disposable income. Assuming they will save €50k in 4 years is not a good idea.

And as a side note, you are putting an awful lot of pressure on a 22 year old couple to live together effectively with their parents for the sole purpose of saving to buy a house together. That is one way to end a relationship. They are much much more likely to prefer living with their respective friends for a few years before moving in together. Or who knows, they might want to move abroad or away from Dublin for their careers. Just let them find their own way.

If you are to do anything at all, then you should ensure that your granny flat complies with the rent a room scheme so that you can rent it out for up to €14k tax free. It would be foolish to try using this for short term lets where the rent would be taxed. If you can build it for €100k, rent it out immediately under rent a room and increase your own savings. Let your children rent wherever they want with their friends and in 5-10 years, you should be able to help them with a deposit.

And as another option, if a rural property is something that you and your spouse would genuinely like, then why not sell up in 5 years time and buy a remote property for 300-400k freeing up whatever equity you have in your current PPR. But I can't stress enough that this should first and foremost be a lifestyle choice for you and your spouse as this is where you would likely spend your retirement.
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I agree with this. I feel our job as parents when we bring them into the world, is to love them, provide them with shelter, nourishment, education. Teach them life skills, make memories and then let them go , free to choose their own way. They will always know where home is should they need to come back, even if that is just for a chat. If you try to tie them to you, because you think you are doing them a favour, you could stifle them and put a strain on your relationship.

You sound like a very caring parent and they are lucky to have you. Give them their full freedom to decide how they want to live their lives. Hand over the money when they want to get on the property ladder. What a gift to get at that time.
 
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