I hope you're getting a decent rent, with annual increases, for your half.
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We know how blessed we are but somewhere along the line I failed my kids a bit in that I didn't teach them how to invest and how to think long term. They are young enough, (late 20's) so there is time but there are other issues to deal with at this stage.
Thanks for sharing your experience. I am privileged to see some interesting things in terms of how some clients handle the whole passing on of wealth thing to their kids. What I have seen leads me to the conclusion that if you make it too easy for them they don't appreciate it. Here's a classic illustration. A very good friend of mine was given an Auckland house outright as a wedding present when he was in his early thirties. Every child of that family he married into was also given an above average house outright when they were married, in total 7 houses, (yes the parents were extremely wealthy after selling a plastics manufacturing business in Ireland for $26m pounds.
Mr X's psychology was that if you give your kids and their partners a really good head start in life they have a tremendous platform to build their future upon. In the ensuing years, (and remember their are 7 kids and their partners making decisions here so we have an interesting sample size of 14 participants, every single family proceeded to live the high life by drawing down mortgages on their debt free home for fancy cars, overseas trips...you name it. Once they got addicted to "consumerism" for want of another word they carried on like drunken sailors drinking sea water wanting more and more. Twenty years later not one of those kids still has their house. Most of the marriages have broken down and Mr X refuses to help any of them in a really major way any more, although he does usually give each of his kids about $10,000 per annum just before Christmas.
I share this most interesting of stories because it teaches us an interesting life lesson. Human psychology "is easy come, easy go" None of those kids or their partners truly understood the tremendous value of what they'd been given and the huge leg-up in life they'd received. This just one of many stories I could share so my opinion of this is base d on a vast number of examples I have seen with how clients handle wealth transfer.
My smartest clients partner with their kids in terms of helping them save for their deposit. They know that to help too much is to undermine their own kids sense of achievement. When our twenty somethings sort their lives out we'll help them and not before ! Thing is they know they have plenty coming when we pass on so whether they do ever get some backbone or not remains to be seen.
Good on you for helping your kids out but I can't help wondering if they have any clue how fortunate they are to have a dad like you to do that for them ?
If I was to give my kids anything meaningful at this point it would be straight down a rat hole of one sort or another...probably best I don't say any more on that subject.
Have done the same, with 3 rentals now rented to family. One was residential but converted to commercial lease (workshop and storage) last year.
Worked perfectly when partner of one left in not uncommon circs (a 3rd person involved), announced was taking over the house. Ah, no.
Tax effective but need to take care the paperwork is meticulous and the rent set within reasonable parameters in case IRD decides to take a look.
Interesting stories, beagle. Wealth transfer is something I have given a lot of thought to. Along the lines of hope for the best, plan for the worst. In my case it has involved quietly offering financial education over quite a few years, relating to property, equities and schemes like Kiwisaver.
Find that Sharesies works well for the millennials - they get it because it's on their phone and they build knowledge fairly quickly about different risks and options. For presents I offer cash, actual stuff or Sharesies deposit and some are starting to choose Sharesies. Cool eh!
thanks very interesting stories of passing on wealth. If your kids will get your money one day anyhow, isn't a good idea to gift them a deposit for a house so they get the benefit when they actually need it? especially for a house deposit
I still believe in partnering with your kids as the best way as without any effort on their part whatsoever they have no skin in the game. There is NOTHING, ABSOLUTLY NOTHING like having some of your own skin in the game to make one think responsibly ! (Its impossible to overstate the importance of this). Even if partnering is matching each of their dollars with several of your own this is FAR better than just handing it to them on a silver platter in my opinion. I have seen too many of my clients kids wreck houses with drugs, wild parties, methamphetamine, lack of care and maintenance...you name it...nothing to lose so why worry about maintenance, paying the rates or the mortgage ? If kids can't be bothered making at least some effort to save some of the money for the deposit will they have any backbone when it comes to looking after the property with painting and maintenance, making the mortgage payments or paying the rates and insurance ? The evidence I have seen strongly suggests to me that talk is cheap. Kids saying they love and respect you and will look after the property means very little if they don't have their own skin in the game.
Beagle, you have lots of common sense and would appreciate to hear more. Partnering, is this joint ownership? or do you help repaying loans?
Percy - my hat off to you to be able to help your daughters whilst still living comfortably.
However it underlines the fact that kids, without parents with money they can afford to co-invest with their chIldren in their first homes, are all but shut of NZs expensive market. It also indicates that the tax advantages of leveraged home ownership is increasingly becoming a subsidy for the children of wealthier people.
For those shut out of home ownership (and for those for whom home ownership is not a convenient or desired option) there needs to be a beefed up retirement scheme with the level of tax advantages that NZ home ownership has. (untaxed net benefit of occupation/ leveraged gains)
Yes, no rent problems at all. The 'rules' are clear from the beginning and APs are required. One arrangement has been in place for nearly 20 years, over 2 properties and 2 relationships. One of the younger generation, tenancy has been in place 2 years and the commercial one couple of months.
Also to add that the young generation get interest free loans to buy a vehicle, APs required though slow repayment is Ok. One is 18, one is 21. The rule there is they can negotiate more interest free loans for approved purposes after discussion, but the tap gets turned off if they sign up for a credit card. So far so good. I am actually not bothered about the money, but very keen they take responsibilities very very seriously. That is why I do it. Bit unusual maybe but work for me.
ETA I did provide a short rent holiday of 3 weeks when a new baby arrived and the saved amount for rent did not quite cover the parental leave. Present from gran!
Had we not had been in the position to have helped out the daughters I think they would be having a very hard time of it.
I went through very hard times through illness,stress and near business failure in 1987.Took a very long time for my health and finances to recover.I woud not like them to go through that.Once I was mortgage free my finances improved,so it was important to me they had no mortgages. .
Thanks. I use the word partnering with your kids in the loosest possible way as this can take many forms. A partnership where ownership is joint, or co-ownership in a company or family trust are the main ownership vehicles. Unless you are super comfortable financially I think any investment in a house through a co-ownership arrangement should place the sole emphasis on the occupant being able to service the bank mortgage. If they can't fund it themselves at the current interest rate then you probably should look at buying something more affordable unless the parent(s) are well prepared to meet the ongoing burden of chipping in for mortgage payments and (seeing as they can't afford the mortgage) this leaves them also exposed to meeting the ongoing burden of other running costs including maintenance, insurance and rates. Parents should think very, very long and hard before putting their head in an ongoing perpetual liability situation for their kids in my opinion as this can lead to nasty surprises down the track. For example what happens if there's some deep cycle maintenance required such as a full repaint inside and out..who pays for that ? What about if there's some moisture ingress issues ?...do parents want the long term exposure of the risk involved and are they financial comfortable enough to afford this as well as look after their own financial needs comfortably ?
Another possibility is where parents partner with their kids by helping them save for their deposit and then the parents contribution is then treated as a loan either with or without interest and is repaid over time. I think this is the most common sort of help as most parents are not super wealthy and while they can help with the deposit they probably need that money paid back over a period of time for their retirement needs. I recommend loans be formally documented as kids relationships with their partners often end badly and parents need to protect their financial interests as well as the interests of their own child.
Yet another possibility is this partnering is simply a process whereby wealthy parents partner with their kids to help them save the deposit, usually 1:1 contribution but sometimes 2:1 or even 3:1..but as mentioned above its very important that the kids do put in some of it and then the parents gift the money they've contributed either all at once or over a period of time with conditions, (such as the kids keeping the bank's mortgage payments up to date, rates, repairs and insurance current)...this sort of thing might be appropriate where parents want to help their kids heaps but feel they need to keep "trainer wheels on the bike" for a while so to speak.
I don't think any one solution is the perfect generic fit for all. For example one might have very serious concerns, (I think many parents have some concerns lol) about their kids choice of partner, so ownership in a family trust with your own child as the primary beneficiary might give some much needed peace of mind if one feels their kids relationship with their partner is rocky or likely to end badly. What percentage of marriages (or unions if you want to call them that) fail these days...50% ?
Maybe people should plan for the risks associated with that ?
Hope that gives you some food for thought....but I will add one final note of caution. I have seen quite a few families of modest means go way out on a limb for one or more of their children and it can go very very wrong with very sad consequences. Business entrusted to one's child to run, run into the ground and worthless at the loss of hundreds of thousands of dollars of much needed capital, one example and rental properties so badly damaged by methamphetamine use and consequent other wild party damage the repairs nearly bankrupted one of my clients and nearly ruined their marriage, (both kids involved with both properties were step children of one and natural child of the other client which caused massive friction in and of itself). When things go wrong they usually go very very wrong so whatever help you are prepared to give your child to get into a house I think one is best to seriously consider the chance you'll never see that money again and limit one's help to what you're prepared to gift or lose. The other thing from a relationship perspective is if you really go out on a limb for your child and they let you down so badly it seriously affects your ability to have a comfortable retirement then its harder to have a good relationship with them going forward. Best to take a carefully measured approach making sure you look after yourself and your partner properly as your first priority...along the lines of the advice below, in my opinion.
An old retiring accountant once gave me this very sage advice when I was a very young starry eyed bean-counter "Love many, trust few and always paddle your own canoe"