I’m getting asked this question a lot lately and therefore thought it worth addressing. You can’t turn around these days without hearing about how the next generation stand little to no chance of saving up a deposit given the ever-widening gap between house prices and wages. Gone are the days when a mortgage is 4 or 5 times your salary!
So, if you are a parent who has grown up children in their 20s or 30s (who look like they may never fly the nest!) is it wise to buy a property for them to live in? Well, there are several things to consider here which hopefully will help you make the decision that’s right for you and your family. Firstly, if you are wealthy enough that the outlay of cash has little or no effect on your own personal wealth or retirement then do it. There can be no better feeling than helping your children out financially and, if I get the opportunity, and am able to afford it comfortably then I will relish it. My parents did it for me and my siblings and I will be forever grateful to them for that.
If the property you want to buy is a short-term option, i.e. your child isn’t sure how long they want to live there for, then do consider the costs of purchase. You will have the second home 3% extra stamp duty to pay plus the other costs of purchase such as solicitors and mortgage arrangement/broker fees. These can get hefty and so not worth it if you are only buying for a couple of years. There’s also the consideration of what to do once your child decides they no longer want to live there. Do you sell or do you become a landlord and tenant the property to provide income? There’s obviously implication to both options, whether that be cost or time and effort.
So, what would I do? I would invest what I have in terms of cash into high cashflowing property (such as HMOs) and then use the income from these to either help my kids out with rent, if they are struggling to afford in an expensive area, or to generate a pot to help them out with a deposit in the future. The properties I invest in I can refinance within less than a year and release most, if not all, of the capital back out to invest in another property. If you buy in or around London, you are tying up a huge amount of money in a property that is giving a relatively low yield. Not the best way to make your money work hard for you!
If you’d like to know more about the property investing that I do and how you can potentially benefit from these kinds of returns, then please do get in touch. Always happy to share what I know and it won’t cost you anything!