Money Truth #15

Beyond Employment, Property is the first of the three potential income
producing vehicles we will look at that your kids could possibly take advantage of in
adulthood. Property is all around us, but only a small percentage of people take
advantage of the opportunities it presents.

We look at it first because whether your kids decide to use property as a vehicle for
generating income or not, they will need to live somewhere. This puts real estate in a
unique position when compared with the other two potential income producing
vehicles, shares, and business. You can live without owning or even having anything
to do with shares or business, but you can’t avoid property.

Some people make vast amounts of money from buying, developing, selling,
renovating, or controlling real estate, and yet others never get to own a single
property in their lifetime.

Rather than digging deep into all the possible real estate investment options that are
available to anybody who is motivated to learn and use them, it is appropriate that
for ‘Kids-n-Money’ this topic is kept simple. There are books and courses dedicated
to teaching people how to generate wealth through property. If your kids
become keen to learn some of these real-estate strategies, they will be motivated to
find and take advantage of them. One book I recommend that presents the basics of
a really broad range of property investment strategies is ‘The Property Investing
Formula’ by Nhan Nguyen and Jennie Brown. http://propertyinvestingformula.com/
Kids will often play ‘house’ and they love to make and play in cubby houses created
by draping blankets over furniture, but understanding what it takes to achieve home
ownership is way beyond their comprehension.

You probably already know how difficult it can be to save up a deposit to purchase a
home, and perhaps that is why you want your kids to be well prepared for a life with
money. Our education system has not been very effective at teaching financial skills,
which is why the Spending Planners Institute created Kids-n-Money.

Put simply, when they are adults, your kids will need a home. They will either rent
one or buy one. Renting is the way most people start out, but it’s not how you would
want your kids to continue for their entire lifetime. You’ll need to condition them to
the idea that ‘rent money is dead money’ and buying a home is much smarter than
renting.

Saving a deposit to add to a government First Homeowners’ Grant gives anyone who
really wants to get out of renting and into home ownership the opportunity to do
so.

It’s a good idea to start telling your kids from an early age that they WILL get to own
their own home. This will give them the expectation that they will own a home and
the mindset that it is possible.

Your kids need to understand that getting started will take some sacrifices, and you
need to describe to them how they will save a deposit before qualifying to borrow
from a bank.

You also need to explain to them that as time goes by and house prices increase, the
amount they borrowed when they purchased their home will gradually look less and
less significant.

For example, if they borrowed $400,000 now, in 15 years’ time, even if they still
owed $250,000, their home should be worth a significantly higher amount and their
income should also have increased. The $250,000 debt and the repayments they are
making then will seem insignificant, even though at first, they may have seemed like
a challenge.

Like anything in life, if your kids want to purchase their own home, they MUST keep
in mind that the hardest thing to do is to just get started and they need to be
prepared to start small and work their way up over time!

If your kids do not learn how to take control of money at a day-to-day level, they will
never manage to save the deposit to get them started with their first home, so you
as a parent need to set a good example and help set their expectations.

Also, keep in mind that if you give them everything they want as kids, they will
never know how to deny themselves as an adult, making saving a deposit a much
harder task for them.

At some point in their journey towards adulthood you should also introduce the
thought that your kids could aspire to owning more than one property and earn
income from having tenants paying them rent. When driving around, you might even
point out blocks of flats, townhouses, units, duplexes, subdivisions and estates,
and depending on your own level of property knowledge, explain how people have
used strategies to generate income by taking an existing property and changing it to
a more useful or desirable format.

The sooner your kids understand investment concepts the more likely they are to
become investors.

Before they go looking for their first home, your kids should know…
• The benefits of owning their own home
• The potential financial difference between renting and buying over 40 years
• The fact that houses go up in price over time
• How rising house prices could benefit them
• How to qualify for a home loan
• How to apply for a home loan
• The process of buying a home
• The costs associated with buying a home
• The costs associated with owning a home
• How a home loan (mortgage) works on compound interest
• What ‘principal’ and ‘interest’ are in relation to loan repayments
• That they could be a property investor using property as a tool to earn a living

if they are interested in pursuing that as a career.
• Various ways property can be improved, renovated, developed, or subdivided
to generate income.

If you looked at the above list and cringed, I recommend you start with the book I
referred to above; ‘The Property Investing Formula’ by Nhan Nguyen and Jennie
Brown. http://propertyinvestingformula.com/

Another option would be to connect with me through the Spending Planners
Institute to find out about basic real estate workshops and courses that are on offer
from time to time.