Property investor Vicki Wusche, author of ‘Property for the Next Generation’ has taught her daughter how to buy her own home – without dipping into the bank of Mum and Dad. Here are her top ten tips…
1. We learn our values about money from our parents. “Money does not grow on trees” or “money is an incredible tool when used wisely” – what are you teaching your children? These beliefs will influence every decision they make about money. We need to teach children that there is good debt and bad debt. Good debt puts money in your pocket. Bad debt costs you money.
2. 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 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 fact in some cases it makes sense to rent a property for a temporary period. Once you understand that your home is not an asset you can start to see that you can own property assets but they will be occupied by tenants.
3. 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 were already buying property that they could afford (in another location) renting out to tenants and then using the income to live a life of their choosing.
4. Don’t force it. Talk freely about money with your children – let them know the facts, but don’t pressurise the. They will make up their own minds. Explain why you are being financially successful and what are you doing. Let them know when you are struggling and explain to them what has changed. These are real lessons about money and our children need to understand.
5. 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. This is an essential.
6. Understand is the impact of inflation and house prices on your family’s wealth. For example, if house prices are not increasing and inflation is between 2-4% then your home might actually be losing value in real terms. But if you invested in property and made 10-15% return then you’d be borrowing money at 5% to make 15%. These are just examples, you must do your own maths.
7. Always take responsibility for any investment you make. Never just hand money over to someone else. Always be responsible for your own due diligence, check the facts for yourself.
Make all your decision in a non-emotional manner and do not be pressured in the room into signing any deals or commitments.
8. 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.
9. 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% return on investment. These are more often than not outside London.
If you have children under ten 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 8-10 years and use the profit from the capital to pay for a deposit.
10.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,-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 at the moment you can buy it with them in mind.