5 ways parents use property to support their children

Most parents want to help their kids – and see property as a way to do it.

As a financial adviser, I often see parents get creative, coming up with new ways to do it. It’s not just investing in property and giving it the children as an inheritance, either.

So, in this article, you’ll learn the 5 ways you can use property to support your children ... while you’re still alive.

#1 – Buying a rental property and using it as a deposit for later

Buying an investment property when your child is young can open up opportunities in 15-20 years’ time.

Beardy Brandon is a popular investor from the US. He bought his daughter a property the day she was born, a 4-unit building he renovated.

He took out a 15-year mortgage, timed to be fully paid off by the time his daughter finished high school.

The property, now mortgage-free, gives her options:

1. she can sell it to use as a deposit for her own home
2. leverage it for further investments, or
3. earn passive income from the rent.

Sure, Beardy Brandon is in the States, and he’s got a lot of money. He’s a well-known investor. I doubt buying a 4-unit renovation project is realistic for most Kiwis.

However, the principle remains the same. An investment property is a long-term investment, so it can deliver a better return over a long time.

#2 – Buying an investment property to cover private school fees

Investing in property can be a strategic way to fund your child’s private school education.

One of my clients decided to buy an investment property when their child was born.

They held onto it for 13 years, then sold it.

They took the money left over from paying back the mortgage and used it to pay their child’s private school fees.

The process is straightforward: buy a property, rent it out, and use the increase in value to pay for school fees. But this strategy comes with risks.

Many investment properties are negatively-geared in the initial years. So, instead of earning money, you’re having to fork out money to hold onto the property. And property prices don’t increase consistently by the same amount every year.

#3 – Buying a rental property in a good school zone

School zones become extremely important to parents once their children approach high school.

If you don’t already live in the school zone you want, you might buy an investment property in zone.

One investor I worked with bought a property in the Christchurch Boys’ zone. They decided to rent it out while their children were young.

Then, once they went to high school, the family planned to move into their investment property.

Of course, you don’t have to own a house in zone to go to that “desirable” school. You could always rent a different house in zone. But this investor wanted certainty they would have a property in zone.

School-zoned properties often come with significant premiums. Sometimes properties are double the price of those in other areas.

But just bare in mind that properties in desirable school zones don’t necessarily go up in value faster.

More from Opes:

• I bought a house with $0 (Video)
• What should my retirement plan look like? (Article)
• Revealed: How School Zones Impact The Price of Your House (Podcast)

#4 – Setting yourself up for retirement to avoid being a burden on your children

I’m very passionate about this one. 

In my opinion, the best way parents can support their children is by looking after themselves.

If you can sort yourself out for retirement, then you won’t be a burden on your children.

Often, when I sit down with investors, the first thing they say is, “I want to help my children.”

But then we look at the numbers, and they aren’t even in a position to fund their own retirement.

No parent sets out to be financially dependent on their children, but it happens far more than we realise. The best gift you can give your children is ensuring your own financial independence.

You don’t want to get to the stage where your children are supporting their own children AND having to support you at the same time.

#5 – Generational wealth: “Be a good ancestor”

The last option I see for helping your children with property is passing your properties on as inheritance. This is the most common way parents think about supporting their children.

But the impact of generational wealth can sometimes be underestimated.

On the Property Academy Podcast, Kerrie-Ann Hancock discussed the importance of being a “good tūpuna”(ancestor).

This is about making wise decisions now for future generations as opposed to making choices that could burden them.

Many families are choosing to also own individual investment properties. This creates a legacy of wealth to benefit the well-being of their descendants.

Bonus #6 – How NOT to do it

I often hear: “I want to buy an apartment near a university so my child can live there during their studies.”

This strategy rarely works out.

Why? Because apartments don’t go up in value as fast so, often, are not the right investment for parents thinking about their retirement.

What seems like a smart idea could end up being a poor investment.

If you plan to buy a property and rent it to them at a discount (subsidised rate) anyway, a better way is to give them the equivalent in cash.

Cash means you’ll avoid the headache of owning a property that may not go up in value that fast.

That way you can still buy the right investment for you and help your child. It’ll cost you the same amount of money, but is likely to be a better financial decision.

What if I can’t afford to buy myself a property?

I get it, not everyone can buy an investment property for their child.

Or maybe you’re so tapped out sorting out your retirement that there’s not much left over for your kids.

There are still ways you can help them, rather than just handing over money or property.

Teaching them about loans, credit, and the difference between good debt and bad debt. 

Financial literacy will empower them to make good decisions and it will help them accumulate wealth over time.

And ultimately, when you do pass on, your investment properties will benefit them too.

It’s important not to over-stretch yourself financially, just provide them with a “better life.”

But don’t forget to enjoy your life and create memories with your children too.