Many successful property investors who are also proud parents encourage their kids to start their own business of creating wealth through property as early as they could. In the process, they tend to assist their children as they begin their investment journey—both in terms of education and finances.
However innocent as this strategy might seem, Smart Property Investment’s Phil Tarrant and Right Property Group’s Steve Waters actually discourages parents from being their kids’ guarantors.
The avid property investors talk about how “parental guidance” in property investment can encourage the harmful “want it now” attitude among young people, as well as the simple ways to start an investment journey without anyone else’s help:
What’s your view on parents helping their kids enter the property market?
Phil Tarrant: What I think needs to happen, where the dialogue needs to happen and where the debate needs to happen, is [on] this story about parents who [are] about to hit retirement age or in retirement age, [and] they're helping their kids into the property market… They're at risk when property goes bust —they're going to lose their family home, their retirement... It's a big complicated issue.
It's obviously important to the government to make sure Australians are healthy in their retirement… It's about poor parents [who] are going to get stuffed.
How can the ‘want it now’ attitude hurt people in the future?
Phil Tarrant: Every single, young, 20 something, early 30s something person I know... all want to live [within] five kilometres of CBD [central business district], next to restaurants. They want to have a fancy car that they drive around. They need the biggest flat screen TV. They need all the great and wonderful things. The reality of the situation is that not everyone can live within five to 10 kilometres of CBD. First home owners need to be realistic in their expectations. They need to understand that properties that are close to the city centre or close to where the cool stuff are expensive.
Maybe you don't have to live there. Maybe you can live further out of town where it's a bit cheaper, where you can get yourself onto the property ladder, where you can make a smart investment, and hope—based on strategy—that it goes up in value. Then, you can trade up to the next property.
Steve Waters: I'm not a fan of people going guarantor for their kids. That's a dangerous path, generally speaking. There's always an opportunity anywhere. Are some parts of the market perhaps a little overheated? Absolutely. Do I think there's growth left in other corridors? Absolutely.
Why do you suggest that parents avoid being guarantors for their kids?
Steve Waters: Going guarantor for somebody, I think that's a dangerous path. I'm not saying that all kids are bad. Most are good. If I had a portfolio 15/20/1/2/4 properties that had plenty of equity in them, then I'd probably be suggesting to go down the path of extracting some of that equity and giving it to the kids, as opposed to going guarantor for them. They can live and die by their own sword from there.
Can the younger generation afford to get into property on their own?
Steve Waters: [Some people] still live at home. They work hard. They're not on hundreds of thousands of dollars a year. They take overtime when they can get it. They are focused on where they want to go. They still live life. They're not living on 2-minute noodles. They still go out. They have a disposable income which they then save or put towards an investment asset that in our case happens to be property. It's attainable.
This whole affordability issue which people bang on about saying property’s becoming unaffordable, well then just move further out. You don't need the half a million dollar property. Go three suburbs further out. It's only unaffordable if you make it that way and you convince yourself to buy it. No one's holding a gun to your head to do it.
What mindset should first-home buyers’ have when beginning their property investment journey?
Phil Tarrant: It's about expectations for people buying property. It's about the reality that property in Sydney, [that] property in Melbourne, [are] expensive. It's because they're global cities. They're big places. They're in demand to live here... Set the agenda around educating people to be happy with property which isn't fancy. Maybe not a new build. Maybe a little further out of town. Might have to commute a little bit longer to go to work. Get on the ladder and do it smartly.
Tune in to Steve Waters' episode on The Smart Property Investment Show to know more about his first investment property and his worst investment property, as well the life lessons they taught him and his most valuable "nugget of wisdom."