Buy to let investments can open inheritance for children doors for parents concerned about their children finding a first home, say the experts at Belvoir
With a property market that’s rising faster than most young people’s wages many parents are worried about how their children are going to start climbing the property ladder.
“It’s becoming increasingly difficult for young people to buy their first home,” says owner of Belvoir Evesham, Melanie Carter. “Property prices are going up, mortgage deals can be hard to secure and small properties suitable for the first-time buyer are often snapped up at speed. Add to this the large deposit needed to proceed with a property purchase and it’s not surprising that many young people face an uphill struggle to start their home-owning journey.”
Because of the difficulties many young people will face, some forward-thinking parents are turning to the buy to let market to provide a number of simple solutions. Here’s how…
Home sweet home
“Rental properties can be a practical way to provide your children with a property to live in,” says co-owner of Belvoir Liverpool West Derby and Belvoir Liverpool Central Adam Rastall:
“Your child will be able to help choose the type of property they desire and will have a certain amount of freedom regarding decoration, furniture and fittings. If they are keen to learn about DIY you may even choose a renovation project for them to pursue.”
Melanie agrees and adds, “While your child is living there, rent can be charged and you will benefit from the potential of capital appreciation on resale. In fact, your child may wish to purchase the property from you when the time is financially right for them.
“Anyone contemplating this sort of scenario should of course always seek financial advice prior to purchase as there will be tax implications to consider.”
“Some parents also turn to the buy to let market as a savings solution,” says Adam:
“If a buy to let investment is purchased while children are at an early age the monthly rental return can be collected and saved over a number of years. Deductions will of course have to be made for on-going maintenance, insurances, any mortgage payments, plus tax but the remainder can be retained in a high interest savings account.
“When the child is at the appropriate age the accumulation can then be presented to them as a lump sum. This may cover the deposit of own their chosen property.
“In addition, if wished, your buy to let property can be sold on in order to add extra funds to your child’s new home.”
“Many parents worry about what type of accommodation their child will end up in when they head off to university or college,” says Adam:
“However, if you are in the fortunate position that you are able to purchase a second property for your child to live in during their studies then this can be an ideal opportunity for investment.
“A well-researched and sourced property will provide free accommodation of a good standard for your own child, plus it will also provide a positive cash flow from the other students sharing with them.”
Melanie adds, “Always take advice to ensure that you are renting the property out legally and following current legislation. Plus, remember to carefully vet the tenants (and their guarantors) by carrying out the appropriate referencing and credit checks.
“As the rental market is particularly buoyant in busy university cities, once your child has finished their studies you can then continue to rent the property to other students.”
“Buying an investment property with your child’s future in mind is also a great way to introduce your little ones to becoming landlords themselves,” says Adam. “Buy to let investments are great for your children to live in, but can also be somewhere for them to live off.
“Before making a purchase, talk to your children about your thoughts and listen to their input too. Involve them in some of the decision-making and start teaching them about the key points of being a good landlord.
“As they get older they may wish to buy the property from you and continue your landlord legacy or they may want to start their own property portfolio themselves.”
“Some parents also choose to purchase a buy to let investment as a replacement pension pot,” says Melanie. “The rental return can be enjoyed during retirement and then the property can be passed on to their offspring for them to sell or continue to let. Again, it’s important to consider income tax and inheritance tax implications before pursuing this.”
Adam concludes, “A rental property inheritance nest egg is a great way to secure your child’s financial future… while helping to establish the next generation of buy to let landlords.”
Top tips – at-a-glance…
- An early start – making a buy to let investment while your children are still young will maximise the potential for capital appreciation.
- Be strategic – plan carefully and create a concise short-term and long-term business strategy. Re-visit and re-evaluate this plan when necessary.
- Share your thoughts – if they are old enough discuss your plans with your children. Ask for their input too.
- Invest in the best – properties which won’t date and will need little maintenance make good investment properties for those looking for long-term solutions.
- Near or far – research the markets in your area and further afield to spread the search.
- Savvy savers – monthly profits can be saved over a number of years and given to your children as an extra financial gift at the appropriate age.
- Tax talk – financial advice should be sought before a property purchase in order to explore the long and short-term tax implications.
- Little learners – teach your children about being a landlord so they can continue to let the property themselves if they wish.
- Expert help – ask your local letting agent for further help and advice.
Belvoir now has 210 offices nationwide. To find your nearest Belvoir office, visit their website at www.belvoir.co.uk To enquire about the Belvoir franchise opportunity please visit www.belvoirfranchise.com