Trying to get a bond on a starter salary – even in a high-paying career – can be difficult to do, according to Bill Rawson, chairman of the Rawson Property Group.

He noted that a sectional title unit in a good area with good growth prospects can easily cost R1 million and more – equating to nearly R10,000 a month in bond payments, assuming you can secure a 100% loan, which is extremely rare these days.

“To qualify for a bond of that size, your child would need to be earning around R35,000 per month, said Rawson.

“Needless to say, not many recent graduates have that many zeros on their payslip, but that doesn’t mean property is out of their reach – at least, not with a little help from you.”

According to Rawson there are two main ways parents can help their children become property owners at an earlier age.

“The first is to sign as surety for your child’s bond. This can help them qualify for a much larger bond than they otherwise would have been able to access, as their income will be added, but it does come with a lot of risk, which isn’t ideal.”

If high risk doesn’t thrill you, Rawson recommends the less risky option of a parent-to-child loan.

“A bond may be the cheapest type of formal financing available to most people, but that doesn’t mean it’s inexpensive – especially these days with interest rates on the rise,” says Rawson. “As a parent, if you have access to capital, loaning some money to your child to put towards their property at lower interest rate can go a long way towards increasing the affordability of their investment.”

A practical example

To illustrate his point, Rawson extrapolates from a hypothetical R1 million property.

“With a 100% bond at 10.5% interest, repayments on a R1 million home would currently be around R9,983.80 per month,” he says. “If your child can immediately deposit R500,000 into their bond account, borrowed from you, those repayments drop to R4,991.90 per month.”

“Of course, they’ll still need to pay you back, at around R3,299.78 per month assuming a 5% interest rate over the same length of time as their existing bond. In total, that means their payments add up to R8,291.68 per month, or R1,692.12 less than they would have paid without your assistance. That can save them as much as R400 000 over the lifetime of their loan.”

To further protect yourself, and your child, Rawson recommends drawing up a loan agreement allowing you to take over the property should your child fall into serious arrears on their repayments.

“This gives you the opportunity to rescue the investment in an emergency, rather than see it repossessed by the bank,” he says.

On a related note, Rawson points out that property can also be a great way to protect your child’s inheritance from reckless spending.

“Bequeathing a rental property to your child instead of money, and restricting the sale of that property for a set period of time, can be an ideal way to supplement their income without allowing them to squander the main bulk of capital,” he explained.

“I’ve seen many cases where this kind of income has seen a reckless beneficiary safely through a difficult period when large amounts of cash would have only have fuelled their irresponsible behaviour.”

“As parents, our job is to protect our children’s interests as far as possible, and help them access the tools to build a life,” he said.

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