Making a property investment for your children

Property investment has become popular over the last few decades as there can be substantial profits to be made, even in times of financial and market uncertainty, as long as your property investment is well-researched and carefully planned.

If you are interested in buying property as an investment for your children, there are a variety of methods that you can choose, depending on your personal circumstances, experiences and the finances you have available.

Property investment expert Catherine Dawson, and author of Property Investment For Your Children, reveals the seven safest ways you can make a property investment for your children.

Property Investment #1: Helping your children onto the property ladder

If your children are struggling to buy their first property, you can help them onto the property ladder by providing financial help, acting as a guarantor on your child’s mortgage, or taking out a joint or family offset mortgage to help them purchase their property.

Find out more about the different types of mortgage available here.

If you decide to follow this route, not only are you making a property investment, but you are also making sure that your children have somewhere to live. But, with this type of arrangement you must make sure that you and your children are protected, legally and financially, by producing a carefully drawn up agreement.

Find out more about drawing up an agreement here.

Property Investment #2: Buying property for your student children

If your children are about to go away to college or university, you can make a property investment by buying a home for them to live in while they study. The success of this property investment will depend on the location of the property investment, the price, your background research and whether you decide to let other rooms to fellow students. It will give you peace of mind to know that your property investment has given your children somewhere safe and secure to live and that they will not have problems with rent or be at the mercy of unscrupulous landlords.

Property Investment #3: Buying a UK holiday home for your family

You could consider buying a property as a holiday home that is also used as a property investment for your children. If you choose to do this, do bear in mind the following:

  • Is the area a popular holiday property spot? Are you and your family happy to holiday in this region each year?
  • Is there plenty of private and public investment in the area? Is the area displaying signs of ongoing regeneration and development?
  • Is the property market buoyant in the area and is it likely to remain that way for the duration of your property investment? Will you be able to sell the property for a profit? Is demand high for that type of property in that area? Are there any plans, schemes or development issues that could have either a negative or positive influence on the price of the property?
  • Is it safe and secure to leave your accommodation empty?
  • Is there any risk of flooding or evidence of subsidence?

Property Investment #4: Buying overseas holiday accommodation

You may decide to buy a property overseas as a property investment for your children and a holiday home for your family. If you choose this option, it is imperative that you are clear about the type of property investment that you want, and that you understand how this will influence the financial performance of your property investment. This involves an assessment of the following:

House buying abroad means that you are investing in the property market, a foreign economy and undertaking some currency arbitrage. Are you happy to do this and do you understand the implications for your family and finances?

  • Some countries have different laws about property inheritance and your children may have to pay inheritance tax in the UK and the country in which the property investment is located. Do you understand these laws and the financial implications for your property investment?
  • Are you investing in an appreciating property or perhaps taking a gamble on a developing country? These are different types of property investment and you need to be clear about the type that suits you. Also, can you be sure that the country in which you buy is going to remain stable, politically and economically?

Property Investment #5: Investing in buy-to-let property

You could choose to buy a property investment that you intend to let to tenants, with the rental income invested for your children’s future. If you choose this property investment option, you must become familiar with rules and regulations associated with letting accommodation. These include the following:

It is the landlord’s responsibility to maintain the property in good order, and to carry out any necessary repairs to the internal and external parts of the building and services.

  • All gas appliances should be checked for safety every 12 months and this must be done by a CORGI-registered installer.
  • You must find out whether your property investment is a House in Multiple Occupation (HMO) and whether it will need to be licensed.
  • You are required to comply with the Furniture and Furnishings Fire Safety section of the Consumer Protection Act 1987 to ensure that all items of furniture are safe.
  • You are required to comply with the Portable Appliance Safety section of the Consumer Protection Act 1987 to ensure that all electrical items are safe.
  • Your property investment must comply with the Housing Health and Safety Rating System (HHSRS).

Find out more about renting and regulations here.

Property Investment #6: Leaving property to your child when you die

Many parents make a property investment for their children by leaving their home to them when they die. If you are already a property owner and you are intending to leave your home to your children, you need to think about maximising their inheritance whilst reducing their tax liability.

Also, you should note that children under the age of 18 cannot own land or buildings so, if you have children under that age, you need to consider whether it might be appropriate to set up a trust that will manage and maintain your property investment if you and your spouse die before your children reach 18. There are various types of trust that could be used for this purpose, and tax savings can be made if you choose this type of investment.

Find out more about trusts here.

Property Investment #7: Downsizing to a smaller property

Some parents decide that they wish to downsize to a smaller property and give the proceeds from the sale to their children. If you want to take this course of action, you will need to bear in mind the rules surrounding inheritance tax.

Various strategies for downsizing are provided in Catherine’s book, Property Investment For Your Children.

Read our seven steps to saving inheritance tax here.

Published on: June 2, 2008

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