Should I Lend My Son The Money to Buy a House (Short Term 2 Years) to Access The Extra $25000 Homebuilder Grant? WCGW

maximum on 08/06/2020 - 05:17

Looking for some devil's advocates.

I have a block of land which if I sold (offer has been made, price agreed, and contracts are out but not signed by either party) would net me $307000 after costs and capital gains etc.

I am lucky enough to be able to afford to lend some money to my son (19, casually employed, ft student one and half years to go, good saver $25000 deposit) to buy my block and build a house starting within the next 3 months.

The money is still the banks - I have access to a mortgage which is secured against my other property not the block and my bank said I could use the money to do with what I please.

If I lent the money to my son it would worse case scenario net $50000 after 2 years plus the NSW first owners grant and homebuilders grant ($35000).

I was selling the block so I could relax and owe absolutely nothing even though I could make a profit ($38500 net) if I built and sold. I have been building selling moving etc for the last 25 years hence the wanting to relax. But then this grant came up and confused the situation.

He would live in the property and then sell after one year. He likely would get flatmates to pay some rent - but this has not been factored into the calculations. He would walk away with the grant and the extra profit would be split 50/50 with my younger son so they both get something out of it.

If he ran away with the money it would mean I would be paying off the loan without the asset but realistically that is doable and highly unlikely. He is a really good kid and it's eventually his and his brothers when we die anyway. He already gives me all his wages to save for him so he trusts me too. He'd miss out on way more long term.

I don't have long to think - as the potential buyer want to move quick to get the grant too. What haven't I considered?

TLDR Should I loan my son who couldn't get a mortgage (at my mortgage rate) enough money to build a house and access the extra $25000 homebuilder grant? It would leave him with $60000 and his brother with $25000 and me in the same position as now.

Poll Options expired

  • 16
    Yes
  • 52
    No
  • 4
    Use the money for bikies/investment cars
Financial

Comments

  • epkh on 08/06/2020 - 06:50

    Would he be able to get a mortgage working casual as a full time student?

    • maximum on 08/06/2020 - 07:21

      No way would any traditional lender touch him even if he was working more. Deposit and income is too low. In 3-4 years he would have been looking to buy a place once he had started full time work but the extra $25000 grant won't be there then so this will just hopefully put him in a good position to buy again then.

  • Euphemistic on 08/06/2020 - 06:50

    Why not? Parent help buy houses all the time. If you don’t help him will it make a significant difference to your lifestyle?

    Just make sure there is some form of contract drawn up per your agreement so he knows up front what the deal is. Expect that the situation will change and things may go wrong, but make sure communication is kept up so you can prepare for any changes. Also make sure that your other son knows the deal too. Worst case, you lose some money to your son. Best case, everyone wins.

    • maximum on 08/06/2020 - 07:32

      My other son is almost 16 and the most important thing to him is getting his learners drivers licence and computer games.

      I haven't mentioned profit sharing to either child - in case the market turns to rubbish and there isn't one. The eldest is happy to just release the $25000 homebuilder and $10000 first home owner to add to his savings. He assumes the profit will come to us. Any gift to them will be a nice surprise.

  • elgrande on 08/06/2020 - 07:39

    What happens if your son gets married in the next 2 years?

    • whooah1979 on 08/06/2020 - 07:46

      Babies?

    • maximum on 08/06/2020 - 09:38

      Yes finding love can be wonderful but can cause trouble. While there are no future spouses in the pipeline I know a house can make you more attractive to a potential spouse. Plus he's a catch even without any assets.I trust his judgement on any future partners.

      My son will have a substantial loan to pay back to me so there not much to be lost to another party.

      If he was actually getting a lump sum from me I would consider what an old neighbour did when he sold/gave his son a property and was worried about his son losing it to a partner. He had an agreement drawn up for compound interest on the sale amount which became payable along with the principal on request. He never intended to get any payment from his son. When his son split from his partner and settlement was done dad called in the loan and the son actually owed his dad more money than the property was worth and so the partner walked away with just what she came into the relationship with. He then did another agreement with his son to make sure he was covered again.

      I'm a prepare for the worse kind of person so I'll make sure this is covered.

      • elgrande on 08/06/2020 - 19:53

        great insight, thanks

  • EFC94 on 08/06/2020 - 07:44
    +11

    I don't know how this is going to work for you? You're basically forcing your son to build a house, which banks won't lend him money to build, so he can get a couple of grants from the government. But then sell the house after a year. Your "profit" is not guaranteed by any stretch of the imagination.

    I suggest you rethink what you're actually trying to do here and what's best for both parties.

    Edit: Also consider the interest he will need to pay on a mortgage over the course of however long he owns it for. This will further eat into his "profit". You'd be better off just giving him $25,000 as a gift when he decides it is the right time to invest in the housing market himself. Not having a parent make the decision for him.

    • maximum on 08/06/2020 - 09:13

      The profit is taking into account interest for 3 years in case it takes longer to sell or build. My son is fully involved and informed we discuss finances openly and he is very financially literate. I am asking the question I guess as what things I haven't considered such as future stamp duty exemptions etc so we can take this into account when doing the sums together.

      Of course I will go guarantor for him later on and chip in a little to make it easier but the $25000 is from the government and is unlikely to be available from the government at a time in the near future which is when he was looking at investing in property. It is on top of anything I will give if I choose later on. My children have always been taught that no inheritance or future help is guaranteed but that we will set them up with a good education and a place to come home to at a minimum.

      All real estate and most investments are purely speculative that being said similar homes on the same road as the block have just sold for $80000 more than the figure I put into my calculations for profit. I used the lower figure because no profit or even break even is guaranteed.

      • EFC94 on 08/06/2020 - 10:13
        +2

        By the sounds of things you've already decided what you want to do. Sometimes you need to take risks when making an investments, otherwise you won't ever have any wins. But if I was your 19 year old casually employed son, I wouldn't like this. What if he wants to travel overseas with friends, buy a new car, motorbike or some other toy. You're only young once, let him have some fun for a few years before getting locked into home ownership. He's still got another 40+ years of his working life remaining.

        • maximum on 08/06/2020 - 12:58
          -1

          He will only be tied to this house for about 2 years. The interest will be compounded and repaid to us on the sale of the home so day to day his finances will the same.

          The only change for him is that he will have to live in the home for at least 6 months but I think it will be good for him to move out and live by himself or with flatmates if he wants.

          He has a relatively nice car and his plans to travel after uni will not be affected by this - except that I guess he could go for a bit longer as he knows he isn't eating into his deposit. His friends unfortunately can't afford to travel overseas as they have to work just to support themselves. He will likely go to Europe solo which scares me but also makes me happy that he is confident enough to want to do that.

  • SBOB on 08/06/2020 - 07:50
    +1

    net me $307000

    even though I could make a profit ($38500 net) if I built and sold

    Building means you drop ~$2.7 million?

    • Slippery Fish on 08/06/2020 - 07:54
      +4

      Lol look at the numbers again. If your going to be an arse be a smart arse.

      • SBOB on 08/06/2020 - 08:00

        True, extra zero
        270k :)

        Extra zeroes make all the difference before coffee :)

      • maximum on 08/06/2020 - 08:02

        That's why I'm here for people to pick holes in my plan before I decide which way to jump. The $307000 is what my block will worth if I put the proceeds back into my bank account if I just sold it now. Net was the wrong term to use I guess. I just meant the block is worth $307000 after costs to me. Sale price to my son, someone else or the ato will be more.

        The extra profit $38500 would be if I built - there is usually an increase in profit when you build a house as opposed to selling vacant land because people don't like taking on that extra hassle/risk and time. My son would get the $50000 profit as opposed to my $38500 because it would be his home so no CGT.

        Thanks for helping me clarify.

        • Slippery Fish on 08/06/2020 - 08:27

          Honestly do what ever your comfortable with, you sound like you have a rough idea. Keep in mind prices might fall in current situation and it will kill your sons stamp duty exemption for the future.

          • maximum on 08/06/2020 - 08:32

            @Slippery Fish: Thanks I'll have to work out the stamp duty value for a future purchase to make sure its still a viable plan.

  • [Deactivated] on 08/06/2020 - 08:39

    Suggest asking th child what they actually want to do, there will be future building stimulus in the next crisis so they wont miss out.

  • Traveller107 on 08/06/2020 - 08:55
    +6

    I personally have always been against the concept of giving easy money to kids. Especially at such a young age and more so for first home. You'll be taking away a big character building opportunity from him.
    Moreover, First house is a massive milestone in life and should be purchased with ones own money and own blood and sweat to make it the rewarding experience it is supposed to be.
    Plenty people don't agree but I'm just a bit old school.
    Cheers!

    • SydneySwan on 08/06/2020 - 10:04
      +1

      I agree.

    • maximum on 08/06/2020 - 12:47
      -1

      My children have had advantages of living in nice homes and going to good schools etc but have not been spoilt as such. They are very down to earth and both have been helping out at building sites with their dad and uncle on weekends and school holidays for free for years. My youngest will work for food but the older one is getting a little more fussy on the work he does for free he'd rather pick up a days paid work in an office than labour.

      It is a dilemma how much to help your children. My parents didn't give me cash for my first house but allowed me to live at home rent free to save for a deposit.
      They also paid for my degree.

      I remember my uncle saying give your children enough as you can afford so that they have choices of where they work but not if they work.

      I am not giving him a house just the short term paper ownership to release a grant which he is unlikely to be able to access later when he wants to buy a property. While it's a great advantage it probably will still be a struggle for him to get into the housing market without my help in the future.

    • Strahany on 08/06/2020 - 13:57
      +1

      If it’s a character building exercise, then most older generations lack significant character, considering the ease in which you could own your own home, even off a single income, in the past.

      • maximum on 08/06/2020 - 14:46
        +2

        My father in law who came to Australia by himself at the age of 16 with no English, an empty suitcase and one shoe had bought a house by the time he was 23. He's quite the character but you would be unlikely to be able to repeat that accomplishment nowadays.

        • Cheapskate Paul on 09/06/2020 - 18:40
          +1

          I can never understand why people keep one shoe. It makes walking very uncomfortable. Or carry around an empty suitcase for that matter.

  • Tyrx on 08/06/2020 - 09:02
    +2

    Will echo other comments in this thread - drop this idea. Banks will not loan money to a casually employed full time student. They won't factor in any money that you transfer to him for the deposit either.

    • maximum on 08/06/2020 - 09:54

      No banks involved on his behalf. I have enough money in redraw and savings etc to fund the full purchase. If he wanted to keep the house it could be an issue for him to afford to pay me back but by that stage he'd be finished uni and will hopefully be working full time.

  • screensaver on 08/06/2020 - 09:25
    +1

    Then there are the risks with building. What if you get a shonky builder who has his eye on the prize and jacks up prices?

  • screensaver on 08/06/2020 - 09:27

    Have you checked out builders and what kind of deals they have, and guarantees, insurances etc

  • RandomNinja on 08/06/2020 - 09:29

    My parents offered something similar with our first home owners grant 10+ years ago. They offered to lend to my fiance and I so we could both buy a property in separate names to leverage the grant. We chose not to for the sake of independence, but in hindsight, it would have paid off!

    Re: your proposal, if everything goes to plan it's not a bad idea - everyone involved walks away with more $ and your son will have gained some experience with property and building.

    But, it sounded like you didn't want to go through the hassle of building a home on your block of land and then selling it even though you would make more profit. If you lend to your son to build, you're basically going through the same hassles as you'll likely be doing all or most of the work and with an added layer of risk as it's no longer under your name and he becomes the final decision maker.

    So long as you're happy to shoulder the responsibility and trust that your son remains aligned on the plan, I reckon go for it.

    • maximum on 08/06/2020 - 13:04

      Yes my reluctance was that I was going to relax on the weekends and put in a pool and spa with the sale of the block. If we build it will be through a project home builder so you really don't have anything to do except landscape when it's finished. If we don't do this I imagine I will get bored and buy a house to do up as a project anyway. I have been saying this is the last house for the last 10 years.

  • screensaver on 08/06/2020 - 09:41

    As you have the land already you have an advantage. I just saw this, they also have a $500 refer a friend program
    https://www.newedgehomes.com.au/35k-free-premium-upgrades/

    • maximum on 08/06/2020 - 10:01

      Thanks I'm getting quotes now so I'll check it out. We do a mix of builders in our investments and owner building too when it's our long term homes. I think the most important thing is checking up on the builders and doing inspection checks. Some of the things they try and get away with is mind blowing. I'm not a builder but the Internet is great in letting you find out things like standard tolerances for things like brick laying etc so you know what is reasonable and acceptable.

  • Brucet on 08/06/2020 - 10:13

    Risky

  • [Deactivated] on 08/06/2020 - 11:31

    Why not ask the school!

  • shaybisc on 08/06/2020 - 11:42

    "If you have a go, you will get a go."

    What a brilliant scheme the Homebuilder Grant is.

    • maximum on 08/06/2020 - 12:29
      +1

      I think it is a policy which helps people who likely don't need support and is unlikely to contribute to a large scale injection into the building industry but if it's available and my children are going to be paying for it long after I retire we might as well get some benefit out of it.

  • Trying2SaveABuck on 08/06/2020 - 11:53

    1st world problems

    • maximum on 08/06/2020 - 12:25

      Definitely. I am very lucky to have this dilemma and most of my social group would not have any experience in this. Which is why I'm asking here as there are a lot richer more financially savy people here than I am likely going to meet in my day to day life.

      Money is not something I discuss with most of my friends unless they explicitly ask as I am aware my situation is different to theirs and I am sensitive to the fact that it could be a sore point with some people.

  • screensaver on 08/06/2020 - 12:59

    the key will be to get a good build at a decent price within deadlines eg that link I gave you has a first home special of 199,000

  • diceman99 on 08/06/2020 - 13:08

    My 2c worth.

    Sell the property to the current buyers to lock in your profit.

    Use the profits to give (or make an loan) to your son so he can secure a cheap block of land somewhere. He will receive both the grants.

    He can then build on his new block.

    • maximum on 08/06/2020 - 13:30

      Flat blocks of land near us are very rare unfortunately there are only about 3 for sale which will keep him under the property value for the grant and will be ready to go before the cutoff for the grant. There are plenty of sloping blocks but retaining walls split level houses etc are very expensive. If it doesn't happen with our block he will just miss out. He doesn't want to move more than 30 minutes away from home because his commute to uni and work will be too long.

      I am risking my profit today but hopefully for a bigger one in the future. I haven't experienced a long term market downturn the local real estate market in the last 20 years but you never know what the future holds.

  • sahh on 08/06/2020 - 18:12

    I would try and make the arrangement with your son as commercial as possible to emulate what he will face in the real world.

    Also is he interested in property development? Given you have so much experience this would be a good opportunity to show him the ropes by making sure he does his fair share of the leg work. Good work in getting to where you are now!

  • Cheapskate Paul on 09/06/2020 - 19:11
    +1

    "What haven't I considered?"

    You don't seem to have considered the consequences for the couple who thought they had bought your block of land.

  • screensaver on 10/06/2020 - 05:46

    thats true, although it works both ways. I recently said I would buy a strata car space, contracts were written up and I cancelled the sale at the last minute after reading the strata report

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