Property investor says ‘use bank of mum and dad’ to buy a house

A leading property investor who has bought and sold more than 10,000 properties since leaving school at the age of 17, says youngsters nowadays should take advantage of the bank of mum and dad to help them bag their first home.

John Fitzgerald, the author of 7 Steps to Wealth, dished out some advice for prospective home owners who are struggling to scrape together the deposit for a property during an interview on Miranda Devine’s Miranda Live podcast.

The self-made property expert, who founded the JLF Group, told young people to “hit up your parents or grandparents” or find another way to get the money together in order to take their first step onto the property ladder.

Read more: Three big questions to answer before opening the bank of Mum and Dad.

Fitzgerald, who owned over $1 million in net property assets by the age of 25, told Miranda: “You’ve got to find a way. There are banks who will let you in on a five per cent deposit. If you can save up, save up. Or hit up your parents and grandparents for that stake.

“If you haven’t got the money, find access to it. I bought my first property in 1983 and I started with $2,500. It sounds scary but they are the hard yards you’ve got to do at the start.”

Mr Fitzgerald also claimed a joint venture between parents and their children can be beneficial to both parties, saying “team up with your parents, that helps them in retirement”.

He added: “There are three million Australians who own a property unencumbered, and they should be helping their kids out and getting them started. If the kids are willing to take on that responsibility.

“The parents are the ones that are retiring broke. I have a lot of people who are kids, Millenials in their 20s earning good money and they’re actually teaming up with their parents to build a small portfolio of properties. And that’s helping their parents in retirement. We can scratch each other’s backs in that regard.”

A recent survey, carried out by Westpac/Ipsos revealed that one in five Aussie Baby Boomers have actually helped their child enter the house market by gifting or loaning them cash. Of those, 12 per cent said they gave it as a gift, while 10 per cent loaned their grown-up children the money.

However, the ‘Bank of Mum and Dad’ does come with some associated risks, especially for those who have concerns over whether the money would ever actually be repaid, while for other parents loaning or gifting the cash for a deposit is simply not an option.

St. George Bank recommends that anyone considering lending a substantial sum of money to their offspring should formally document the loan, saying: “If you decide to lend a sum of money directly rather than via a joint borrowing or guarantor product, it’s vital to carefully document your agreement. That’s because although a verbal contract is legally binding, without written evidence it may be difficult to later prove the terms of the agreement.”

Read more: You can help your kids onto the property ladder with or without cash.

St. George also warn that the loan could be the cause of disputes further down the line, particularly for parents with more than one adult child. They said: “Who you disclose the loan to can help head off family disputes down the track. If you have more than one grown-up child, it’s worth considering whether to discuss the loan with them before completing the transaction –they may have thoughts on the issue that you were unaware of or hadn’t already considered.”

They also suggested a number of ways to help children purchase their first home, without forking out their own hard-earned cash, such as; helping children to improve their credit rating, acting as guarantor on a loan, helping them to explore available government grants, and simply setting a good example to follow by living within your means.

Should parents help their adult children to get onto the property ladder? Or should kids be able to support themselves?

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.