With June celebrated as Youth Month, Jonathan Kohler, CEO of Landsdowne Investment Properties shares, what he believes to be, the best way to help your child get a foot on the property ladder way ahead of their peers.
“Parents can help their children get onto the property ladder well before they’re even out of nappies,” explains Kohler. “If they buy an investment property. This can be a great investment for their child’s future.”
“Buying an investment property for your child is a little different from buying a house for your family to live in. In many ways, it provides even greater potential gains, but you need to expand your investment horizons to maximise that potential,” says Kohler.
If you were to buy a one bedroom, one bathroom investment property apartment for a child when they’re born, the home loan for the property would have been paid off, at minimum, by the time your child is 20 years old.
Help your adult child buy a home
For over 12 years in the residential sectional title space, the one bedroom apartment has been the best investment property performer. Property prices can range between R750,000 to R1m in this sector of the market.
The simple secret to a successful buy-to-let investment property
The rental achievable for studio and 1 bedroom apartment range from R5,000 to R8,500 per month – dependant on the location and positioning within the complex. This rental price point constitutes the largest amount of quality tenants in South Africa.
Affordability for these clients should be calculated, the same way banks pre-qualify clients for a home loan, their gross monthly income should be three times or greater than that of the monthly rental amount. So, to qualify for a monthly rental of R5,000 per month, a tenant would need to earn a gross income of R15,000 a month. Similarly, to qualify for a rental amount of R8,500 a month you would need a gross income of R25, 500 a month.
Consider this before deciding to become a second time buyer
“Property can be a great investment for a child. At best, it grows in value and helps secure their future. If the worst happens and the property falls in value or remains stagnant, at least they will have property they can hold on to during the lull in the market. The one bed, one bathroom property market is relatively immune to volatility in the market, as there are always tenants that fit this criteria,” adds Kohler.
1 bedroom ground floor apartment Price: 740,000 (transfer duty free) Rental: R7,000 Levy: R977 Rates: R320 Net rental return: 9.25%/ per annum Appreciation: 8% per annum Total return on investment: 17.25% per annum Why first time buyers are being left behind
The top 3 tips to protect your investment:
Kohler says that while the property investment will help get your child on the property ladder, gifting your child, a property will have tax ramifications, including transfer duty and capital gains tax, so it is best to discuss these impacts with your tax adviser to ensure you fully understand all of the considerations and impacts.
Regardless, this gift will help your child to get into the property market and will catapult their financial wellbeing well before they realise the gift you’ve given them.