The following post is a guest post from Houston, Texas area real estate developer and entrepreneur Tracy Suttles. Tracy can be best contacted for questions, comments and concerns on Twitter at @tracydsuttles.
Often living on a single income and paying day-to-day expenses such as rent, school fees and medical costs leave a family’s disposable income significantly lower than is desired. Therefore, it can be very difficult for families to save the funds required for a deposit to buy a home of their own.
Caring relatives can provide the necessary support for family members looking for ways to invest in a property.
Family Assistance Can be in Many Different Ways
Monetary Gift- Relatives always spend money on gifts at various times of the year such as birthdays, anniversaries, Christmas and Easter. These can add up to a substantial amount of money over a few years. So if they wish to help the family, they could make a ‘one-off’ monetary gift to cover all presents for all members of the family, for a chosen number of years.
Family Guarantee- A parent or a sibling could simply ‘guarantee’ the loan. This process does not involve the guarantor making a monetary contribution. However, it is important to seek legal advice prior to undertaking this course of action.
Co-Applicants- A family member, relative or even a close friend can be a part-owner of the property as well as a joint-borrower. This process is a little more complicated because it involves working out future financial commitments.
- Who is responsible for the standard outgoings such as rates?
- Is there a payment from the person occupying the house to the person who is not resident in the property?
- How is the maintenance costs shared?
- What happens if one person wants to sell the property?
What are the Complications of a Guarantee or Co-Borrowing?
It is all very well to be altruistic and wish to help family members. However, care should be taken to put safeguards in place to protect the finances of the people involved and, more importantly, the relationship.
There is nothing more soul destroying than family members falling out over financial matters. It can have far reaching effects with other family members taking sides according to who they think is right or wrong. A simple precaution would be to establish a formal written agreement which sets out each person’s rights, commitments and liabilities.
Advantages of Property Ownership
- Paying rent does not help in the process of wealth creation. However, paying a mortgage will eventually lead to property ownership and capital gains.
- Living in an own home is more stable. A landlord can always give notice to vacate a rental property.
- An owner-occupied home can be styled to suit the personality of the people living in the home and will give the people a sense of pride and individuality.
Relatives who can assist family members to take that first step towards home ownership will be making a very useful contribution. The decision as to the type of assistance will depend on the individual circumstances.