With young school and university leavers now aware that it pays to become property owners early on in life – but with well-paid jobs still extremely difficult to find – one of the questions he is frequently asked, says Bill Rawson, Chairman of the Rawson Property Group, is:
“How can I help my children get onto the property owning ladder?”
One way of doing this, says Rawson, is to put one’s own home up as suretyship on the children’s bond, thereby enabling them to get a bond that he might otherwise not have qualified for. This, however, can be risky: no one wants to find themselves having to sell their family home to pay off debts incurred by one of their children.
A less risky and in most ways, a more convenient arrangement, says Rawson, is for the parent to loan the child (or for that matter any other person they wish to help) part of the bond.
“Supposing your son or your daughter has a R1 million, 100% bond on a sectional title unit in a good area at an interest rate of 9.5%. Having inspected their unit or the developers’ plans for it, you know that this is a sound investment. However, a payment of around R9,500 per month is above what your child can afford. In a case like this, you could, say, pay R500,000 into the bond and then ask for only a 5% monthly interest charge – a considerable reduction on the 9,5% at which money is often loaned out today. That would reduce your child’s monthly bond payment by approximately R1,500.”
In a situation of this kind, says Rawson, the parent could protect himself or herself by making it their legal right to take over the property should the beneficiary fall into serious arrears on his payments.
In his experience, adds Rawson, children have to be protected, not so much from losing their jobs, although that does happen even to the best people while they are still finding their niche in life, as from exploitative partners.
“I regret to say that I have seen several unfortunate liaisons, often then endorsed by marriage, which resulted in one partner’s assets being expropriated by the other because he or she has a tendency to run into debt. Hard though it may sound, children need to be protected from committing any of their finances to another person – what they do with their hearts is not in the parents’ power to control but assets need to be very securely ring-fenced.”
Rawson adds that the advice recently given by Mike van Alphen, National Manger of Rawson Finance, that bequeathing property rather than cash to children, with the proviso that it cannot be sold for a specified period, is a safe way of protecting a beneficiary from spendthrift tendencies.
“Time and again I have seen the rents from one or two properties sustain a reckless or inexperienced beneficiary through a difficult period when, had they been able to get their hands on the cash, it would almost certainly have not been used responsibly.”
