Ep 54. Buying with the Bank of Mum & Dad
In this episode, Michelle discusses the rise of the bank of Mum and Dad.
Here’s what you’ll learn from today’s episode:
Why clear expectations need to be set.
Why open and honest communication is crucial.
The importance of professional guidance.
About the legal and financial considerations.
Speakers in today’s episode:
Michelle May - Michelle May Buyers Agents
Follow Us:
Enjoy the show?
Don’t miss an episode, follow via iTunes. If you like it, please leave a review!
Or, find us on the podcast app of your choice, such as Spotify.
This podcast has been produced and edited by Snappystreet Creative
Please note that any views or opinions presented in this podcast are solely those of the speakers, and do not necessarily represent those of any business. These views and opinions are general in nature, and do not take account of your personal objectives, financial situation and needs. Please consider whether it applies in your circumstances and seek professional advice wherever appropriate.
Listen to the Episode Now
VIEW TRANSCRIPT
Hi, and welcome to another episode of The Buy Your Side podcast. The property podcast to help you make smarter property buying decisions. My name is Michelle May, and I am the Principal of Michelle May Buyers Agents here in Sydney.
Today I want to talk about the rise of the Bank of Mum and Dad and things that you may want to consider before you get involved. What I have seen of late, and certainly over the last 18 months, is that we have always had parental help with our first home buyers in the past in the form of a gift, a loan, a guarantor ship etc, etc. It was typically always the person who was purchasing, i.e. the first home buyer who would get in touch with us, and they would tell us down the track that mom and dad were gifting them money, or helping them in some form, but what I've seen lately is that the parents are getting in touch with us at first instance, finding out what it is that we do, the services that we offer and then passing that information on to their children. That is something that is new to me, and the level of involvement of the parents is something that's changing quite drastically.
I recently had a search where the parents initially got in touch with me and when I said, well let's have a chat altogether with your son, they were quite taken aback because they thought that since they were providing much of the money, the son didn't really have much say, which was a bit of a red flag for me. I even had a mother call us up and call my assistant Naomi, saying, my son and his wife are getting money from me, but quite frankly, my son is an idiot, which is why I'm calling you because we need help. Now, red flags galore I think, the poor son. So that's why I thought, let's have a chat about this because you might currently be in this situation, and it can be a tricky one because you are getting help to get on that property ladder, but what actually are the strings attached, and how do you navigate this?
I understand, of course, that as a parent, you want the best result for your child, and typically, the money that is gifted or lent is not to be sniffed at. You know, it's not a couple of thousand dollars. It's usually 10, if not hundreds of thousands of dollars that are transferred, and so of course you have a concern that you know they may be buying a dud and sinking their money in the wrong place and especially given all the media that is happening around, bad strata’s, but bad build quality, defects, etc, etc., you might be concerned. Totally understand that and even you as the child in this equation might be concerned about that, so if a Dad, because it's mostly the dad, voice their opinion on certain things, you know you might go, okay they might know what they're talking about because they may have more experience, but let's put some context around this Ok, because by not having upfront and open and honest conversations upfront you might be in for a real headache down the track, and it might really change the dynamics in your relationship and God forbid cause an argument or two. So, I think it's really important to see this from both perspectives and then hopefully I can give you some pointers on how to navigate this.
In the past parents have paid for our services and said to the kids, okay, we're paying for a buyer’s agent so we're confident in the knowledge that you are actually being guided and you're actually learning and walking away from the wrong thing and doing all the right due diligence, etc, etc. That's one way to safely navigate this if your parents are okay with being hands off and trusting their process with this, so a part of the gift can then be the cost of the virus agent right, which is not a bad thing, because as a child, it allows you that autonomy to pick what you want, but also be safeguarded from making a very expensive mistake, so that is an option for sure.
The other thing is also, to put a bit of context around where your parents got this money from right, because I think there is a little bit of a sense of entitlement, a sense of ‘chip on their shoulder’ may I say, from the boomer older generation to say ‘hey we've done extremely well in property, so Let me teach you what I know’, but quite frankly Mr. Peterson you last bought a property in 1973 or maybe 1998, and you haven't done anything since and if we were to measure how well you did in terms of the market and a capital growth rises above the median we might find that, yes sure, you made a bit of money, but not as much money if you had chosen a different property. Having said that, taking parents’ advice as gospel might not always be the right thing to do. I know it's a bit controversial, but I'm saying it, so there is that as well. So I think before you clap your hands in glee and think okay I can finally get on the property ladder because my parents are gifting me X amount of money, you need to have a conversation with your parents and sit down and go, so this money that you're gifting myself and my partner potentially, which adds another bit of spice to the equation if you will, what does that actually look like to you Mum and Dad. Is this going to be a gift no strings attached, is this going to be a loan, is there going to be potentially interest on the loan, and what happens when I sell. When it's a gift does that mean I can pick what I want, or do you actually have requirements around what you determine to be a good property or not, and do you have the right to veto, which is what happened recently when I was working with this Mum and Dad and their son, where the parents ended up vetoing properties that the son loved, but the parents didn't like because of it having a galley kitchen, or it having a tiled floor or whatever the case was, which then complicates matters very dramatically because we all know that as first home buyers you don't have an awful lot of choice to begin with, so vetoing power from parents on things that are really not essential, in the context of things, like finding a good strata is much more important in my opinion, then the fact that the kitchen is a galley kitchen as opposed to a u-shaped kitchen for example. Particularly if your parents don't come around and cook at your place on a regular basis, let's be real. So, you need to be very frank with your parents about this, okay because it's going to cause major headaches if they put their foot down and you can't go for the property that you deem to be perfect.
If it is a loan, what does that look like, and I think, the only way to go, even with the gift, and whatever, if there is any kind of financial help you really need to sit down and document this, either with the help of a solicitor or conveyancer just to make sure that there is no misunderstanding down the road because let me tell you a thing or two about people and money. As soon as money is involved people can do very strange things and very hurtful things and things that you would never ever have expected, even if it's family, sometimes especially if it's family. Documented it, look at it as a business transaction, and tell your parents that this is not a bad thing, this is also a good thing to safeguard their investment into you and the property. The more honest you are, the better. Write that brief, we don't take on any clients without a written brief, which is the agreement between them and us so that we can be upfront about what is actually achievable or not and set the expectation based on medium prices, comparable sales, etc, etc. So, look at it like that, use it in the context of a business transaction to make sure that everybody's on the same page and that there are no grey areas when it comes to the money.
The other thing is obviously like I mentioned before is when a partner is involved, whether that's de facto or married, and also children even. What happens if the couple splits up, what if you split from your partner, do he or she when you sell the property still have fifty fifty, or whatever it is, ownership of the capital growth, the profit that you make. Again, I am not a lawyer, but this is something you might want to talk about before this happens, and of course we all want to stay with our partners forever and ever, but if it doesn't happen, it's good to have an understanding about this before you get into the heartbreak part of it. What about if you sell, like I said, do your parents get a percentage size of the profit equal to the percentage of investment that they made into you or is it just to help you on your way, and off you go. That's great if that's the case, but you can't assume anything, and particularly when there are partners involved, everyone may have different differing ideas. I think this is a hard conversation to have upfront, I acknowledge that, however, if you don't have it, if you don't get some guidelines around your expectations of each other things can get very tricky so at least being direct and open and honest about this will help you set your expectations and also will make your property journey a much easier one, which let's face it, it's hard. It's not easy. It's a full-time job and you know having help from the parentals is fantastic. Just make sure what you're letting yourself in for now.
Now, the one thing that I would mention is that we as an agency have a thing called the focus session, which is a two-hour session, which is face-to-face or a Google Meet. Where you get to talk with me, or with Nicola my other Buyers Agent in the team, and what we do is we take your brief and break it down and give you facts and figures to help you navigate the market. We look at what could you have bought in your preferred area in the last three months to give you an idea of affordability. Whether that matches up with your expectations and your needs and your wants, but also your parents needs, their wants, and then we give you alternative locations, give you options, think outside the box. During that 2-hour session you can also ask me any question that you may have, whether you may already have a property in your sights that you're interested in, we can talk about that, the way forward strategy wise. I give you all my expertise that I have to help you really get to grips with what is possible and give you the tools to navigate the journey ahead. It's a two hour session, if you want to know more about it get in touch email me at hello@buyyourside.com.au or jump on my agency website, which is michellemay.com.au, the information is on the website, or you can get in touch via there as well.
If you let me know that you listen to the podcast, then I will give you an extra discount, and if you really want to involve your parents in this journey as well, then that would be great too because then they are on the same page as you are. I've done this in the past with clients, and it's been a really effective way to shortcut all the wishful thinking and potentially the naivete of parents and preconceived idea of what they think you should be doing, so very helpful tool. Get in touch, and I would love to help you navigate this with you and your parents.
Thanks for listening, I hope this has helped you get around the idea of my parents want to help but what do I do next. If you have any other questions, by all means, get in touch.
Like I said hello@buyyourside.com.au, leave me a review if you find this helpful, the more reviews I get, the better I get seen and the more people get some more useful information down the track. So, thanks for listening and until next time.