Help your children buy their own home
Investor Insights - Monthly news for investment professionals 16 June 2015

Are your children renting? Want to help your children buy their own home?

The thought of buying a home can be both exciting and daunting.

The deposit amount and ongoing interest charges of a loan can really add up, making home ownership for your children seem out-of-reach; especially with today’s ever increasing house prices.

It’s no wonder many potential younger home buyers are asking whether they’d be better off renting. Many of them ask "isn’t renting just throwing money away?" In one regard we say yes absolutely, rent money can be dead money. When you just rent then you are not investing your rent payments and it can never grow. You are simply paying off someone else’s home loan by providing them with rental income.

Make your children’s dream come true sooner

The good news: you can help make your children’s dreams come true.

At La Trobe Financial we have designed our P2CTM product to specifically address the affordability gap between current house prices and median income multiples – now at a staggering 5 times income.

The P2CTM product seeks to protect parents’ wealth in cases when they want to assist their children, and at the same time enable children to enter the housing market without the need for asking mum and dad to put their wealth at risk through bank guarantees, or additional mortgages against the parent's primary residence or other property.

How can I work out if it’s better to rent or buy

New and available immediately on our website is our Rent V Buy Calculator a unique special feature of the P2C website and loan product. The P2CTM calculator Rent V Buy illustrates the potential benefit of either renting or buying a property at different points in the economic cycle. You can change the key market assumptions that affect the outcome to better understand your potential situation. The Rent V Buy Calculator model does not take into account all factors that may be relevant.

Scenario One

As an example, let’s look at our first scenario – A purchaser is looking to buy a home at the purchase price of $550,000. They arrange a loan for $440,000 at the interest rate of 5.60% with a loan term of 30 years.

If we were to compare buying against renting a property over a three (3) year period (and also consider all the costs incurred) and the house was sold, you would be better off renting the property as you would save $8,757.

In other words:

  • RENTING: $1,800 per month (rent) @ 3 years = $66,744 (yearly rent increase 3%)
  • OWNING: $440,000 (loan) @ 5.60% @ 3 years (plus incurred costs) $125,001 minus $49,500 (property appreciation) = $75,501

$75,501 - $66,744 = $8,757

Better off renting as you would save $8,757

Scenario Two

However, let’s look at our second scenario – A purchaser is looking to buy a home at the purchase price of $550,000. They arrange a loan for $440,000 at the interest rate of 5.60% with a loan term of 30 years.

If we were to compare buying against renting a property over a seven (7) year period (and also consider all the costs incurred) and the house was sold, you would be better off owning the home as it will cost you $48,387 less than renting over the 7 year period.

In other words:

  • RENTING: $1,800 per month (rent) @ 7 years = $155,736 (yearly rent increase 3%)
  • OWNING: $440,000 (loan) @ 5.60% @ 7 years (plus incurred costs) $222,849 minus $115,500 (property appreciation) = $107,349

$155,736 - $107,349 = $48,387

Better off owning as you would save $48,387

So if you are considering helping your children, click on the image below to find out how much money you could be saving.

Best regards,

Chris Andrews
Vice President,
Chief Investment Officer

     
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Ratings And Awards



The above awards and ratings were given to the Pooled Mortgage Option within the La Trobe Financial Mortgage Fund and may be viewed

La Trobe Financial Asset Management Limited ABN: 27 007 332 363 and AFSL No: 222213 is the issuer and manager of the La Trobe Australian Mortgage Fund. It is important for you to read the Product Disclosure Statement for the Fund before you make any investment decision. The PDS is available on our website www.latrobefinancial.com or by calling 1800 818 818. You should consider carefully whether or not investing in the Fund is appropriate for you.

- The rates of return from the Fund are not guaranteed and are determined by future revenue of the Fund and may be lower than expected. Investors risk losing some or all of their principal investment. The investment is not a bank deposit.
- Past performance is no guarantee of future performance.
- Withdrawal rights are subject to liquidity and may be delayed or suspended.
- The award and ratings were given to the Pooled Mortgages Option within the La Trobe Australian Mortgage Fund.
- Any rating is only one factor to be taken into account in deciding to invest.

1. Zenith's "recommended" rating indicates that it has high confidence in the manager meeting its objectives. The Zenith Investment Partners ("Zenith") ABN 60 332 047 314 rating referred to in this document is limited to "General Advice" (as defined by section 766B of Corporations Act 2001) and based solely on the assessment of the investment merits of the financial product on this basis. It is not a specific recommendation to purchase, sell or hold the relevant product(s), and Zenith advises that individual investors should seek their own independent financial advice before investing in this product. To view the relevant research information, please visit www.latrobefinancial.com The rating is subject to change without notice and Zenith has no obligation to update this document following publication. Zenith usually receives a fee for rating the fund manager and product against accepted criteria considered comprehensive and objective.
2. SQM Research - 4 stars to 4.25 stars - superior, suitable for inclusion on most Approved Product Lists. To view the relevant research information, please visit www.latrobefinancial.com This rating will not take into account your, or your clients' objectives, financial situation or needs. It is up to investors to consider whether specific financial products are suitable for your objectives, financial situation or needs. Research houses receive a fee from La Trobe Financial for rating the product.
3. Lipper Leaders Rating Total Return (Score – 5) Lipper Ratings for Total Return reflect funds’ historical return performance relative to peers. The ratings are subject to change every month. The highest 20% of funds in each peer group are named Lipper Leader or a score of 5 for Total Return. Lipper Leader ratings are not intended to predict future results and does not guarantee the accuracy of this information. More information is available at www.lipperweb.com. Thomson Reuters Copyright, All Rights Reserved.
4. Australia Ratings (AFSL 346138) makes every effort to ensure the reliability of the views and rankings expressed in its reports and those published on its websites. Australia Ratings research is based upon information known to it or which was obtained from sources it believed to be reliable and accurate at time of publication. However, like the markets, it is not perfect. This report is prepared for general information only, and as such, the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Individuals should therefore discuss, with their financial planner or advisor, the merits of each rating for their own specific circumstances and realise that not all investments will be appropriate for all subscribers. To the extent permitted by law, Australia Ratings and its employees, agents and authorised representatives exclude all liability for any loss or damage (including indirect, special or consequential loss or damage) arising from the use of, or reliance on, any information within the report whether or not caused by any negligent act or omission. If the law prohibits the exclusion of such liability, Australia Ratings hereby limits its liability, to the extent permitted by law, to the resupply of the said information or the cost of the said resupply.
La Trobe Financial is one of Australia's leading independent credit specialist Fund Managers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 150 staff and has managed over AUD$10 Billion covering over 100,000 investment grade assets since inception in 1952.

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La Trobe Financial Asset Management Limited - Australian Credit Licence Number: 222213

This publication does not constitute financial advice and should not be relied upon as such. It is intended only to provide a summary and general overview on matters of interest and it is not intended to be comprehensive. You should seek your own financial or other professional advice before acting or relying on any of the content.
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