Helping a young loved one can create a ‘rod for your own back’ unless it is done the correct and legal way.

Young 20 something year old John and his girlfriend bought a low cost house together with the help of his parents and a small loan.

After a year and a half, the relationship broke down and the decision was made to sell the house. The sale result was a slight loss, due to the cost of stamp duty, legal fees, and finance charges. The very short-term nature of the ownership did not allow for the long-term nature and associated capital gains of property ownership. It might have been better for the ‘buyout’ of the girlfriend to hold onto the long-term property investment.

All the costs, trouble, and effort of the purchase, getting the finance, payment of the stamp duty etc went down the drain. Possibly had the parents documented a partnership agreement to buy-out the girlfriend in the event of a split, the end result may have been far more beneficial for the two family owners! In this way the long-term nature and potential for profit could have been the outcome.

A second situation involved parents who lent $200,000 to their daughter and her partner (in their late 20’s) as the deposit on a house with no legal agreement.

This relationship ended with a profitable sale going to the daughter and partner (who had put no funds to the deposit) and the deposit loan from the parents being repaid. BUT the profit on the sale of the house went to the daughter and partner and NO interest was paid on the deposit loan and NO profit or reward was paid to the parents upon the sale.

A legal agreement should have been put in place to educate the daughter and her partner about the ‘real world’ of money and the payment of interest and documentation. The parents had the option to accept or reject any interest etc on the agreement depending on the situation.

Luckily the parents did not lose their deposit BUT the ending of this story could have been quite different.