Rethink your property legacy: The best inheritance your kids can have is at the age of 30

Most parents want to help their kids in the property market, but often they help too late or invest in the kind of bricks-and-mortar they favour, rather than taking a professional approach to legacy planning – or understanding what their children really want or need.

“Young people are increasingly relying on the bank of mum and dad, which is today considered the ninth biggest lender of funds in Australia,” says urban designer and Finding Home author Lucinda Hartley. “Between 40 and 60 per cent of all first-home buyers now rely on parental support to get into the market.

“But the best inheritance you can have is at the age of 30. If parents wait until they die to pass on intergenerational wealth – as 90 per cent do – then their children will be 50 to 60, and a lot of banks won’t even lend to them, and it’s too late.”

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Hartley, also the co-founder of Zeroo Home Loans, says some parents say they’ll buy a place for their children, or give them money towards a purchase, on condition they buy something close to them, or something their parents rate highly, such as a house on land.

Neither, however, is as valuable as they imagine.

“Their children have to trade off that help against living the life they want, close to their friends and community, with the best career prospects, without commuting long distances and with their choice of amenities,” Hartley says. “It isn’t the best outcome.

“Also, the conventional wisdom that you buy a house on land, rather than a townhouse or apartment, is outdated. Today, in many markets like Sydney and Brisbane, apartment values are rising faster than those of houses.”

Financial advisor Heath Hebenton of Finextra Wealth, who specialises in legacy planning, says parents always need to advise their offspring to buy close to infrastructure, work, schools and, hopefully, transport.

“We do have [some parents] who buy investment properties for their children in areas that are good for rental potential and capital growth,” he says. “But we do say it’s better to give with a warm hand, rather than a cold hand after they pass.”

On the other hand, investing in residential property isn’t always the best insurance for kids’ futures, believes Rethink Investing chief executive Scott O’Neill. He sees many people starting off with one house and then planning to buy 10 more as their legacy.

“But that doesn’t work unless you have a big income to service them, and yields are so low – averaging 4 per cent gross and 2 per cent net – you get more on a term deposit,” he says. “It can also be problematic with difficult tenants and roofs that have to be replaced, and then children who want to sell and cash out.

“Instead, you’re better off steering towards intergenerational institutional-grade assets like small shopping centres, industrial sheds or medical centres. They have less volume and much higher yields, which is incredibly good for legacy because they provide high incomes.”

A $10 million shopping centre with five tenants, anchored by an IGA, for instance, bought with no debt, might provide a 7 per cent net return, which means a $700,000 clear income a year, with rents going up 3, 4 or 5 per cent over time.

“That’s a wonderful legacy for kids, especially at a time when so many may lose jobs to AI,” O’Neill says. “And if there are a few of them, they can just split the income.”