The Case for Family Investing

Edge Lending Solutions guides families towards building multiple property portfolios using strategic financing, asset protection and investment knowledge. They specialise in Investors, Self Employed borrowers with irregular income and Self-Managed Super lending.

 Life is a game, and always has been.  Climb the ladder, take some risks, and maybe you get to the high parts of the mountain ahead of other people (although less than 1% actually get to the top summit).

The world is finite.  Resources are finite.  Land is finite (unless you go and build some islands in the South China Sea and pretend they were always there). 

Despite this, today’s technological revolution has created such great efficiencies in our lives, even though we have more human beings standing on this rock than ever before.  We are somehow clever and resourceful enough to create an oversupply of products & commodities like steel, oil, dairy, wheat, human labour and even mobile phones.

But the world is fast becoming awash with problems.  The overcrowding and the shifting human masses along with the misallocation of resources.  Indiscriminate terrorism has in recent times hit a new peak.  And modern paradox - the technological wave improving everyone’s lives yet making middle aged generations unemployed and even unemployable.

And through all of this, Australia has shone out like a beacon through the fog (or smog) as a land of prosperity with rule of law, a very generous welfare safety net, and blessed with natural resources and more importantly – large tracts of prime agricultural and farming land.

We are also very generous in letting people come to our country and then stay permanently.  People can buy their way into this country with a study visa, then apply for a Permanent Resident Visa (PR), and then be eligible for all of the benefits a citizen would get.  They are eligible for welfare if required, hospitals and education, and can even purchase existing property.

We allow this because we don’t want to take our own pain.  We would prefer to borrow money from overseas to fund aged pensions, welfare, free medical and schooling.  We prefer to live beyond our means and let the next few generations of tax payers cough up for the bill.  Some would say that letting foreign people settle in our lands and then pay taxes is actually the solution, and it may well be.  Others say that by selling our ports, electricity grids and other national assets that we can pay down our large national debts, and therefore borrowing to pay for welfare doesn’t matter because we can just keep “selling out”.  

But at what price?

 Once you open a gateway for billions of cashed up people to buy up parts of the country, you create an environment where existing citizens are competing with a frenzied herd mentality who often have much greater financial resources at their disposal and are happy to “play the game”.

The game they are playing is Monopoly.  The idea?  Accumulate as much real estate in the shortest amount of time, and then control whole areas for your future family generations.  Most of the world, especially Asia, knows that real intergenerational wealth comes from constant accumulation of assets – not trading them.

You have to hand it to them because they play the game well.  Often we see high levels of international student enrolments at our universities, and we sit there rubbing our hands together because our Universities can then charge large fees to subsidise the basically free University attendance we almost force our kids into, and make them study for jobs that don’t even exist.  So we encourage it, and even call it an “export”.

Yet then the student can apply for a PR Visa with not many challenges.  Once that has been achieved, their parents will send large chunks of cash (hundreds of thousands of dollars every few years), to assist in the buying of Australian real estate.  Nothing illegal here, because PR’s can buy existing houses and even investment property.

So they purchase property knowing full well that these are more like “family assets”, used to help accumulate the wealth of their extended family that may in the future want to come and reside in our country also.

I actually have no problem with this, as I favour democracy.  And the people of this country have voted in politicians from both sides of the fence who continually encourage this – so we all get what we ask for.

But the issue is that the next generations of nationalised Australians have to compete with majorly cashed up foreign buyers all playing Monopoly.  In Sydney and Melbourne they are consistently getting beaten to the punch at auctions.  These are merely the facts.

And whole generations are furious.  They are blaming the government tax policies like negative gearing, Capital Gains Tax concessions and some are even saying that we should be firmly “encouraging” older generations to downsize out of their homes to put more stock onto the market.

But none of these issues worry or affect the buying decisions of foreign cash who expect to hold property assets for 100 years – so CGT restrictions only hurt the little Australian guy.  And there are whole cities around the world (with some anecdotes relating to Melbourne & Sydney) where 75% of apartment towers are empty because foreign buyers don’t care about having tenants.  They see property as a term deposit.  So limiting negative gearing again only hurts the little Australian guy.

Where am I going with this?

My thoughts are that we can’t turn this tide without some radical policy changes, like many parts of the world where only national citizens can buy real estate, and all other foreign born residents can perhaps apply for 99 year Crown Leases of real estate.

But that’s not going to happen anytime soon.  If we did, one of our major trading partners would be most upset and maybe threaten to delay/ban/scrutinise our exports to them – like say milk.  So we don’t have the intestinal fortitude to do that.  And maybe they would just find a way around it anyway.

So my point is this – we need to be players.  Don’t whinge about the game, but get a seat at the table.  You may not get to the top of the mountain, but you may get a fair way up the hill.  And you just may boost your kids past your position on the ladder as well.  And hopefully their kids go past them, and so on.

We need to get family investing back into the mainstream Australian psyche, and pool resources like our competitors are doing.

Many banks have family Guarantee loans that allow parents (or other family members) to utilise lazy equity in their property and help their children onto the property ladder.  It can even be done to purchase investment property.  We need to give them a start.

Once they have proven themselves, and have some assets behind them, then being Joint Venture partners with family members is a fast track way to accumulating property wealth also.  There are many different ways these can be structured to protect all parties, and many different investment scenarios that this suits.

Edge Specialist Advice Network has specialised in guiding many families down this path over the years using asset protected vehicles, strategic financing and a thorough understanding of real estate as an investment asset.

It is never too late to start.

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