Should You Wait Until After Having Kids to Invest In Property?

Ready to navigate the crossroads of family planning and property investment? We tackle the pivotal question: Should you jump into property investment before or after starting a family? Join me, Casey Taylor, as we unravel the complexities of this decision, examining the sweet spot in your career when your income peaks and expenses drop. Discover how your borrowing capacity shifts with the number of dependents you have, and why timing your investment might be more crucial than you think. Through a live serviceability scenario, we shed light on how different life stages can influence not just your financial standing, but the quality and location of property you can afford.

Explore the potential impact of life events such as taking paternity or maternity leave on your income and the ripple effect it has on your investment plans. Many young professionals reach a point where they have a high cash surplus before children enter the picture, offering a golden opportunity to save and invest. We discuss the implications of delaying property investment, the financial advantages of acting before children arrive, and how even those not earning top-tier salaries can leverage their savings for smart property acquisitions. Tune in for a comprehensive guide to aligning your property investment strategy with life’s major milestones.

Transcript

Speaker 1: 0:00

Should I wait until after having kids to invest in property? In this episode of the podcast, we're going to be breaking down some different key elements that you want to understand if you're deciding whether to purchase an investment property before or after having kids. We'll be breaking down the peak in your career, when your income is high and your expenses are low. We'll be breaking down serviceability and giving a live example of how this impacts you. We'll be breaking down a serviceability scenario and how this impacts a couple having one, two and three dependents. We'll be breaking down statistically where you're at in your career where your income is at its highest point versus your expenses at its lowest point. If you're on the fence and you're thinking whether you should purchase an investment property now or wait until after you're having kids, this is the episode for you to watch. Welcome back to another episode of the Tailored Property Wealth Podcast. My name is Casey Taylor, I'm the host of the podcast and in today's episode we are talking about should I wait until after having kids to purchase an investment property? This is something that we speak to people about. I wouldn't say super regularly, but it's definitely something that people weigh up between whether they do it now, or they do it once they have their kids. And today we're going to go through a live example of serviceability based on a scenario of a couple and then if they add one, two and three dependents, it's going to be really eye-opening as to kind of how that impacts you from a borrowing capacity point of view, and that can be the difference between you one making a purchase or two. You're getting a better quality asset, better quality location, so it is super important. Asset, better quality location, so it is super important. We're going to be talking about where, within your career, your income statistically is higher versus expenses being low, and an optimum level where your cash surplus is typically going to be higher, based on kind of your, your life timeline right and career. We're also going to talk a little bit about some things you need to consider from a paternity, maternity leave point of view and how that affects your income. Um, for that. And then we're going to just take into consideration, if you do hold off, what are the impacts? If you wait five years, wait for them to go to school and then purchase then, so let's get into it, alrighty. So let's first go through and touch on from a career perspective Now, as we start our careers, typically at the age of 18, you may go to uni and you're starting it out at that 22, 23, rough generalization, right? So many different things to consider.

Speaker 1: 2:54

But as we kind of get through and start developing our career, build up, climb the ranks, whatever that looks like in our late 20s, that's where we're really starting to build on that income. Our income has increased versus five years ago in our early 20s. However, if we've made some sound decisions, haven't got into massive personal debt, don't have the credit cards, the personal loans, the car loans, whatever that is, that is where your cash surplus is going to be at its highest, because we're making good income. However, we don't have dependents, we don't have those additional expenses because you might be a single person or you might be a couple and those expenses typically are low. So you should be able to save a large surplus of cash at that point in time, so you're able to save up towards deposits for properties. But then, from a from a lending perspective, you're you're at an optimum level using that income, but the expenses aren't as high.

Speaker 1: 4:06

And then what typically happens as we get further down the track and start to have kids, our expenses are increasing, our cash surplus reduces. We might go back to one income for a period of time, all those things. So if you're able to go out there and really take advantage of where you're at in your career, where your income's at its highest and expenses at its lowest, you can really take advantage at that point in time. I kind of see this with a lot of people that we talk to all the time. Sometimes it's not even the people that are on really high incomes, but they might be that single person or a couple where they're just really good savers. They have that really good, consistent cash surplus and because they might be just on kind of the average sort of income range, once they do add kids into the mix, that cash surplus will reduce. So it really is getting in and taking advantage while you have that cash surplus, because the reality is once you start to have kids, that cash surplus is going to be less unless you're still continuing to increase your income, which is definitely possible, don't get me wrong. But once we then factor in, mum's typically going to be the one that goes on maternity leave for a period of time, and then that's where you're going back to be the one that goes on maternity leave for a period of time and then that's where you're going back to relying on one income potentially or it might be, whatever the circumstance is, it could be paternity leave someone within that relationship is going to go back to, to not working. That income is going to drop. So that's something that we need to consider.

Speaker 1: 5:46

All right Now, you'd be surprised how many people someone is on maternity leave. Typically it's a husband and wife that reaches out and they're still looking to take action, but their partner's on maternity leave. And that's where, having that high quality broker and going to a lender that is open to taking into consideration that maternity leave period, some lenders are going to ask for a letter from their employer confirming their return to work and they may use that income. There's lots of different bits and pieces, but some lenders will say, hey, you need to come back to work, then we can look at things. But there's definitely lenders out there that will consider a letter from their employer. So that's something to consider. Okay, going on maternity leave, that is going to impact your income, your borrowing capacity and how you can get finance, because typically it's not going to be with the pay slip, as one hasn't been generated. So that's something you really want to consider.

Speaker 1: 6:58

Now, what we'll do now is we'll go through a live scenario of how having dependents impacts your borrowing capacity. Having dependents impacts your borrowing capacity. Now, at the time of this recording, it's January 2025, the cash rate 4.35% with the RBA. The cash buffer that lenders are assessing with is 3% on top of that interest rate. So just a couple of things to consider if you're watching this in 2026-27. So the things always change lending-wise.

Speaker 1: 7:38

Now a couple of assumptions we're making for this scenario is we have a combined household income of $150,000. For a couple, $75,000 each. $150,000, whatever it is combined income, $150,000. They have no HEX debts. They have no other debts and, just to keep this simple, and with one lender, this is serviceability based on Westpac. Now, with that being said, we've got the $150,000 combined income no HEX, no other debts. Westpac is the lender. Borrowing power with zero dependence is 755 000. Okay, estimated living expenses is 3838 4238.

Speaker 1: 8:29

Now, when we add one dependent to this scenario, our borrowing capacity drops 48,000 to 707,000. And our estimated living expenses what the bank takes in as a minimum is 4,234. All right, so one dependent, it's dropped 48K. Now, once we add another dependent and we have two dependents, it's dropping another $38,000 and our borrowing capacity is now $669,000. Is now $669,000. Now if we get crazy and we go to three dependents, it drops another $30,000 and we're now at $639,000. So, zero dependents versus three dependents, it's dropping over $100,000 within borrowing capacity. Okay, so it is a substantial drop.

Speaker 1: 9:37

That can be the difference between, potentially, you getting into a market and not. It can be the difference between you getting a high quality property and not a three bed versus a four bed. So many different things to consider based on that. So when people go out there and say I'm going to wait until after having kids, it is going to affect that borrowing capacity substantially. So if you're able to go out there and take advantage whilst your income's high, expenses are low and what the bank sees from your expenses point of view, it's very advantageous. So it's something to consider. Advantageous, so it's something to consider.

Speaker 1: 10:24

Now, if we then take into consideration someone who could have purchased now no kids, no dependents, or they do have a couple of kids. They wait for them to get in school. They might not purchase for five years. It could be seven years by the time they have one kid, have the second kid, get them into school, their childcare drops, that expense reduces and they're like, okay, we can purchase a property now. But in that five to seven year period, what is the capital growth that someone has missed out in that opportunity cost? It can be massive.

Speaker 1: 11:01

If you're purchasing right in those areas, prime for growth, it's definitely possible that that property potentially could double. That's the reality. And then, on the flip side, if your borrowing to power is now lower than what it was five years ago property prices are, you could be just purely priced out of it being a viable option. And then all of a sudden you're in a position where you can't invest in your future or you might be able to still purchase, but prices have gone up so much that to purchase that same asset you could have purchased five years ago, you might be borrowing two, three, four hundred thousand dollars more. And remember that you have to pay off that debt over 30 years. So getting in sooner is far more advantageous because you have to borrow less money for that same asset than in five to seven years could potentially double. And we really we conservatively look at a 5% per annum growth rate. That property doubling in 15 years. That's what we project within our portfolios to be conservative. Anything above that is awesome and that's really the results we achieve is above that, but we always want to be conservative with that cash flow, the projections of the performance.

Speaker 1: 12:24

So that is really some key components that you want to consider and for me personally and this is just this is my mindset. However, I want I want my sons, when I'm older, to look at me and realize I got out there, I took action, invested in our family's future and, in that 10, 15-year period, the rewards that we're able to reap from that. I think it's a very powerful. It's just a powerful example of getting in and taking action and it's going to instill qualities in your children's future where they can go out and they can do that as well and not be scared to do that. It's just a great education piece, it's a great example and it's a great example just for the legacy for your family Verse.

Speaker 1: 13:24

I see a lot of people that are conservative. They're too scared to take action and that is because their parents and society has drilled that into them that it's scary to take action, it's scary to do things outside the norm when it's not that scary. And I personally believe and the reality is, it's just a fact that it's far more risky to do nothing, because, as time goes on, if you're just holding cash in the bank, it's getting devalued daily to inflation. Cash will not make you rich. It will not make you financially free. It might be a peace of mind for your mindset, but putting that cash into stronger performing assets that are going to grow in value over time is far more powerful. So you have to ask yourself the question what example do you want to show to your kids? Because I think that's extremely powerful.

Speaker 1: 14:27

Should I wait until having kids to purchase an investment property? The opportunity cost that you miss out on if you wait is massive and it can make a massive difference to your financial future. So it's something to think about. If you've kind of been sitting on the fence, not sure whether you should purchase now or wait until you have kids, if that's on the horizon and you want to chat more, reach out. We can put you in touch with a good quality broker and run through some of these scenarios, based on your individual situation and what you can do. It's an exciting time in 2025 to get in, especially now in January 25, where we're going to see rate reductions happen in the near future, and it's really going to get cooking again. Thanks for listening, guys. I hope you have got some value from this episode and reach out if you have any questions and we'll see you on the next episode. Bye.