Children ...the next Managers?

[Beano]

Just some quick advice wanted from people who have successfully handed the mantle over to the next generation.
1: Should children be put straight into the "family investments" when the leave university (business/accounting) or should they work elsewhere first
2: What should they be paid "below , market , above market, share of profits" (currently paid prorata based $52k pa during holidays etc)
3: What responsibility should they be given say handled a couple of dozen properties or a spread of all ..look at new investments etc
4:Further specific education eg degree in property management etc
5: Let them buy or sell properties ? Up to $xxx?
6: Suggest they should be able to increase he portfolio by the same % as we had achieved?

[Perry]

Don't you need to get them interested, first?

[Beano]

Don't you need to get them interested, first?

He is very interested and spends all his spare time learning
Just want to know how others have dealt with teenagers. (At 18yrs it is about the same time I had my first property)

[Perry]

Learning just what, exactly?

[charlotte30]

I think it is better to help children gain their own knowledge by helping with their journey with your experience. ie buy their own properties to learn the ropes. i have found personally this has worked better to enable them to move forward confidently. They earn their own stripes rather than being enabled by their parents.

[hawkeye]

I would let them do it for themselves. Get a job, save and buy their own home, then once they have it all arranged then surprise them by gifting them some money so they don't have to pay the higher interest rate for low deposit. That way they get the satisfaction of doing it for themselves. I think teenagers sometimes think rich parents mean they can have an easy life but ultimately that doesn't do them any good, it makes them lazy.

LAJ

[Beano]

Learning just what, exactly?

1 cleaning flats
2 processing the transactions
3 reviewing the p and l
4 reconciliation of balance sheet (for monthly accounts especially debtors and prepaid rents
5 reviewing rentals (about one a fortnight)
6 meeting with bank to discuss LVR
7 GST FBT IR4 PAY interest withholding taxes
8 meeting with valuers to discuss property values (2 last mth)
9 meeting with tenant to discuss pending rental changes and discuss the arbitration procedure if they are not happy with our valuation
10 meeting with another landlord to discuss sharing valuers
11 analysis of building IM from real estate agent
12 dealing with contractors
13 analysis and review of site (45 tenants) for setting
rentals
14 cash flows
15 budgeting
So just the usual day to day administration we have as small investors

[Beano]

I would let them do it for themselves. Get a job, save and buy their own home, then once they have it all arranged then surprise them by gifting them some money so they don't have to pay the higher interest rate for low deposit. That way they get the satisfaction of doing it for themselves. I think teenagers sometimes think rich parents mean they can have an easy life but ultimately that doesn't do them any good, it makes them lazy.

LAJ

So the thought is I employ someone to run the portfolio and the children start their own
When I retire or on death (what ever comes first ) the children manage the manager I employed ?

[Perry]

I presume that got the know-how of passive income vs wages/salary from you, already. So your list is day-to-day stuff. Fair enough. One or two others comes to mind:

Tenant screening / selection / criteria / applications;
Managing a property viewing;
Knowledge of relevant statutes;
Issuing receipts;
People relationship skills.

[Beano]

I presume that got the know-how of passive income vs wages/salary from you, already. So your list is day-to-day stuff. Fair enough. One or two others comes to mind:

Tenant screening / selection / criteria / applications;
Managing a property viewing;
Knowledge of relevant statutes;
Issuing receipts;
People relationship skills.

Seldom select tenants
The real estate pretty well does that ...only really say no to brothels, car groomers , panel beaters hazardous manufacturers
In the residential I have a real estate to vet the tenants
In the leaseholds they change themselves ...often I don't even know who they are till I do a property search
I have meet some of the tenants, one we meet in NYC as the unit is let
The viewings are made by the agency
The statue is really learning the relevant lease usually the ADLS lease
We don't generally issue receipts but I would like to set up a integrated ledger ..debtors system
Yes people relationship skills is very important ...that is one skill he lacks

[Don't believe the Hype]

He will have more acquired knowledge from watching you and the work you've given him on the portfolio over the years than most of us will have had when we started on our property ownership journey so i wouldn't be too worried about the knowledge, skills etc.

I'd be more interested in ensuring the attitude is right and understanding the seriousness of the responsibility you're looking to hand over.

One thought might be to segment the portfolio into smaller parts and have him take on small parts and once he has proven good management, decision making on those parts then hand him the next part of the portfolio.

It could be a 5 year transition into full control with the goal at the end of the 5 years for you to be a silent partner/major shareholder with him doing all the work/decision making and you enjoying the fruits of your labour.

[Nick G]

I don't know what I'll do, you want to help your kids out but most investors got there by figuring out on their own how to get there... so when does help become a handicap?

In your case is there someone else who could manage him under your organisation? So he would be treated as a regular employee with expectations and consequences?

[charlotte30]

The problem I see with 2nd generation wealth is that they are missing the raw hunger that made the wealth in the first place. It is about finding a way for them to have their own experience to achieve their dreams. Nick's post above makes a lot of sense if youor son wants to be part of your investment portfolio.

[Dunning]

A lot depends on your long term outcome is and what your children's want in the mid term.

Do you want them to take over the active parts of your business? Can you handle not being in control of what you've built? Is your portfolio for future generations or your lifestyle/retirement? Can you work with your children and not treat them as a child?

Do they want to work for you, themselves or someone else? Where do they want to be in 5-10 years time, career, location, family, financially?

Depending on what you and they want you could:
1/ Get them to "project manage" a purchase for you and finding tenants for it with your mentoring( Retainer + % of increase)
2/ Lend them money and mentor them for them to have their own business.
3/ Manage x number of properties ( retainer + % of income)
4/ Hand over day to day responsibilities to them block by block, ie maintenance, tenant selection, purchasing, financing, rent reviews, etc (fix salary)

Further education, Property Management - could be worth it seeing as you do commercial, you might even learn something from him. I'm sure they have soaked up a lot from just being around you.