How Much Do You Need For a Property Deposit?

When looking to purchase your first investment property one of the big questions you might have is how much exactly do I need to save for my deposit?

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0:00 – Introduction
2:00 – Somewhere between a 10-20% deposit
4:00 – The risks vs the opportunity cost
6:30 – For me personally this is a long term play
7:25 – Account 6% for closing costs
9:50 – Low, mid and high price ranges

Transcription:

Ryan 0:00
when looking to purchase your first investment property one of the big questions you might have is how much exactly do i need to save in order to purchase a property and be able to purchase a property you’ve got your deposit itself do you need 5% 10% 20% as well as closing costs as well so to go with me simon everingham buyer’s agent from pumped on property to talk about okay how much do we actually need to save so hey simon how’s it going

Simon 0:27
it a really good today thanks

Ryan 0:29
so this topic is really exciting for me at the moment because i’m in a situation right now where my debts nearly paid off and i’ll actually be saving towards my first investment property as you know my next big goal for next year so i’m super excited for that and simon’s have had experience with this with clients as well as himself and i want to know okay what exactly am i shooting for what is my figure so we’re going to talk through you know low end kind of medium end of the market as well as higher end how much you need to save as well simon can give some personal examples as well if you comfortable simon so you helped me out here what what sort of thing where i need to save what am i looking at

Simon 1:10
i just want to start as well with a big disclaimer that i am not a mortgage broker so this is not financial advice and obviously you need to go see a bank manager or a mortgage broker for your individual situation if you’re listening in on this one but yeah that’s so exciting man like i’m super stoked for you that you’re going to be able to get into the market i really think the time is now to start acquiring assets you know we’ve been getting some updates from one of our mentors phil anderson that talks about timing and he’s very confident that we’re about to come through the mid cycle slowdown where we’ve been in throughout 2020 and things are looking pretty pretty nice to 2021 so obviously the sooner that you can get in then the better 100% but when it comes to a deposit there’s so many different things that come into consideration like your income your expenses your lifestyle all of these different things but essentially what you’re looking for is somewhere between a 10 to 20% deposit on the purchase price of the property there is some banks that are open to a lower than a 10% deposit right now which is amazing for some of those people that are willing to go in a little bit riskier and take a take a little bit of a jump into the deep end of the pool i guess but it all really depends on your personal risk profile and how much debt you’re you’re happy to kind of sit with a lot of people want to kind of build up a bit of a buffer and a lot of people want to put a bit of a higher deposit down just to lower their risk but for people like myself you know i’m young i didn’t have too many expenses in my life i chose to leverage off the banks as much as i possibly could to keep my money in my pocket and get into the market sooner so for my first property i went for about a 92% 92% loan with only about an 8% deposit so the first property i bought cost me just over $390,000 and it only cost me about just under $40,000 to get into it

Ryan 3:22
there’s that including closing costs on the property as well like stamp duty and stuff like that

Simon 3:28
that was because that was an investment so i had to pay for stamp duty i didn’t get the free stamp duty if it were my own home which i was happy to forego because i wanted to get into the investment market sooner so yeah soliciting fees building and paired stamp duty deposit absolutely everything it ended up being around yeah like $36,000

Ryan 3:54
okay so what about i guess you guys work with a lot of clients every single month do people tend to go around that 10% mark or the most people do 20%

Simon 4:04
and it’s a bit of a split you know i would say it’s probably an even split between people who want to just get into the market with about a 10% deposit and people that are a little bit more risk averse and want to put in that 20% deposit but i guess what you’ve got to weigh up here is okay i want to buy an investment property i’ve only got x amount right now which means i can buy a property for whatever purchase price you know let’s say for example you’ve got $30,000 in the bank right now and you’re wanting to get into the investment market now $30,000 isn’t really going to open up many opportunities for you once you do factor in some of those closing costs so what you got to weigh up is the time that it’s going to take you to save up a 20% deposit versus getting in the market so let’s say you want to buy a property at let’s call it $400,000 which is a good investment grade purchase up here in brisbane right now to get too close to the city so good at your house, they’ll get you on a nice big piece of land, they’ll get you relatively close to the city. So that’s what you’re sort of looking for. But with a 10% deposit, you’re looking at $40,000 plus closing costs on top of that stamp duty soliciting fees and things like that you’re looking at around $50,000. You know, as opposed to, if you go for a 20% deposit, then obviously, you’re going to need $80,000 to cover the 20% plus stamp duty plus the other closing costs on top of it as well, which is about $90,000. So you got to weigh up. Okay, if I’m at $30,000 right now, and I know I can get into the market once I hit around $50,000. You know, what is going to be the benefit for EDI get into the market at $50,000 with a smaller deposit? Or do you wait until you can say about $90,000 just to put the 20% down. So that’s the way that I kind of logically thought about it in my mind was like, Okay, well, I want to get into the market now. Because I’m purchasing a property, about $20,000 below market value I’m buying in a hot market, where properties are increasing at the moment, not at a fast rate, but they are still increasing at the moment. So the time that it’s going to take me to save an extra $40,000 for most people could be at least six months, if not 12 months, you know what’s going to happen over that 12 month period in terms of the purchase price of the property?

Ryan 6:23
Yeah. And there’s so many risks, things to take into account as well, where do you think the market is going to go as well as Lenders Mortgage Insurance and whether or not you’re happy to pay that? I think for me, personally, this would be a purchase that I’m going to ideally hold long term, I’d like to build a granny flat on it or knock down and rebuild into a dual occupancy property. And so to have it for a cash flow play long term, I feel like my financial situation is quite stable at the moment as well. So I don’t feel like I’ll be put in a position where I’m forced to sell it. And I’m also confident in the research that will I do and that we do together that you guys do over there. So be pretty confident in it. So I’d probably be looking around, you know that 10% Mark, obviously, I need to speak to a mortgage broker, because I run my own business and things like that. So I have to work out okay, how much I actually need to save given my income and financial situation. But it’s kind of given me a good figure to look at, you know, 10% deposit. And then closing costs, you kind of look at, you know, about 10 grand in closing costs is what you kind of suggested through those examples. Do you look at that? Or do you look at a, you know, percentage of purchase price, obviously, you can go online and do stamp duty calculators and stuff yourself. But yeah, we normally

Simon 7:39
say a percentage ends up paying around 6% of the purchase price of the property in closing costs. So, you know, depending on on how expensive the properties that you choose to buy, around 6%. But yeah, definitely jump online onto Google and type in the city, wherever you’re purchasing a property plus stamp duty calculator, and it’ll spit out a pretty damn accurate one, then you’ve got building and pest which cost anywhere between sort of 300 to $800, depending on the company that you’d go through, then you’ve got soliciting as well, which is sort of anywhere from about 1500 to $3,000, depending on who you go with there as well. I also like to get a town planning check as well, just to understand what sort of development potential my particular block has, what sort of zone it’s in. It also gives me some information on what’s beneath the ground in terms of easements or sewer lines and things like this. So it gives you a really good understanding. And you can pick up one of those for sort of 250 to 500 bucks as well. Yeah,

Ryan 8:44
so 6% closing costs on like a $400,000 property is looking around like 24 grand. Does that sound high to you? Or does that sound like okay,

Simon 8:55
Eddie’s quiet. Hi. It is quite high. So yeah, maybe they’re just slightly below that. 6% for something there. But yeah, maybe, maybe we maybe we use a stamp duty stamp duty calculators that are.

Ryan 9:10
What about you, in your example, where you purchase your own property? Do you haven’t? Do you have any memory of how much you spend in closing costs?

Simon 9:21
Well, I’m in a unique situation, because I, you know, I’ve got really good relationships with building and pest inspectors and

Ryan 9:29
closing costs are a bit less than the average person.

Simon 9:33
Yeah, exactly. Because of those relationships. My closing costs are a lot lower. So I just have to pay stamp duty, which is about $12,000 on the on the purchase just under 400,000.

Ryan 9:44
Okay, cool. Well, that gives me like a good framework to work with it. And let’s talk quickly about Okay, what kind of different purchase prices are we looking at, like, what’s the very low end if I want to get in the market with the cheapest property, obviously, like working with you guys. What’s sort of the cheapest I can go. middle range, I’m guessing is around 400 to 450,000. Is that correct? Yeah, so what’s the high range as well,

Simon 10:10
I would say the bare minimum right now in Brisbane, you’re looking at about 350,000. Because we’ve got some certain fundamentals and key performance indicators that we look at that we’re just not willing to sacrifice on. Because, as an investor, what we’re trying to do is generate long term capital growth. But we also like to manufacture some cash flow. So you know, the sweet spot that we see in in Brisbane, in particular right now is sort of anywhere within, ideally 20 Ks of the CBD. But we still see value up to about 30k from the CBD, depending on which direction you’re going to the staff 30k to the north 30k isn’t too bad, to the West 30k is not necessarily ideal right now. So essentially, the closer the better. But you can buy within 30 days for about 350,000, I still going to get your house like a low maintenance three bedroom, one bathroom house, when a big 600 700 plus square made a piece of land in a quality area, you know, you’re not, you don’t want to be buying in an area where there’s lots of renters or there’s high vacancy rates, or there’s lots of crime or low socio economic demographic, you want to try and get into a slightly high quality area where there is some owner occupiers where there is some good schools, good public transport options, nice amenities and the infrastructure for the locals in the area. So they’re all things that you’re looking at. So that’s the low end, the middle end is sort of about 450 to sort of $600,000 now, and that’s going to allow you to purchase anywhere from sort of 10 to 20 kilometers from the CBD, maybe a little bit further, even potentially, depending on where you want to go. So I see that being the middle range. And then the top range is sort of anything over 700,000. Now, which is sort of within that 10 kilometer radius is the Brisbane CBD, and obviously

Ryan 12:03
I can go as high as you want, the closer you get to the CBD, the higher quality of the properties and stuff like that.

Simon 12:10
Yeah, exactly. You know, like, if you’re investing right now, you know, you probably don’t really want to be spending much more than $800,000 embrace them, because it could be over capitalizing right now. Yeah, there’s amazing opportunities, anywhere from sort of 350 up to 800, depending on what you’re looking for, whether it be cash flow, or capital growth. So

Ryan 12:32
what about for me looking at, you know, around the beaches, or a similar sort of area in terms of capital growth, for a property that I could potentially build a granny flat on in the future? What should I be looking at? Do you think?

Simon 12:48
starting point, once again, 350 is where you can where you can buy into an area where you can legally build a granny flat in the backyard and rent it out separately. But if you were wanting to buy within sort of two kilometers of the beaches, depending on on where you are, but you’re really looking at a minimum spend of $450,000 nowadays. So it’s starting to push into that middle bracket now.

Ryan 13:14
Yeah, yeah, no, that’s awesome. That’s like really helpful information. Obviously, people need to, if you’re looking at doing this yourself, go out and speak to a mortgage broker, because they can give you up to date advice on exactly how much of a deposit you need to save for the area you want to buy in based on your situation and your income and your life expenses, and all of that sort of stuff as well. So this is not to give financial advice and say you need to save this amount. But it’s more just to give an overarching idea of Okay, if you’re looking to invest in property, and you’re thinking, yeah, I want to save a deposit, I don’t really know what my goal should be, you’re not quite ready to go and speak to a mortgage broker yet, this can give you a bit of a framework. And it’s definitely given me a bit of a framework to say, Okay, I’m going to need to save that 10% deposit maybe around 45,000, and then another 6%, in order to, you know, pay for the closing costs and stuff like that. So I’m looking at somewhere around 60 to 70 grand by the looks of it.

Simon 14:13
Yeah, exactly. So for us as a business, we sort of say you need a minimum of $555,000 to work with us. Now, it’s the 6% that we’re having a laugh about before that was including potentially working with a buyer’s agent or something if you don’t feel as though you have the skills or the knowledge or the confidence to do it alone. So that you know, where we started in that extra sort of eight to $12,000 depending on who you work with.

Ryan 14:38
Okay, cool. Yeah. Well, that that’s, that’s a cool framework. And I think that will help a lot of people out there who are looking to get into the market. It’s definitely going to help me this year in my savings plan to my savings goal and tracking towards where I want to go and you know, I can keep people updated on how I’m going and we can talk about it as the year progresses next year, Simon, but thanks so much for sharing this information with you hope everyone out there found it interesting if you are interested in investing in property, but you need some personalized help, then Simon and the team over Pumped on Property, do offer free strategy sessions where you can get on the phone to them. You can ask them questions like I’ve been asking Simon today, get clear on what are your next steps are and what investment strategy could help you to purchase your next property. So if you go to onproperty. com, au forward slash strategy, you can learn more about those sessions and you can book in a time that suits you. So go ahead, check that out. Thanks so much for your help today, Simon.

Simon 15:36
No worry.

Ryan 15:37
Sweet and until next time, everyone. Stay positive.

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