Could this finance hack help buy your first property

12 FEB 2022 By Noemi Pamintuan-jara 12 min read Finance

If you’re new to property investing and have been wondering how you can dip your toes in the property market without a deposit, you’re going to want to check out this clever tip on how to buy property using other people’s money.

Whether you desire to purchase a property as an investor or as an occupier, breaking into the property market can seem like an impossible dream without a huge amount of money for the down payment.

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But worry not; property investor and YouTuber PK Gupta has given the lowdown on a finance hack that could help you buy your first property. Take a look at the example below.

Hypothetical problem: You are interested in a $500,000 property, which would usually require a 20 per cent down payment amounting to $100,000. If you only have $25,000, you are left with a shortfall of $75,000.

Finance hack: Take on a guarantor loan to cover the shortfall.

“A guarantor, like your parents, can refinance their own property to cover the shortfall without having to dip into their savings,” explained Mr Gupta.

Anyone who lives and owns a house in Australia has a lot of equity in their property, said Mr Gupta.

Seeking the help of your parents seems like the most practical approach at this point in time because Mr Gupta opined that “it doesn’t make sense for parents to be cash-rich and their children so poor that they are not able to buy a property”.

And if your parents think being a loan guarantor is a high-risk move, how can you convince them, you might ask?

You can repay your parents as soon as the equity you have in your property is equal to 20 per cent, Mr Gupta said.

Banking on the booming Australian property market, which economists predict will be sustained in the coming years, Mr Gupta noted that “the $500,000 property you’re hoping to buy could grow to $600,000 in two to three years”.

When that time comes, you now have the 20 per cent equity ($100,000) of the $500,000 property you bought.

“Go back to the bank to release your parents as guarantors, so they get their money back, with their finances untouched,” Mr Gupta commented.

Letting the opportunity pass you by because you were not aware of the guarantor loan could push you further away from buying your first property, he quipped.

Using a guarantor loan may just be one of the many finance hacks out there, Mr Gupta commented, but it could be the golden ticket for many newbies in property investment so they can start building their own portfolio.

Here are Mr Gupta’s key takeaways:

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