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How to double the power of your deposit

By Simon Pressley

Promoted by Propertyology.

In modern Australia, the housing affordability musings attract more newspaper column inches than a royal wedding.

For most, the biggest challenge isn’t being able to afford the mortgage repayments – it’s putting together a deposit for the purchase. Let’s face it, if you’re trying to save a ten to twenty per cent deposit to buy a median-priced house ($1,033,892) or apartment ($878,325) in Sydney, you’ve got your work cut out for you.

But for those who reside beyond the Harbour City and / or are prepared to explore the increasingly popular rentvesting strategy, the options to purchase a piece of Oz are well and truly on hand for those with an open mind.

Property Investment Professionals of Australia (PIPA) recently pointed out that a detailed study of mortgages and incomes shows the average loan is more easily serviced now than it was 30 years ago. The problem isn’t affordability per se ~ Australia is littered with locations offering affordable housing ~ but rather accessibility, because the hurdle is putting together a deposit rather than paying back the lender.

There’s a narrow, inaccurate and slightly offensive assumption by the broader media and political landscape that “the Australian property market” is a proxy term for Sydney real estate. Last time I checked, Sydney was a city not a country!

If you’re willing to break free of that misnomer, I can show you how to double the power of your deposit.

Mindset

The first important step in understanding the solution is to remember Australia consists of 10 million dwellings that are spread across 550 local councils, and the vast majority provide affordable real estate options to potential buyers.

With our realistic view of Australia’s whole market now firmly front of mind, let’s run the figures and show how you how to power up your savings and get into a property.

According to the ABS, Australia’s capital city average median dwelling price was $686,700 as at December 2017.

A buyer would therefore need $68,700 for a 10 per cent deposit.

Adopting the national median rent of $435 per week, the annual holding cost (after rent) on a typical property worth $686,700 with a 10 per cent deposit would be $13,100 per year – that’s before taxation or negative gearing benefits.

This cash flow calculation assumes receipt of rental income for 48 weeks of the year, interest expenses calculated at 4.5 per cent, and other standard holding costs (property management fees, council rates, insurance, and $500 for general maintenance).

The solution

The simplest way to double your deposit is to buy a property that’s priced at half the capital city average dwelling price.

That’s right – instead of laying down $70,000 as a deposit for a purchase of almost $700,000, try broadening your mind and seeking areas where a house price closer to $350,000 is the norm.

Remember – the phrases ‘More expensive property’ and ‘capital city location’ don’t automatically translate into ‘better capital growth potential’. If you doubt this, ask yourself ‘why’ are property markets in Sydney and Melbourne both declining right now while Hobart is booming and parts of regional Australia are strengthening nicely.

Buying an investment property worth $343,500 (half the capital city average house price) using your $68,700 deposit means you’ve fronted up 20 per cent straight away. The annual holding costs will now be significantly less at $850 per year, because you’re only borrowing 80 per cent from the lender.

Yes, that’s right, $850 per YEAR is all that it will cost for a typical property just like this!

If saving up a deposit of $68,700 is too steep, how about halving your goal to $34,350 and using it as a 10 per cent deposit on a $343,500 purchase? The annual holding costs would be a very manageable $2,400. And, if you’ve purchased in a location with all the fundamentals in place for great long-term growth, the asset is working for you straight away. This means you’re in the market and enjoying the benefits sooner.

The key takeaway is don’t stand back and struggle waiting to save up a deposit for an expensive property that will be more difficult to service and has no more, if not less, potential for capital gains as some non-Sydney investments. Instead, lower your buy in, look for smart locations and start reaping rewards sooner.

There are numerous locations across Australia where an investor can buy a quality property in a market with a good medium-term outlook for $343,500. Many of these locations are outside of capital cities, in extremely underrated markets. Propertyology buyer’s agents are actively investing in some of these now.

Propertyology is a multi-award-winning buyers agency and national property market research firm who buys properties exclusively for investors in strategically-chosen locations all over Australia. Australia’s only company to correctly predict Hobart’s remarkable turnaround before the current boom, the firm’s success includes being a finalist in the 2017 Telstra Business Awards and 2018 winner of Buyer’s Agency of the Year in REIQ Awards For Excellence. You can contact Propertyology here.

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  ["title"]=>
  string(51) "Boost for investors as app sets up off-site bidding"
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  string(55) "boost-for-investors-as-new-app-sets-up-off-site-bidding"
  ["introtext"]=>
  string(144) "

Property investors are now able to identify and bid on auctions remotely using a new live-streaming functionality launched by Gavl.

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Called “Request an Auction”, the new functionality enables users to watch and bid on any Sydney or Melbourne auction remotely.

Through Gavl, prospective buyers are now able to register to bid on their preferred auction. The platform will obtain permission from the listing agent and confirm within 48 hours.

Vendors can also request to have their auctions broadcast to a larger buyer audience.

Co-founder Joel Smith said that auctions streamed on Gavl attract 47 per cent more viewers than traditional ones.

He said that Request an Auction will be valuable for remote buyers.

“Buyers are able to have Gavl attend any auction they nominate, so they will never have to miss out on an opportunity due to logistical complications in physically attending the auction.

“Vendors, too, have the opportunity to directly book an auction with us, so they can open up their event to buyers all around the world. With more potential buyers, they’re giving their property the chance to receive more bids and maximise their sales result.”

Mr Smith said that prior to the Request an Auction app, buyers were limited to what they could achieve through the Gavl technology.

Gavl is a live-streaming and bidding platform for real estate auctions.

Mr Smith said that it has streamed more than 6,000 auctions, which have achieved 3.5 million views from 50 countries.

Gavl’s Request an Auction function is currently being offered in Melbourne and Sydney only.

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Boost for investors as app sets up off-site bidding
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Having to split her time between Hong Kong and her original base of Sydney has not slowed Julia Tita’s goal of building a high-performance Australian property portfolio. Instead the resulting alterations to her strategy have positively impacted her investing success.

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Having recently purchased her 6th property, Julia joins host Tim Neary to discuss her journey, share her ups and downs over the years, and reveal her thoughts on why some properties are better than others.

Julia also explains why she no longer makes a move without the help of a buyer’s agent, why working with a strong team of specialists is extremely important and discloses her long-term property ambitions.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

Why is Australian property so unaffordable?
Brisbane infrastructure attracts international interest
Going global
Australia desirable to foreign investors

AREAS MENTIONED:

Eagleby
Charters Towers
Townsville
Brisbane
Paddington
Sydney
Orange
Melbourne 
Glen Iris
Bondi

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How a move to Hong Kong impacted Julia’s Australian property goals
object(stdClass)#1195 (52) {
  ["id"]=>
  string(5) "18159"
  ["title"]=>
  string(88) "‘Common’ referrer practice of being paid on both sides of the fence coming to an end"
  ["alias"]=>
  string(82) "common-referrer-practice-of-being-paid-on-both-sides-of-the-fence-coming-to-an-end"
  ["introtext"]=>
  string(246) "

The practice of property investment firms sharing undisclosed kickbacks among the supply chain involved in development sales will be outlawed in NSW on 1 July this year under the Real Estate Reform being handed down by regulators in NSW.

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Property commentator and valuer, Suburbanite’s Anna Porter, said the reform will address conflicts of interest.

She said they arise when a mortgage broker, accountant or financial planner receives part of the commission from the property firm, who receive their fees from the developer or seller.

“This puts the broker into a position by which they are being paid on both sides of the fence,” she said.

“Until now this has been a grey area and there was nothing stopping this practice.” 

Ms Porter said this has been a common practice in the industry.

"Some well-known mortgage broking firms openly admit to receiving $5,000–$10,000 per referral in their pocket.”

She also said this process has been going on for decades.

"Property investment firms commonly pass some of their commission on to the mortgage broker, accountant or financial planner as a reward to them for passing on the referral. This means that many brokers or financial service providers are making significant amounts of money just to refer on to a property firm, often totalling hundreds of thousands of dollars a year," Anna Porter said.

Ms Porter said the Property, Stock and Business Agents Amendment (Property Industry Reform) Bill 2017 will be in force from July this year, and will prohibit this practice unless the broker or referring partner also holds a real estate industry license.

"Under the new laws, if the broker takes a referral fee from the property firm, they will have to be a licensed real estate agent and also hold a corporation’s license,” she said. 

“Subsequently, every transaction that they receive a referral fee from, they will be putting their license up against the transaction and taking full liability for the conduct, practices and outcome of that transaction, even if they have little to do with the transaction; they are a party to it financially and therefore take as much risk as everyone else in the transaction.”

Mr Porter said where a referrer holds a real estate license, and receives a part of the sale commission, they may find themselves in breach of the ethical requirements under the act.

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‘Common’ referrer practice of being paid on both sides of the fence coming to an end

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