How Much Deposit Do I Need To Buy A House In Australia? | An In-Depth Look At Upfront Costs

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Introduction

In late 2022, the media is flooded with stories about how unaffordable housing has become in Australia. Many individuals feel discouraged, thinking that owning a property is now out of reach. However, as an adaptive investor, it’s crucial to understand that strategies from the past may not work in the current market. While housing has changed drastically over the last few decades, there are still opportunities to purchase a property in Australia for under $400,000.

The Changing Landscape of Real Estate

In this video, Ravi Sharma, the founder and head buyer’s agent at Search Properties, explains how the market has shifted and why it’s essential to adapt your investment strategies. Ravi emphasizes the importance of building real wealth outside of your own backyard, especially if you reside in an area where property prices are skyrocketing. By strategically investing in areas with lower property prices, you can capitalize on the market growth and achieve financial success.

Understanding the Upfront Costs

To illustrate his point, Ravi walks us through a recent property deal. The property in question is a three-bedroom brick home worth $370,000. The deposit required by the client was 12%, amounting to $44,400. Ravi explains that using a 12% deposit instead of 10% can significantly impact the cost of Lenders Mortgage Insurance (LMI). By increasing the deposit by just 2%, the LMI cost dropped from $8,220 to $5,200.

In addition to the deposit and LMI, there are other upfront costs involved in purchasing a property. These include stamp duty ($12,000), conveyancing ($1,400), pest and building inspections ($1,000), and the buyer’s agent fee ($15,000). Collectively, the total upfront cost for this property amounts to $79,000.

The Value of Professional Guidance

Ravi addresses common questions that arise regarding the necessity of certain expenses, such as conveyancing, pest and building inspections, and the role of a buyer’s agent. He highlights the importance of having a professional review contracts, conduct due diligence, and ensure the property is free from any structural or termite damage. These experts provide peace of mind and protect your investment.

Overcoming Affordability Challenges

Ravi emphasizes that despite rising property prices, it is still possible to invest in real estate. He illustrates this by sharing the story of a client who has purchased their third property without using any of their own savings. Instead, they leveraged the equity from their previous two properties. This strategy allowed them to acquire additional assets and build wealth over time.

The Benefits of a Buyer’s Agent

Ravi discusses the value of having a buyer’s agent by your side. He explains that their established relationships with real estate agents can secure properties below market value. By leveraging their reputation and track record, buyer’s agents can negotiate better deals for their clients. In this particular case, securing the property for $370,000, while the market value ranged between $382,000 and $390,000, resulted in the client gaining upfront value.

Positive Cash Flow and Long-Term Investing

One of the main advantages of utilizing the right investment strategy is the potential for positive cash flow. Ravi showcases how the rental appraisal for this property was $420 to $440 per week, while the comparables in the area ranged from $430 to $460 per week. After accounting for expenses such as property management fees, rates, and insurance, the net cash flow per year amounted to $3,200. This positive cash flow allows the investor to generate income from the property while potentially experiencing long-term appreciation in value.

The Power of Long-Term Investing

Ravi emphasizes the importance of focusing on long-term investment goals rather than short-term market fluctuations. With the right strategy, investors can weather market changes and reap significant returns. He mentions that despite the media’s conflicting reports and uncertainty, the current aggressive rate hike cycle presents an opportunity for savvy investors. By focusing on long-term growth and implementing smart investment strategies, individuals can achieve financial success in the real estate market.

In conclusion, while the housing market in Australia may seem unaffordable, there are still opportunities for aspiring homeowners and investors alike. By adapting to the changing landscape, leveraging the expertise of professionals, and focusing on long-term growth, individuals can make strategic property investments that yield positive results. With careful planning, informed decision-making, and a willingness to think outside the box, anyone can navigate the housing market and achieve their goals of property ownership and financial freedom.