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Is a $420,000 property achievable with a $28k deposit?

Discussion in 'Property Finance' started by Raphael, 8th Oct, 2016.

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  1. Raphael

    Raphael Member

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    Hi all,

    Looking for some prelim advice here before I meet with a bank or mortgage broker for further information.

    I'm 32 years old, with a young family (2 dependants) on a base gross salary of $100k in a job i've been in for 6 years now. My wife works permanent part-time 20 hours a week, and earns about $27k gross per year. Additionally, I own and run (under my wife's name because of the lower tax rate) an at home e-commerce business which achieves a net profit before tax of about $35k per annum.

    We have rented for 6 years in Sydney, and in that time paid weekly rents anywhere between $500 - $700 per week (currently we're paying $660pw). Currently, after all our expenditure, rent etc, we're saving about $600pw (or $31k a year) as a family.

    We're looking to stop paying someone else's mortgage and finally get our first property. We're originally from Brisbane and are looking to buy in Brisbane (a $420k house). We currently have $28k cash + a $20k asset being a vehicle which we own outright with no debt.

    We're actually interested in relocating back to Brisbane and living in the house as a preferred option, but this is complicated as we obviously both need a new job in Brisbane to do that, which is possible but then we run the risk of the banks not giving us a loan because of our fresh jobs and lack of security. The other option is to buy the property as an investment, whilst on our current secure stable salaries and then relocating back to Brisbane at a later date. This however, from what I understand will mean we have to pay about $13k in QLD stamp duty, as it's an investment property. I understand if it was owner occupied we'd qualify for a stamp duty concession, eliminating the $13k duty payment. So I guess it's a catch 22 for us...

    After reviewing all of the above, I wonder if anyone could share their knowledge or experiences on what the best solution for us could be? We want to avoid paying fees as much as possible, but understand we'll probably need to pay $9k of LMI because we won't have a 20% deposit. Interested in information on interest only loans as well or any work around or option that could be ideal for us.

    Also, would we qualify for a loan of say $400k with our $28k deposit and 2 dependants on decent terms or would we be disadvantaged because we don't have the 20% deposit?

    Cheers in advance.
     
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    95 lend plus lmi may be possible. But very limited in lenders that will carry it

    The stamps will need to be paid from somewhere else. Perhaps car sale

    Ta
    Rolf
     
  3. wombat777

    wombat777 Well-Known Member Premium Member

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    If you do decide to go down the investment route, consider a house in Moreton Bay or Logan in the $250k to $350k range. You are more likely to find a property that yields 5.0% or better in this price range. If it's an older property recently renovated then the depreciation plus the yield will make it cashflow neutral or possibly positive for an interest only lend.

    Consider buying for future potential. i.e. a house with land size and zoning that will suit future development. Lots of locations in Moreton Bay due to widespread rezoning there associated with last year's new planning scheme. Will give you a stepping stone for the future. See here for more info ( MBRC Planning Scheme - Information sheets , Next Generation Neighbourhood and Urban Neighbourhoods are the areas to look for ).

    Given you have local knowledge you will have an advantage when buying. Just don't let your perceptions of an area affect your decision too much. Focus on yield > 5% and vacancy rate < 2%.

    Others here know the Logan area better than I do.
     
  4. Raphael

    Raphael Member

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    Thanks, was looking around Geebung, Stafford, Keperra, Rocklea, Oxley - good land size and an original house. All around 10km from the city. Would be happy to live in those suburbs down the track given proximity to city.
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Realistically i will say not possible you will need more deposit money.
     
  6. Raphael

    Raphael Member

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    Thanks Terry. What savings goal do you think would be realistic to purchase a $420k house after considering LMI?
     
  7. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    If you're buying as an investment you have one option and that's with Liberty.

    You'll need a 5% deposit, and enough to cover stamp duty and buying costs. Buying costs are usually $2-3k, and stamp duty cost can be googled easily so do a quick search.

    Get a broker to check servicing, my thought is it will be okay on the face of it.
     
  8. Angel

    Angel Well-Known Member

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    I think you will soon get over paying the $13,ooo stamp duty for an IP in Brisbane when your house has appreciated $50K in the next year or so.
     
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  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I would aim for 15%
     
  10. Raphael

    Raphael Member

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    Angel, my thoughts exactly....
     
  11. Angel

    Angel Well-Known Member

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    You can refinance in a year or two because you will then have the 20% equity so you will get a lower interest rate than what you will probably pay when you purchase now. Happy shopping!
     
  12. Raphael

    Raphael Member

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    Thanks, very informative. Learning lots. Might consider a cheaper property but with a good rental yield and hope the property value increases.
     
  13. albanga

    albanga Well-Known Member

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    Do not do this. "Hope" should never be mentioned in a business investment. Spend the next 6 months educating yourself and at that same time you can start to save a better deposit.

    A small deposit, massive LMI and hoping just to buy a property sounds like a recipe for disaster to me.
     
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  14. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Purchasing a $420k property with a $28k deposit is possible, but not as an investment. It would need to be your own home and get some stamp duty savings. You'd need to capitalise all of the LMI over 95%, the total loan would be about 99% of the purchase price.

    There are still lenders that will do this, but not many. The loan is considered extremely high risk so qualifying is difficult and you pay more in rates and fees.

    As a broker I'm not particularly keen to write this type of loan because it's likely to be a lot of effort with only a small chance of success. As a purchaser I wouldn't be comfortable needing to borrow figures under these sorts of parameters.
     
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  15. Indifference

    Indifference Well-Known Member

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    @Raphael you seem to have a reasonable understanding of the costs for either OO or IP. I'm not a broker.... just to be clear.

    You might be a little optimistic with your LMI expectations though & may find you'd really be closer to 12-13k with such a high LVR. Not so bad if OO due to the stamps concessions all but wiping out that liability but if an IP, you'll also have ~13k stamps, so your 28k is all but gone. Also include FHOG into your considerations which may make a new build attractive..... a new build will also save on stamps for an IP.

    I'd be uncomfortable with anything less than 5% deposit plus closing costs for either option. But that's just my SANF. Your current savings would be better matched to shopping in the 350-400k range.... ie. You could find a property advertised up to 400-420k but only offer pay ~400k or less.
     
  16. Raphael

    Raphael Member

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    Have lowered the property value to $350-$370k and will look at saving another $5-10k I think.
     
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  17. JacM

    JacM VIC Buyer's Agent Business Member

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    It's also important to have a bit of a slushy fund to weather storms such as a repair to the roof, or a vacancy. Be sure to ensure you'll have a slushy fund before you buy rather than trying to gather it after you already own the property.
     
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  18. Drgonzo

    Drgonzo Well-Known Member

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    This is really poor advice
     
  19. Sonamic

    Sonamic Well-Known Member

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    15-20k would be better. Hard to go into what I call hermit mode with 2 kids though. :oops:
     
  20. Angel

    Angel Well-Known Member

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    Fair point. It was a comment, not advice. Meant to be about buying a suitable and affordable IP rather than buying a PPOR (which may not necessarily be suitable) just to avoid Stamp Duty.