Did you know that less than 6% of Australia’s adult population own an investment property? One of the main reasons for this low percentage is the difficulty of saving the initial deposit. Later in this blog I’ll show you how to buy a property for far less cash than you would expect. A recent case study will show how we purchased a property for less than $10,000 cash.
Before getting into the detail of this strategy, I want to let you know exactly how much deposit the banks require from you to buy a property.
Below is a summary of the costs involved in purchasing the average priced property in Sydney in 2012 and 2015.
It’s frightening to think you will now need $213,596 deposit to buy the average priced property in Sydney using a 20% deposit. Most people understandably wonder ‘how will I ever buy a home or an investment property’? Don’t worry, there is a better way.
How to buy a house with much less cash
As you read through more of my articles, you will often hear me use the phrase ‘under market value properties’. This term is the key ingredient required in putting far less capital into an investment property. I’ll use a recent Rethink Investing client’s deal to demonstrate how we bought a three bedroom house in Brisbane with less than $10,000.
The deal: three bedroom house, 30 minutes from Brisbane CBD, purchased for $244,000 and rented for $340 per week (photo below). Comparable property sales in the area were over $300,000.
The bank revalued this property after purchase for $305,000. This gave the client $62,000 in instant equity.
The full breakdown of costs can been seen below.
The client had to come up with the initial 20% deposit. On top of this 20% there was also stamp duty and a number of other smaller purchasing costs. The total deposit to complete the deal was $59,391. You might think – why is this article claiming only $10,000 was required when $59,391 was used?
The answer is – due to the property being valued $62,000 higher; the new homeowner could then draw out $49,600 (80% loan of $62,000) out of the property instantly. This left less than $10,000 of the owner’s original money in the property, meaning they could instantly buy another property, buy a car, go on a holiday or whatever!
Deals like this don’t just pop up when you have a quick look on the internet or Sunday paper. You need to be able to find the one in a thousand property that is going for a bargain.
The benefit Rethink Investing brings to the table is we specialise in finding these ‘under market value properties’.
Many agents will come directly to us when their sellers require an urgent sale. Sometimes before the property has even hit the market! This allows us to offer much lower than the asking price and can result in our clients receiving deals they just would not have the time or the connections to find themselves.
If any of this sounds exciting and you would like an under market property for yourself, please send Scott an email at firstname.lastname@example.org