While it can be intimidating to try and enter the property market with only a relatively small amount of money, it is do-able. Here are some suggestions to help you climb onto the investment property ladder with only $30K.
It can be tempting to only consider purchasing an investment property in a capital city ― especially if you’re from one yourself. However, if your deposit is low, your spending power becomes limited to more affordable areas that will probably lie outside the likes of Sydney, Melbourne, Canberra and Brisbane.
Consider areas that are cheaper to purchase but will give you a decent rental income. For example, Coffs Harbour on New South Wales’ north coast is a small city of 75,000 that has a median unit price of $337,500 and an average weekly unit rent of $340.
Port Hedland in Western Australia’s median unit price is just $214,500, but its average weekly rent price is $350 making it a great entry-level investing town.
Ballarat in Victoria’s Central Highlands has a population of just over 100,000 and has a median unit price of $230,000 and an average weekly unit rent of $270. Armidale is home to the University of New England and has a median unit price of $255,500 and you can get a weekly rental income of around $260.
Other places to consider are:
|Location||Median unit price ($)||Weekly unit rental income ($)|
|Mt Gambier, SA||215,000||200|
|Wagga Wagga, NSW||260,000||260|
If you really like the idea of buying in a capital city, you might want to consider Darwin. The median unit price in Darwin is $325,000, compared to Sydney’s $696,935, and you could get a weekly rental income between $320-$400. However, Darwin’s property market has been known to fluctuate and properties tend to stay on the market for a long time.
There are a couple of government schemes intended to ease the process of buying property and reduce costs. The First home buyer super saver (FHSS) scheme enables first home buyers to use their superannuation fund to save up to $30,000. The scheme can help you build up your deposit more as it is taxed at just 15% (lower than the marginal tax rate on most incomes) and benefits from interest. Find out more here.
You may also be eligible for the First Home Owner Grant (FHOG) scheme which provides a single grant to go towards buying or building a property. The sum and eligibility criteria vary as it is administered by the state and territory governments. Find out if you’re eligible here.
Another scheme that can help first home buyers is the First Home Buyers Assistance Scheme in NSW. Like FHOG, the name, details and criteria of this scheme vary across the states and territories, and it involves waiving stamp duty (aka transfer duty) fees. There are specific criteria required to be eligible and at this time Tasmania and South Australia don’t have any concessions on stamp duty.
It’s important to note that some of the schemes require that you live on the property for at least some amount of time (usually around 6 months within the first 12 months of buying), so you should read the conditions for your state carefully.
If your family wants to help you start your investment journey but don’t have cash to give you up-front, something you can look at is a family guarantee loan.
A guarantor can use the equity in their own home to secure part of a home loan for their child (or close family member). This means that you don’t need to have a large deposit (or one at all) and you can avoid paying Lenders Mortgage Insurance (LMI) fees if the guarantor’s equity covers at least 20% of the property’s value.
However, if you are unable to make repayments on your loan, your guarantor may be liable to pay back the loan.
Calculate your borrowing power based on your income.
While you may not have enough funds to invest into property without incurring LMI costs, investing with a friend can help you overcome the LMI hurdle, and maybe even look at more expensive properties.
Investing with a friend or a partner can mean that repair costs and any additional fees can be split and become less of an issue. Of course, splitting costs also means splitting profits, so make sure you know what you’re getting yourself into before investing with a friend.
In most locations worth investing in, a $30,000 deposit won’t get you to that 80% Loan to Value Ratio (LVR) sweet-spot. That doesn’t mean that you can’t buy a property, but you may incur LMI fees. LMI is a fee charged by lenders that protects them if you can’t repay your loan and it can cost thousands.
Find out what your LMI might be with our LMI calculator.
However, as mentioned above, you can use a guarantor as a way to enter into a loan with a lower deposit, avoid paying LMI and save thousands.
Some borrowers can even get LMI waived if they belong to certain professions. Doctors, lawyers, accountants, financial planners, engineers and veterinarians belong to a select group of highly-paid professions that are deemed low-risk.
A small number of lenders have LMI-free loans that only require a deposit of 15%. In these cases it’s important to work out whether the loan is still suitable for you. Sometimes it might be worth choosing a loan that requires you to pay LMI if the interest rate is significantly lower than a loan that allows you to avoid paying LMI. Speak to one of our Home Loan Specialists today to find out more.
See how much you might need to pay if you're low on a deposit.
Your deposit, repayments and LMI are not the only fees associated with buying property. Before you even buy a property, there are several things you might like to consider doing, but they do come at a price.
It’s a good idea to consider hiring a property inspector when you find a house that you’d really like to buy. A property inspector will carry out an inspection of the property’s interior, exterior, roof, flooring, etc. to check for any issues. Issues that they commonly look out for include dampness, mould, structural issues and leaks.
It might be a good idea to avoid buying a property that is prone to damages as this can mean more issues and repair costs in the future.
Inspection costs will vary depending on the company, but they usually start at around $200 and increase with the size and location of the dwelling. If you are buying a house, it’s also worth hiring a pest inspector to check for any pest issues. Many building inspection companies will offer a package service that includes property and pest inspection.
Another service to consider is conveyancing. A conveyancer will handle the legal requirements of your property purchase and will usually cost upwards of $300.
If you intend to buy an investment or rental property located far from where you live, you can consider hiring a property manager. For a monthly fee, a property manager handles everything to do with your rental property, including ensuring rent is being paid, conducting inspections and corresponding with the tenants. Even if your investment property is ten minutes away, a property manager can potentially save a lot of time and stress.
Don’t forget about other fees such as capital gains tax, building insurance, landlord insurance, maintenance and any renovations needed.
If you are worried that the fees are going to be too much to cover, consider waiting until you’ve saved up more funds. Look into saving through the FHSS scheme or a high interest savings account to maximise your savings.
There are so many loan options out there and its important to find one that suits you the best. If you go directly to a bank, you'll only see a small selection of loan options provided by that individual lender.
If you use an online home loan platform (like Lendi), you can compare over 2,000 loans from over 30 different lenders to find the best fit for you and your specific needs.
If you have questions or would like to see which loan options are available to you, choose a time to chat with one of our Home Loan Specialists today for free expert advice.
While some investors may have no experience with the property market at all, others may have dabbled into the market when purchasing their first owner occupied property. If this is the case for you and you already own a property, there may be a chance that you are eligible to borrow against and use the equity in your existing property.
In short, owners build equity in their properties as they pay off the principal of their home loan. Find out how equity is built in our equity guide here.
Buyers can cash out the equity they own in their property and use those funds to assist with purchasing an investment property.
Keep in mind that the amount of equity that the buyer cashes out will be added onto their owner occupied home loan and you generally needs to have a an LVR below 80%.
We're here to help. Get free expert advice at a time that suits you. Choose a time to chat with a Home Loan Specialist.
The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.
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Tags: new purchase, first home buyer, investment property, lmi (lenders mortgage insurance), guarantor, first home owners grant, stamp duty, home inspection, conveyancing, capital gains tax, home loan, equity
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