How can I invest in property with little money?

Even without a cash deposit. Use existing equity. If you have equity in your existing home or other investment properties, you can borrow against this equity. ... Get a guarantor loan. Not in the position to utilise equity in your own home or investment property? ... Partnerships or Joint Ventures. ... Buy off-the-plan.

depositassure.com.au - 4 Ways To Buy A Property With No Cash Deposit -

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If your property dream seems to be floating further and further out of reach, you’re not alone. With recent moves by APRA and the RBA to cool the investment property market, Australia’s lending bodies have tightened their investment lending criteria. Loan Value Ratios (LVRs) are tighter. Investment home loan rates have risen. And more and more Australians are struggling to find the cash deposit they need to secure the home they want. The good news is there are still ways for Australians to start building their investment property portfolio. Even without a cash deposit.

1. Use existing equity

If you have equity in your existing home or other investment properties, you can borrow against this equity. Some lenders will still lend up to 95% LVR on your own home and 90% on an investment property – simply talk to your broker for advice. Remember that borrowing anything over 80% will most likely incur Lenders Mortgage Insurance (LMI), so be sure to do your sums to make sure it’s worthwhile. Use the cash to complement your loan against your new investment property. To minimise your interest costs, arrange for same day settlement or drawdown of both loans. Once you have formal approval, secure your purchase with a deposit bond from a trusted provider, like Deposit Assure. Deposit Assure charges just 1.25% of the guarantee amount for a short term bond, meaning it can still be cheaper than paying interest on a cash deposit itself!

PROS

You’ll have full autonomy and control over your purchase

Popular and effective way to use your existing assets to grow your wealth

CONS

You can’t use existing equity forever. One day, it will run out!

Equity is based on the property value and can therefore be impacted by market conditions.

2. Get a guarantor loan

Not in the position to utilise equity in your own home or investment property? Why not use someone else’s! If you have a family member with sufficient equity in their own home or investment property, talk to them about providing a “limited guarantee” (also known as a family guarantee). This is usually equivalent to 20% of the purchase price of your new property, plus any other costs that you need to borrow (like that dreaded stamp duty). One advantage is you won’t need to pay Lenders Mortgage Insurance. And more importantly, it gets you a foothold into the property market. However, there are some important things to consider before you embark on a family guarantee. First, a family guarantee is in place for the life of the loan. You can mitigate this by devising a strategy to create equity in your new property, which will allow you to refinance within a few years and remove the guarantee. Start by choosing a good location with solid property growth. Then think about renovating or improving your home to increase the value, and make additional payments on your loan to reduce the debt. A family guarantee also impacts the family member, so we recommend any person considering this to get legal advice. Once you’ve secured your finance, use a deposit bond to secure your contract.

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PROS

You’re using other people’s equity

You avoid LMI, potentially saving you thousands

CONS

You’re reliant on family members to support your purchase, which can impact their own future plans

Can leave your family exposed should you default on your loan

3. Partnerships or Joint Ventures

Why not buy with a mate or someone with the same goals as you? You can buy a property as a tenant in common, which means each partner owns a share of the property as a percentage. There are a few things to remember. Even though each person owns a portion of the property, any lending on the property is owed by all parties jointly. So, if one person stops paying their share, all owners are still responsible for the entire debt. It goes without saying that you should trust the person you’re going into business with. But even the strongest friendships should have a written partnership agreement that covers: Who is responsible for making day-to-day decisions on the property, and up to what amount that person has authority to spend on repairs or incidentals without approval from the other owners

How to deal with disputes

What happens if one partner wants to sell

Get that right and you could be onto a winner.

PROS

Great way to pool resources, share risks, enabling you all to get on the property ladder

Creates opportunities that you might not have been able to access alone

CONS

You take the risk that one personal argument can impact your business relationship

You are ultimately responsible for the entire debt

4. Buy off-the-plan

This is not for the faint-hearted. We hear endless stories about investors buying property off the plan, only to find two years later once the property is built, that the property value does not match the purchase price they are now obligated to pay at settlement. However, for the shrewd and well-researched investor, there’s a lot to be gained. Buying a property off the plan not only saves on stamp duty, but also locks in the price today. Picking a property in a strong location and growth area means the value may go up by the time of settlement, which can be up to two years down the track. Many lenders will lend on the valuation rather than the purchase price, which means you can minimise your contribution. Speak to your broker about the options available to you.

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If you don’t have access to the cash at the time of purchase, use a Long Term deposit bond from Deposit Assure. This means you don’t need any cash contribution until settlement. Many off-the-plan vendors will only accept a deposit bond if it’s underwritten by an Australian insurer with a strong credit rating – Deposit Assure is accepted as they are underwritten by QBE.

PROS

Save on stamp duty

Lock in the price today and you may not need to settle for a year or two

CONS

Risk that valuation at completion doesn’t match the price paid

Any cash deposit you’ve paid is locked away until settlement, depriving you of the opportunity to use it for something else At the end of the day, only you can decide the right way forward for your circumstances and goals. But that decision will be easier if you seek professional advice and take steps to understand all the options available to you. Chances are, there’s a solution out there that’s got just what you need. James Angus is a Director of Deposit Assure (depositassure.com.au), an experienced mortgage broker and mentor (finweb.com.au) and member of the Institute of Chartered Accounts. We’ve created a handy infographic below, on the “4 Ways To Buy A Property With No Cash Deposit”

(Click infographic to enlarge.)

depositassure.com.au - 4 Ways To Buy A Property With No Cash Deposit -

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