How much do you need to buy your first property?

Ben Nash

Let’s face it, with house prices where they are across Australia’s capital cities, saving a 20% deposit as a young professional is a massive challenge. We are talking about serious money and for many it can seem almost impossible.

What many people don’t realise is there are a number of options available to get into the property market much sooner. Now I’m not talking about these American ‘no money down’ property flipping strategies where you use a combination of leverage and voodoo to make big money fast with property.

What I’m talking about is conservative growth property strategies where you can make smart and low risk property decisions to set yourself up for the future.

I want to take you through the three options you can think about that can be used to get into the property market the smart way faster.

So what are your options?

Option 1 – Be extra nice to mum

A family guarantee, family pledge, or what’s called a guarantor set up can (as long as you can afford to pay your loan) allow you to get into the property market without a deposit, or importantly without locking up any of the deposit you have saved.

This strategy involves using the value of another property (often family home) as security for borrowing. This all sounds super risky, but if you’re smart with your property buying strategy, carefully run your numbers, and protect and manage your risks, the majority of risks involved can be eliminated.

This strategy isn’t suitable for everyone, there are some strict conditions and rules around this strategy that should be discussed with your bank, broker, and adviser, but for many first property buyers it’s an option seriously worth exploring.

This can mean no cash deposit is required, which can allow you to get into the market immediately. Even if you do have part or all of deposit already but want to hold onto savings as a safety buffer for unexpected expenses or costs like renovations, the family guarantee can allow you to buy the property you want and hold onto all of your savings for planned expenses. Discipline is key here but if used properly the strategy can be a powerful and effective way to grow your assets through property faster.

There are risks involved, but it isn’t as risky as many people think. There are some rules you need to know about and some risks that are important to manage properly, so you need some good professional help if you go down this path.

Option 2 – Use a lower deposit

If the family guarantee strategy isn’t something that will work for you, it is still possible to purchase property without a 20% deposit. The minimum amount needed depends on the bank or lender you use and tends to change over time, but it is possible to purchase property with as low as a 5% deposit. This is 5% of the purchase price, so if you’re thinking about buying a property for $500,000 you would need a minimum of $25,000.

The more you borrow in relation to the value of the property you purchase, the more important it becomes to crunch your numbers and get good advice to manage and reduce risk.

You don’t want to overextend yourself and be in a position where your property purchase means you need to make lifestyle sacrifices or will put you in an unsustainable cashflow position.

Option 3 – Invest elsewhere

Investing in shares/stocks and other investments like managed funds can be a great way to build wealth. If your planned property purchase is a while away (three or more years), investing in assets like shares can help you get a roll on with your savings and allow you to build up your savings and property deposit sooner.

If you go down this path, take the time to choose the right investments, do your research, and get professional help or guidance to ensure your investments do what they’re supposed to do and grow over time.

Your next steps

No matter which path you choose to take, explore your options around property so you can put together a considered strategy.

Once you’re clear on your options you can plot your course with confidence. Having focus around your bigger targets and goals leads to more progress in faster time, and will help you avoid getting sidetracked.

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