Today Show – Getting an Investment Property on a Budget

Allison Langdon: It is now time to talk Weekend Property.

Jayne Azzopardi: These days investing in the property market isn’t just for the rich.

Allison: Buying a slice of Australia can be done on a very tight budget if you know how.

Jayne: So here with their savvy advice is Bryce Holdaway and Ben Kingsley from The Property Couch podcast. Good morning to you both. Now, one of the biggest hurdles that many people face is finding the money for a deposit so what can you do if you don’t have the cash in the bank?

Ben Kingsley: Yeah it’s a good question Jayne. What we’re talking about here is there is definitely a few options. One of the main one that people forget about when they don’t have a cash deposit is actually equity that they have maybe in their home. We’ve seen property prices especially Melbourne and Sydney going up quite strongly. Now there might be part of equity there that we can use for a deposit or down payment to get that first investment property.

Allison: One of the things that we’ve also been seeing and I know a couple of my mates have done this in order to get into the market is that they’ve buddy up. They’ve gone in together. How does that work and are there any pitfalls going down that track?

Bryce: Yeah that’s a good way to do it because you might have someone who has very good assets and lower income and someone with a higher income and lower assets and bringing them together makes sense. And the other you can do as well is.. Ben talked about equity, you can go to bank of mum and dad to help with equity if you don’t have that. So instead of having that as a handout from mum and dad, you might say to them, “Hey look, let’s do a joint venture where you come on the title as well, maybe 20% – 30% and I’ll take 70%.”Get them both on the ladder, they’ve both got something and you know, some skin in the game and if they buy a good investment property, there’s something for them.

Jayne: There’s got to be a disclaimer here. Not every property surely is going to make you money so I’m sure this comes down to research somewhere. How do you make sure that these investment properties end up making you money instead of costing you money?

Bryce: Yeah, that’s a good one! There’s a difference between investment stock and investment grade. The difference is everything is investment stock but not everything is investment grade. So one of the rules that we have is you should look to buy property that banks like because that’s really a good rule. For example, if you buy student accommodation or serviced apartments or something that the banks put in a large deposit because they want to protect their risk, we would say, that’s a bit of a clue that that might not be the best option for you to make money in the long term.

Ben: And not property is created equal so it’s really important for you to understand that. If you’re looking for cash flow returns then you might be looking at really low-value properties but if you’re looking for long-term capital growth, then you may need to head more towards the cities.

Allison: Well that’s a good point that you just leading into there because I mean a lot of our capital cities are so expensive and people just can’t afford it. Are there certain places that you should be looking if you’re on a budget?

Bryce: Yeah we say look just outside the capital cities job market. So in Melbourne for example, maybe Ballarat or Bendigo where you’ll still get access to a six-figure income, whilst going a bit further out and there’s a bit more demand there or perhaps maybe the Gold Coast or the Sunshine Coast. If your goal is purely for income and not necessarily for growth, you might consider some areas like far north Queensland, Cairns or Townsville where there’s very good income opportunities. But one caveat that we would say is still avoid the regional mining town cause we think it’s still full of danger.

Jayne: So there’s got to be some traps that people fall into when they are just desperate to kind of get in and get that property when they don’t do the research properly. So what are the traps that you need to avoid?

Ben: Yeah, great question Jayne. There’s a lot of them out there and the big ones for us is, don’t be incentivised. Make sure that if someone is trying to sell you a property based on the tax outcome and all the bling and the new thing, that’s not necessarily good investment. Ultimately, we are after a return and we’re not necessarily after reducing our tax. We want to get positive cash flow or we want to get capital growth out of that property so don’t be caught up in buying the bling. Look at the underlying fundamentals of location and owner occupier appeal.

Bryce: And as I said before, avoid properties that banks don’t like so the way you think about that is, look for something that has owner occupier appeal, not investor appeal and it sounds like a bit of a paradox but as an investor, you don’t want investor style properties, you actually want properties that the majority of the market wants because the owner occupiers buy with their heart not their calculator. And you want to take advantage of that.

Ben: And finally make sure you don’t get seduced by incentives such as rental guarantee or rebates out there in the marketplace. If the assets stack up, if the property is a good investment, why do they need to add these bonuses? They shouldn’t need to. The property should be fundamentally sound in a great location to buy.

Allison: Well that’s great advice there Bryce and Ben, thanks for joining us. Watch out for the sparkle is what I’m hearing.

Bryce: Watch the bling!

Allison: Watch out for the blings. Thanks gents.