Paul Glossop: Hello, guys, and welcome once again to Pure Property Investment one on one. I’m joined again today by Tristan Scifo. Tristan, thanks for joining us, mate.
Tristan is a Financial Planner, he’s also a Wealth Coach, he’s a good guy at that, so what I’ll probably do is there are no financial ramifications or having to pay me for that comment either, but look what guys, we’ll get straight into it.
From my side of things and I guess when we talk about the investment property space, and working as buyer’s agents, both for owner occupied properties and investment properties, we get the question a lot, both by clients coming in to us to say, “How much do I need to save to buy my first investment property?” and, again, like a lot of these questions that come our way, it does depend, but it depends on a lot of good reasons, as well as probably some considering reasons that you need to factor into your equation. Tristan, from your end from the wealth coach and financial planning perspective, when that question gets posed, what are some of the things you would think for our viewers to think about?
Tristan Scifo: Yes, it is a good question, but there is an even better question, and it is, “How should I be saving?” A lot of people don’t stop to think how to save, you know. So, people let their pay all come into one account, they spend as much as they need to spend and if there’s something left over, they call it savings. Other people have a specific account, and when they receive their income, they put a regular amount into another account, like a piggy bank or a savings account, sometimes a totally separate bank, one that they can’t see, you know, that they’re not going to rip it back from. And that second type of savings is what we call, legitimate savings. It’s a regular ongoing saving plan of weekly, fortnightly, monthly. That’s what we want to see.
Even if someone comes to me with a hundred thousand dollars, and you think it’s enough to get a property, surely somewhere in Australia, but they don’t have a regular saving plan, I say we’re not going to look at any investment property until you have a regular saving plan. That’s number 1. You’ve got to be saving something, whether it’s a dollar or it’s a thousand dollars a week, we need to have something going ahead. And in terms of how much you need to save, well, if you don’t have much to begin with, then that’s okay, as long as you’ve got a good saving history, and you can prove that you have, you know, the ability to save, then there are avenues to get your deposit together without having all the cash up front.
Obviously if you own a home, then you can be looking at an equity investment, in other words, you’re using existing capital, not cash, to get access to another property, another loan. If you have no properties though, when you’re starting from scratch, a lot of people these days, a lot of younger investors are looking to their parents, potentially their aunties or uncles, and sometimes, even siblings or grandparents, to see if they’ll offer a guarantee. And that’s where the property of a family member is used as collateral for the bank to say, “Look, I’m going to give you the whole hundred percent, or even maybe just ninety five percent, so you only have to put down a very small deposit but if you forfeit on the loan and everything falls apart, I’m going to come after your folk’s home. I’ll force them to sell it, and they’ll cover up”. So, there’s more risk, and a lot of implications to that, but it does mean that you don’t need a specific fee in every situation.
That said, we like to have rules of thumb and I think 60,000 Australian tends to be a good figure to aim for. You’ll find a lot of the time in entry level properties, especially if it’s an investment and you’re able to look nationwide, you can find decent properties in the three hundred, four hundred, five hundred thousand-dollar marks, and at a $300,000 price point, you’d need a 20% deposit, about $60,000. If you’re willing to go a little bit less that 20%, and pay a bit extra cost for it, you then can even afford some of the stamp duty and the additional purchasing costs, for example, the legal costs and also a property buyer’s agent’s cost you might need to pay, and fitting that within 60,000 is achievable. However, it’s going to limit your options. So obviously there’s lots of ways you can slice it. I’ve known people who’ve invested with as little as 42,000, and obviously even less if you’re going to use a guarantee. But if you’re on the road and you want a figure to set your mark on, sixty is probably a baseline.
Paul Glossop: That’s some very sage advice there, to say that rule of thumb of round about 60K, and that is a moving feast as far as that price point over the years with regards to banks’ appetite for LMI and LVR’s that they want to see in different amounts of capital they want to see up front, or whether you’re going to be using a guarantor or not, and I think the other part too, in what you talked about, is making sure that people understand that, that first investment is always going to be the hardest, it truly is. I don’t know too many investors who have 5 investment properties who say that the sixth was the hardest to buy.
It’s never the case, it’s always the first and potentially the second, whether that’s your owner-occupier or your investment property, whichever comes first, it’s kind of irrelevant, but it still is the hardest place to get legitimate savings, but like you said, having some good, considered processes in place to get your savings working in the background, get your money working for you, set some good habits, and then see if there’s opportunity to leverage off family members, friends, or anyone who might be willing to look at putting a bit of capital up for you to allow you get your foot in the door, release their equity as the first port of call, and then looking to utilize that property as your springboard long term.
The first million is always the hardest to make, as the saying goes and that’s really where the focus needs to be – saying it was easy, everyone would be doing it, and that’s why we are always on this journey of trying to figure out the best way to do it, the best structures to be putting them in.
So, thanks mate, really good insights and I think, guys, if you do want to have any discussions with Tristan or his team about how to set those savings up or about what legitimate savings you might need to get your foot in the property door, feel free to give him a call. His contact details are at the bottom of the screen and likewise for myself and my team, our contact details are at the bottom and you can always contact us at those numbers and we’ll chat to you soon. Cheers!