WATCH: Can You Buy a Property with $10K? | NAPP. Podcast Ep. 1

[00:11] Thank you guys.

[00:11] Welcome to this episode.

[00:13] We're going to be asking the question,

[00:14] can you realistically purchase a property with only $10,000?

[00:18] Now, I'd love to introduce our team that we have with us.

[00:20] Michael O'Malley, mortgage manager from Rate Money Sydney.

[00:24] We have Andrew Chan,

[00:25] strategic financial planner from Phoenix Private Wealth Management.

[00:29] We have George Koletti, principal accountant from Access Professionals.

[00:32] Daniella Muzitano, founder and executive director from Titlespace Conveyancing.

[00:37] And myself.

[00:38] I'm Gianni Musumeci, investment property advisor from Leverage Property Advisers.

[00:43] So before we kick into the content today

[00:45] in this podcast, please bear in mind it's only general in nature.

[00:48] It does not constitute financial, legal, tax advice or otherwise.

[00:53] It's strongly recommended that you seek personalized financial advice

[00:57] with a professional that is specific to your situation.

[01:02] So that being said, Mike, I wanted to kick off with you.

[01:04] Can you realistically, from a lending perspective,

[01:07] can you purchase a property with only $10,000?

[01:11] There's no one size

[01:12] fits all response to this, but there are options.

[01:15] If you've got servicing capacity but you don't have deposit funds,

[01:19] you could look at a Family Pledge or Parental Guarantee loan,

[01:22] and using those,

[01:23] you can borrow up to 100% of the purchase price of the property, plus costs.

[01:27] You could consider a mortgage insured loan, which typically for an owner

[01:30] occupied property,

[01:31] would go up to 95% of purchase price, or for an investment property, up to 90%.

[01:37] There's help for people with small deposits through federal

[01:40] and state government schemes.

[01:42] The federal First Home Buyers Scheme allows you to buy with a 5% deposit

[01:46] and no mortgage insurance, and on a state level, you can buy with no stamp duty.

[01:50] So technically it is possible whether or not you should buy is not my question.

[01:54] My job is just to find the money.

[01:55] But yeah, you certainly got options for low deposits.

[01:58] So there are lending options out there depending on what your goal is.

[02:02] Yeah. Correct.

[02:02] And and everyone's situation is going to be different.

[02:04] So you really need to speak to your advisor and get some advice around.

[02:07] You know one of those options might be right for you. Yeah.

[02:10] And that might be a good transition to yourself.

[02:12] Andrew, what are some of the upfront sorry, what are some of the goals

[02:15] associated with, you know, purchasing a property with as little as $10,000?

[02:19] What do people need to consider there?

[02:21] Yeah, that's a good question Gianni.

[02:23] I mean, like in financial planning, everyone is an individual.

[02:26] So every everyone's strategy is different. Like

[02:29] what's the reason why they have $10,000?

[02:31] They might be an expat who've just come back.

[02:33] They have all their assets tied up overseas.

[02:35] Just finished working in the UK.

[02:37] They come over here and they want to get set up.

[02:39] They do.

[02:40] They've earning incomes already in Australia.

[02:43] They just don't have the finances and they good for it.

[02:45] So but then there will be other situations

[02:48] where that, that first home buyer might not have the money.

[02:51] And that's the reason why these controls are in place, in place,

[02:55] you know, you look at $10,000, 20% gets you a $50,000 property.

[03:01] We’re in Australia. Could you, would you want to live?

[03:03] Or as a renter want to rent that property?

[03:06] And so it doesn't make sense.

[03:08] These controls are there to ensure that people are budgeting, budgeting

[03:11] correctly have the discipline to be able to repay that loan.

[03:15] So it's more than just looking at acquiring asset and financial planning.

[03:19] It's about how does that fit with fit in with them?

[03:21] Are they going to be able to continue to have the lifestyle that they wish for?

[03:26] Are they going to move into it? Are they going to rent it out?

[03:28] And how does that play in their overall strategy of where they

[03:31] what they want to do with their lives? Right.

[03:33] Because there's a when buying property

[03:35] is not so simple as just buying property, it's the responsibility that you take on.

[03:39] But having said that, the answer is they can do it.

[03:44] Because like Mike alluded to, there's the bank of mum and dad,

[03:48] fifth largest lender in Australia at this time.

[03:52] And as a financial advisor, what I've been doing with a lot of my clients

[03:56] is, planning for that because they know how

[04:00] competitive, for example, a market in Sydney is to purchase into.

[04:03] So if you know a child

[04:04] and they've been paying board responsibly within the household

[04:07] and you know they can afford that loan, then you're more than happy.

[04:11] If they show they can save $10,000.

[04:13] You show that they've already had that initial commitment.

[04:16] And we can set aside some money that doesn't eat into Mum and Dad's

[04:19] retirement fund to set aside to allow them to, to get ahead of their peers.

[04:24] Yeah, for sure.

[04:24] And I think we talked about the goal a little bit there and how they can get

[04:28] in. But I'm more concerned around the tax perspective, George, around

[04:32] only using $10,000 and, you know, borrowing 100% or potentially more.

[04:38] What are some of the tax

[04:39] considerations associated with only using that much or borrowing 100%?

[04:43] Well, with borrowing 100%, if it's going to be an investment

[04:46] property, they are going to get the normal tax

[04:47] deductions you would for any rental property investor.

[04:50] It's a great way to do it.

[04:52] Now they obviously going to be wanting to earn income

[04:55] and they're going to be generating more income over time.

[04:57] So the benefits of that will actually be generated more so as they become,

[05:01] I suppose a little bit more mature as far as their investing goes.

[05:05] But they are definitely going to get all the tax benefits.

[05:08] And if they're earning some extra money on the side,

[05:10] that they can actually use to offset that fantastic.

[05:13] They can be doing really, really well.

[05:15] Yeah. Okay. Awesome.

[05:16] Daniella I wanted to throw it to you.

[05:18] What are some of the upfront costs from a legal perspective

[05:21] when purchasing a property is ten grand even enough?

[05:24] Well, what is ten grand?

[05:26] Is it a 2% deposit?

[05:28] Is that a 5% deposit? As you said before?

[05:30] There's banks out there.

[05:32] There's some incentives that it, you know,

[05:34] a buyer only needs 2% deposit to purchase, you know, a property.

[05:38] So, well, buyers need to be aware it's

[05:42] not only the purchase price, but all the costs around the process.

[05:46] So you want to make sure that you have your building pest inspection done.

[05:51] You've got to make sure

[05:51] that you allow for stamp duty if you're not a first home buyer.

[05:55] And, the cost of conveyancing, PEXA you know, settlement.

[06:00] So we normally tell our clients that, the deposit, it's

[06:04] quite irrelevant at that point.

[06:07] But we tell our clients you've got allow

[06:09] at least between $2,000 and $4,000 for what it's called the incidentals.

[06:13] Yeah, yeah.

[06:14] Because, look,

[06:16] when we add all those costs up, from what I understand, some of those costs,

[06:19] like stamp duty alone could be $10,000 in some cases.

[06:22] So in most cases, you do almost need 110% of the loan value

[06:26] to cover those costs as well.

[06:28] So maybe coming back to you, Andrew, what help can people use

[06:32] and what cashflow considerations

[06:34] do they need to take into account, especially around investment property.

[06:38] So we answered before the assumption is that it's suitable to your strategy.

[06:43] And let's take for example, if you don't have the assets and you’re

[06:47] first home buyer,

[06:48] you know, there's a number of grants,

[06:50] you know, in Queensland, they've got a $30,000 grant.

[06:52] That's ending soon.

[06:53] In Australia, we've got grants for $10,000.

[06:57] They are for new properties up to a certain value.

[06:59] So you just making sure whatever you purchase stays within the value.

[07:01] So you can take advantage of these schemes.

[07:03] There's access to superannuation where you can put money.

[07:07] That's above and beyond, for example, non-concessional contributions,

[07:11] or 100% of that, or ten, 85% of concessional contributions,

[07:16] you can contribute up to $15,000 in one year, of which you'll be able to pull out.

[07:21] And over a course of time, the maximum you'll be able to pull out is $50,000.

[07:24] Right?

[07:24] But there's there's ramifications for that.

[07:26] And the reason why there's ramifications and why you say

[07:29] financial advisor is because the money goes into the super environment.

[07:33] It allows you to build for your future.

[07:35] Right? It's one of the most effective tax environments.

[07:38] you know, George would agree with me.

[07:40] But having said that, if you're taking money

[07:43] away from your future, there'll be a price to pay later on.

[07:46] So if you take money from superannuation, you better as soon as you bought

[07:49] the property.

[07:50] Make sure that you go back and part of your strategy, repair

[07:53] that superannuation balance and that that's often forgotten people.

[07:57] What I why I dislike talking about that strategy because it's often not suitable.

[08:01] The people who are forced to tap into superannuation

[08:05] are not the high income earners salary sacrificing money to superannuation.

[08:09] The people tapping into super are the ones that are really on struggle street.

[08:13] And so

[08:13] they're forced to tip into something that's to protect them and provide them.

[08:18] And in future when they're less able to work and generate an income. But

[08:24] those options are there.

[08:25] But like, like I said, if you, if you

[08:28] if you're wise and you seek advice that can be quite effective.

[08:32] Yeah.

[08:32] And I think that's a good opportunity to work with somebody like Michael as well.

[08:37] But I also wanted to touch on what you said.

[08:39] It's probably something that you wouldn't do willy nilly take money out of,

[08:43] first time super saver or superannuation because I think it's a Charlie Munger

[08:46] quote as well.

[08:47] “Don't disturb compounding interest unnecessarily.”

[08:50] And it's one of the biggest saving tools that people need.

[08:52] So I think that naturally you'd work with somebody like

[08:55] Mike fairly well to understand what grants are we using?

[08:59] What, schemes are we using to purchase?

[09:02] And that being said, Mike, do you take those considerations

[09:04] into account when you're doing the lending?

[09:06] Yeah, of course we do.

[09:06] I mean, customers want to know that they can get the most benefit out of that.

[09:10] So they're conscious of, you know, maintaining purchase prices

[09:13] below the threshold so they don't start to see the support

[09:16] that they're gaining taper off.

[09:18] But yeah, it's definitely something we look at. And we operate nationally.

[09:20] So we've got to be conscious across boundaries as well. Yeah for sure.

[09:23] And then Daniella as well, from a legal perspective,

[09:25] how do we go about in the process?

[09:27] How do we go about applying for some of those grants.

[09:30] First time buyer concessions, first time builder concessions.

[09:33] Yeah.

[09:34] Normally, our job during the conveyancing period

[09:39] is to assist with the stamp duty exemption, if applicable.

[09:42] Applying for grants normally falls back into the broker.

[09:46] Am I right to say that Mike?

[09:47] Because I know

[09:48] at least most of my clients, the broker will be assisting them on that front.

[09:52] But we do any concession associated to stamp duty.

[09:58] Yeah. For sure.

[09:58] And look, typically, I understand that, you know, people do,

[10:03] they use these schemes and grants and they need to consider that overall.

[10:08] But I wanted to understand a little bit more about the cash flow considerations,

[10:11] George, as well, particularly where people are purchasing an investment property

[10:15] as their first property and they borrowing 100, 110%.

[10:19] What do they need to understand from an accounting cashflow perspective?

[10:22] Absolutely. It's it's it's very important.

[10:26] And I, you know, encourage young people to actually do it

[10:29] because it actually sits them up

[10:30] for really being able to, plan their financial future.

[10:34] It teaches them cash management, teaches them how to actually budget.

[10:38] And normally if it's a young investment, we've got quite a lot of our clients

[10:42] children who are going into that phase at the moment and we sit them down.

[10:46] We actually go through personal budgets.

[10:48] We tell them what they need to cut costs.

[10:50] And you know, don't be frivolous now because it's going to, compound

[10:54] later down the track

[10:55] and you'll have all the financial freedoms you want, you know, two, three,

[10:59] four years down the track.

[11:00] So we actually set budgets and cashflow considerations for them

[11:04] fundamentally, so important.

[11:06] And if they're living at home like that can really gain the benefits.

[11:09] Yeah. Especially because they have minimal expenses.

[11:11] Absolutely. Yeah. For sure.

[11:13] I think it's all about the goal as well because now we live in,

[11:18] Capital City, one of the we live in Sydney,

[11:20] one of the most expensive capital cities in the world.

[11:22] Even people in Melbourne and Brisbane might have a little bit of a trouble.

[11:26] Affordability wise. We need to start considering their goals.

[11:29] They're starting to think, well,

[11:30] I might not be able to afford my principal place of residence.

[11:33] I might go down the investor route.

[11:35] How does that conversation go with the goals based investing?

[11:41] I wanted to ask Andrew around,

[11:42] you know, considering whether to go

[11:43] principal, place of residence or investment property.

[11:46] I mean,

[11:48] there's so, so much to that question.

[11:50] Whenever we talk about property in the financial planning game, as George

[11:54] says it's a good way for young people to to use leverage

[11:58] to, to really accelerate their wealth creation.

[12:00] But at the same time, when you're introducing,

[12:04] properties as you get older is to say, what is your exit strategy?

[12:07] Because we often go by begin with the end in mind.

[12:10] So, you know, not only am I

[12:13] do I worry about say, hey, do you need help?

[12:17] Are you busy? Do you want involve a buyer's agent?

[12:19] Are you going to do yourself?

[12:20] Whatever it might be?

[12:22] I also think about it's the quality of the asset. Right.

[12:24] So, you know, like any asset, you can have bluechip, you can have speculative,

[12:29] and you're going to see

[12:30] from a financial planning point is we we want proven strategies where

[12:34] that asset, we're going to divert some money there.

[12:37] But the whole idea is to achieve a goal.

[12:39] And that that goal is often financial freedom.

[12:41] And so, you know, it's wonderful to acquire all these assets at some point

[12:45] that those assets need to pay us back. Right.

[12:47] So whether it's rental income to when we cease working, when we choose

[12:51] to do other things, volunteer it can it can give us income

[12:55] so we can spend our time doing what we want to do.

[12:58] So, you know, if we look at buying a property, we're going to say,

[13:02] okay, we're going to hold it.

[13:04] How long are we going to hold for?

[13:06] But what's important is that first part of what I do is we review it.

[13:11] And so maybe at the time we bought it, it made a lot of sense.

[13:14] Maybe at some point it's done what we needed to do.

[13:17] Then we can say we can sell it with might buy out the properties

[13:21] or we might put it somewhere else.

[13:22] That’s more appropriate for what the next stage in life is.

[13:26] Hopefully that answered your question..

[13:27] Yeah, yeah.

[13:27] Not for sure.

[13:28] Look, I think the goal is an important part of it because often I have clients

[13:31] that come to me and say,

[13:33] oh, you know, we want an investment property,

[13:34] but we want to live with it in two years time or say, well,

[13:36] what really is the goal here?

[13:38] Are you looking for something that you're going to move into, or

[13:40] you just want to pay off?

[13:41] Because by doing that, you're limiting 99% of postcodes across the country.

[13:45] And it really hampers our investment goals.

[13:48] So you really need to consider your goal.

[13:49] And then even then,

[13:50] if it is a pure investment, we have to sort of say, well,

[13:52] is it a capital goal that you're looking to achieve?

[13:54] Is it a passive income goal that you're looking to achieve?

[13:57] And we really want to get specific as well, because that will determine

[14:01] where we buy and even the cash flow associated with that.

[14:04] So with all that said and done, like

[14:07] we really need to get specific on our goals as well.

[14:10] And even then to the point where I present a cash flow

[14:13] analysis of particular properties that have sold in certain areas,

[14:18] and I say to them, well, this property will cost you $200 a week.

[14:22] Can you literally afford that?

[14:23] So that's that's really important for people to understand

[14:26] cash flow perspectives as well.

[14:28] Well, I could certainly add to that.

[14:30] I mean, like we kids are living at home longer than ever.

[14:33] You're saying how they can accelerate their wealth

[14:35] by staying with mum and dad

[14:36] and they can create their property portfolios early, but you know, everyone's

[14:39] on a journey, right?

[14:40] And so I find that the younger generation

[14:42] are looking more less about assets, more about experiences these days.

[14:46] They have a broader footprint than ever.

[14:48] It's easier and cheaper and more affordable to travel.

[14:51] And so they might often extend and accelerate their careers

[14:54] by finding experience, say, over in London or, or China

[14:58] or whatever it is, and they get to see and travel at the same time.

[15:02] So it might make sense to have a investment property, which they can.

[15:06] That makes sense.

[15:07] And there's high yield, less capital growth.

[15:09] But at the same time it might not make sense at the time.

[15:13] And so when they come back and the goal is that as they want to start a family,

[15:18] then they might definitely choose a principal place of residence,

[15:21] because it's always though you might have a partner who has

[15:24] who might not want to move every 6 to 12 months based on,

[15:28] you know, it's very difficult leasing environment,

[15:30] as we all know in Australia right now and raising a young family in that sort

[15:34] of environment, if you're not prepared for it is quite stressful.

[15:38] But if both of you, are very understanding

[15:40] and your roles take you around Australia and allow for you to move and,

[15:44] and mobile and post-Covid, we had the fortunate bit

[15:48] of having technology in the cloud to support that, those sorts

[15:52] of working arrangements, the lead the need for a principal place

[15:56] of residence in a specific location is less and less, but it comes down

[16:00] to, again, sitting down with your advisor, sitting down with your significant other

[16:04] and understanding what you want, and whether that is what will make you happy.

[16:08] Because these are long term decisions and you like a marriage,

[16:11] you have to be comfortable knowing that as you get into it.

[16:14] It's not just signing that contract, or getting that loan.

[16:19] You know, you want to be able to see it all through

[16:22] fruition, to gain the most benefit.

[16:25] That's great to do that planning upfront, because as you get to outside

[16:27] of the table, you begin to realize time is not my friend anymore.

[16:31] And you know, I drive my own children crazy because I see people

[16:33] build wealth through property every day of my working life.

[16:37] So I'm constantly,

[16:38] you know, encouraging them to get involved as soon as they can realistically

[16:40] afford to.

[16:41] So yeah, the planning, the planning part is important.

[16:45] And and look realistically with, with only $10,000 in upfront,

[16:48] you're not buying anything in the millions.

[16:51] You're probably looking at...

[16:52] You can if it's a 2% deposit.

[16:55] If it's a 2% deposit, maybe.

[16:57] And you're not paying stamp duty either.

[16:59] Yeah, potentially.

[17:00] But, it's highly unlikely.

[17:02] So, that being said, more than likely you're not going to be buying in Sydney

[17:05] or Melbourne.

[17:06] If it is, it's going to be a unit at the sub $1 million mark.

[17:09] So, that being said, you know,

[17:12] literally you're more than likely not going to be buying a house.

[17:16] And there's other considerations to look for in, in a unit

[17:19] or townhouse or villa, after that.

[17:22] Apart from that, rather, you're going to be looking at,

[17:25] some of the regional hubs where you can buy, you know, sort of $500,000 up.

[17:29] And then you start getting into investment territory

[17:31] and you start looking at your cash flow and taxation as well.

[17:35] Have you seen

[17:36] anybody sort of purchase through your accounting at that,

[17:39] you know, 5 to 100, sorry, $500,000 to $1

[17:43] million mark and as investments and do particularly well.

[17:46] Absolutely. Yeah.

[17:47] We see, a dynamic range of people buying properties from,

[17:52] you know, $300,000 all the way up to $1.5M as investments.

[17:57] The ones we've actually seen that actually do better

[18:01] are the ones that are buying sub $1M.

[18:02] So they're actually doing much better, getting more traction

[18:06] and able to do more recurring ones.

[18:08] So they're actually able to split their

[18:11] risk as well by having the smaller chunks higher yield.

[18:14] Yeah.

[18:14] So we find that that is actually becoming more and more of a trend.

[18:19] Recently had a client buying, you know, $398,000

[18:22] property, yielding $550 a week rent.

[18:25] Fantastic. That's the way you want to do it.

[18:28] It's great from a cash flow perspective as well.

[18:29] And and typically when I'm talking to my clients and even prospects,

[18:33] I tell them that we, in the long term accommodation business,

[18:36] we're not buying an investment property.

[18:37] And you need to treat your property

[18:39] like a business and your tenants are actually your customers.

[18:43] So that being said, we're not going to buy a McMansion

[18:46] that nobody can afford and nobody can buy off you down the track.

[18:49] We want to buy something

[18:50] that's affordable that tenants can live in, they want to live in as well,

[18:54] and that somebody is going to want to buy off you down the track as well.

[18:57] And very importantly, take the emotion out of the choice.

[18:59] Yeah, exactly. 100%. Very good.

[19:02] Well look thank you guys.

[19:02] It's been a great, first chat here around

[19:05] purchasing a property with as little as $10,000 upfront.

[19:08] I wanted to keep it a little bit, lighthearted for a quick fire question.

[19:12] I want to go with favourite film.

[19:13] If I can, I might start with you, Daniella.

[19:15] Do you have a favourite film off the top of your head?

[19:17] Oh, I've just posted the other day on LinkedIn,

[19:19] the movie that I watched with my son.

[19:21] The Intern.

[19:23] Yeah. Awesome. Okay. With Robert De Niro? Yeah. Awesome.

[19:25] What about yourself, Andrew?

[19:28] Peter Pan.

[19:29] I think we're all children at heart.

[19:32] And you know, you know, you never stop dreaming.

[19:34] And that's what I encourage in financial planning.

[19:36] You know, we we're so coached by the world to settle for what reality will give us.

[19:42] And if you plan well early enough

[19:46] and you're determined, you can really achieve your dreams.

[19:48] Yeah. Awesome.

[19:49] Nice yourself. George.

[19:51] So many come to mind.

[19:53] But the one that literally came to top was Top Gun.

[19:56] Yeah. That's a classic.

[19:58] Mike?

[19:59] I remember sitting on an airplane one time, had the headphones on.

[20:01] A whole cabin was looking at me because I was laughing my head off

[20:04] when I was watching a very highbrow film called Deadpool.

[20:06] Okay,

[20:09] I'd have to go with The Untouchables.

[20:10] Kevin Costner, Sean Connery Andy Garcia is an absolute classic.

[20:13] Yeah, so very good.

[20:14] Thank you guys for joining us.

[20:16] Next generation. Thank you Gianni.