Hello, my name’s Ben Everingham and today we’re going to talk about how to save a deposit for a house or a unit in the next year.
G’day, my name’s Ben Everingham and I’m the director here at Pumped on Property. So Pumped on Property are a buyer’s agency that help hundreds of investors throughout Australia buy property each year, and today we’re going to talk about the six ways that you can save a deposit for a house or a unit within the next year. And they might not be the traditional six things that first come to mind, but let’s have a bit of fun with today’s video and see where we end up.
So, the first thing that I wanted to talk about is commitment. So, I talk to hundreds and hundreds, even thousands of investor every year. And so many of them just make excuses, like weak excuses, around when they’re gonna do something. They commit to these goals and then they never actually achieve them. I can fully relate to this. I don’t put my hands up and pretend I’m some goal-achieving machine, but the reality is these days, if I say I’m gonna do something, I follow through on it because I feel not good about myself if I say I’m gonna do something, and say I’m gonna do something, and say I’m gonna do something and then never end up following through with it. And you lose trust with people as well when you commit to doing something, and you tell people you’re gonna do something, and then you never follow through on it.
So the first step is to just commit. If you’re gonna buy an investment property or you’re gonna save a deposit for a house or a unit or a townhouse, just do it. Like, just jump in there, throw it all on the line and say, “I’m gonna have a deposit twelve months from today. And that’s gonna mean sometimes I have to sacrifice some things. Sometimes I don’t have to sacrifice some things. Sometimes I’m gonna have to get outside of my comfort zone.” I’m gonna have to do, I don’t even want to say it, I hate the word, but you’re gonna have to budget a little bit. You might have to sacrifice some of the things that you like in terms of eating out, or your spending habits, or your overseas holiday this year.
But sacrificing that short term things, you’re gonna be in a much better position longer term and so, it’s delaying that gratification now, which, you know, I come from Generation Y and I’m sure there’s plenty people in today’s video going, well, bloody Generation Y just wants to spend and they want to live in the moment and they wanna do it all right now and they wanna have it all right now. And that’s completely cool, like, I’m exactly like that, like everybody else, but the reality is I’ve been able to put myself into a unique situation from investing in property. And that’s because I’ve hustled, I’ve had to do the hard work, I’ve had to work the two jobs, I’ve had to sacrifice certain things in my life to get there. But now I’m in a position where some of that hard work is actually starting to pay off a little bit. It feels a lot better. Life’s becoming a little bit easier and I’m sure over the next ten, twenty, thirty years, it’s gonna become better for those of us that are prepared to do that hard work.
So, just bloody commit and go make it happen, and stop talking about it, stop learning, stop sucking in information from here, there, everywhere, getting ten thousand opinions and just bloody get started with it. So hope I’m not putting anybody off, but I just wish sometimes, I wish I could shake some of these people that I talk to and just go, just get on with it! Stop talking about it. So, that’s my rant over. Apologies.
The second thing I wanted to talk about, is actually going and sitting down with a mortgage broker. Just because you don’t have a deposit right now doesn’t mean you can’t start the process and actually identify what it is that you need to go and do to go achieve your goal of saving a deposit for a property. So, the cool thing is a lot of people probably listening to this video are earning good money or with their partner, they’re earning good money, and in a position where you could go buy two, three, four, five properties in the next five years. There’s not an income problem. The problem is just the habit of saving, which is bloody hard and it never really gets any easier.
But going and talking to a mortgage broker even if you don’t have the money right now, and saying, “I’ve got a goal that in the next twelve months I’m gonna make that first purchase. What can I potentially borrow and how much of a deposit do I actually need and what other costs do I need to be able to make that purchase in that time?” And they will get you on the path. And then you’ve got a resource when you do have the money and you are ready to go to, to help get you started and get into the market sooner. So talking to a broker is a huge thing, or talking to a bank manager if that’s what you’re working with.
The third thing is to understand your costs involved with actually purchasing the property. So a lot of people go, “I’m going to go out to the market and I’m gonna buy a $300,000 unit for example, and I’m gonna come out with a 10% deposit.” So they, in their mind, go, “All I need to do to settle this $300,000 unit is come up with a 10% deposit, which is $30,000.” And then they go, “Okay, I’ll just save $30,000 over the next one, two, three years,” whatever that time period might be for you. Or, for some of you it might be six months.
But the reality is there’s other hard costs associated with buying a property and some of these costs include, obviously the deposit, stamp duty. So in every single state in Australia, the Australian government charges anybody buying a property stamp duty. And it’s a cost that is unavoidable, and it’s a cost of doing business in the property industry in Australia. So every single state has a different stamp duty amount that they charge for different properties.
I suggest when you identify which state and which market in Australia you’re buying, and you’ve identified the purchase price that you’re gonna spend, for example 300 grand, you just jump online and go “stamp duty calculator + New South Wales, Victoria, WA, etc.” And find out how much it’s gonna cost you. But, like in Queensland, for example on a $300,000 purchase, you might be looking at somewhere between sort of seven and ten thousand dollars in stamp duty. Sometimes that stamp duty, depending on your financial situation, can be added to the loan, which means if you’re coming up with a 10% deposit on $10,000, you only have to pay $1000 out of your own pocket, but again that’s something for you to sit down with your mortgage broker and go, “Should I add the stamp duty to the loan, or should I just save it and pay for it myself.”
There’s the legal fees, which can range anywhere between $700 and $3000, depending on who you use and how much they charge you. You’ve also got the bank fees, which can again range from a couple of hundred dollars up to sort of five, six, seven hundred dollars for settlement. Generally that’s added on top of the loan. You’ve got the building and pest inspection fee, which can be anywhere between $300 and $700 depending on your area and the type of property you’re looking for. If you’re using a buyer’s agent or somebody like myself, you’ve gotta factor their services into account. General buyer’s agency fees range from about $6,000 anywhere up to $25,000 depending on the market and who you’re using. And then you’ve also got the lender’s mortgage insurance.
So, again, the banks sting you in Australia. If you’re putting anything less than 20% deposit down, they will charge you varying degrees of lender’s mortgage insurance. Generally, between 20% and 10%, you don’t pay a massive, massive amount of lender’s mortgage insurance. But if you put down less than a 10% deposit, lender’s mortgage insurance can significantly jump and be another cost. So, again, that might be a cost that you roll into the loan, conversation for your broker, or it might be a cost that you pay up front. But these are all things to take into account and think about and most first-time buyers or people looking to save a deposit for their house or unit in the next twelve months forget about these extra costs and all of a sudden they go back to their broker after saving and working really hard for twelve months and get disheartened because unfortunately they can’t move forward because they require some additional money to settle.
A really cool rule of thumb to work out how much you need is, on top of your deposit, I say about 6% of the purchase price to settle the property. So, under 300 grand, you’ve gotta come up with your 30% deposit, $30,000 deposit, which is 10% as a minimum, and then you might be looking at 6% of 300 grand, another $18,000 on top of that, which is a pretty significant amount of money.
The next thing I wanted to talk about is budgeting. Again, I hate that word, my wife hates that word even more. But budgeting is a necessary evil in moving forward with investing, so the reality is unless you want to save your way to financial independence, which I’ve never ever heard a single person in human history that I’ve met actually save their way to financial freedom, the reality is, you’re gonna have to learn to spend less than you earn and invest that money in something, whether it’s businesses, whether it’s in personal development, and your self, whether it’s in property shares, gold, whatever it is that you want to do. But to move forward, at some point you’re gonna need your money to be getting you a return. And that return on investment can range between 2% in the banks right now, to five or ten, 15% in property, to, whatever else depending on your comfort level and the level of risk you’re prepared to take. But the reality is a budget is a necessary evil, especially if you want to save your deposit in the next twelve months.
So in terms of the budget there’s a few things that you need to do. Sitting down and realising, what is your actual gross income or the total amount of income that you, or if you’re doing this with somebody else receive on a weekly basis, and what are all of the costs that you or, you know, your wife, your girlfriend, your husband, your partner are spending on a weekly basis. So breaking your life down into all of those expenses. And hopefully, to be able to move forward, the income in your life is gonna be more than the expenses. Sometimes this isn’t the case and before you can actually begin saving for an investment property, you’ve gotta cut some of those expenses or spending habit and lifestyle habits out of your life. But, the reality is until you can save more than you spend each week, it’s gonna be very difficult to buy an investment property.
Once you’ve got a budget in place, and you know the difference between what you need to survive ,and have the lifestyle that you want to lead, and what savings you’ve got, money you’ve got coming in each week, you can then set a weekly goal.
So for me, when I first started investing in property, obviously I wasn’t earning a huge amount of money, I was in a graduate programme my first year out of university, but I set a goal to save $20,000 for myself in that first 12 months of moving out of uni. So I was earning at the time I think $55,000 was my starting salary. So $400 a week when you’re only earning 800 bucks after tax per week is not a huge amount of money, but it was enough for me to know that if I just do the activity, I will go out and I will achieve the goal.
Unfortunately for me, because I had been at university or fortunately for me now, that I’d been at university for so long, as soon as I got about 10 grand in the bank I just wanted to spend it, and it wasn’t enough to buy a property. So I had a friend visit me up on the Sunshine Coast in Queensland, where I was living at the time, and we actually three days before, we decided to leave just booked a trip to America on a whim. Neither of us had been before and we really wanted to go and so, I got my now wife, girlfriend at the time, to let me go on this trip and in 14 days on this trip I blew the entire $10,000 ’cause I had been living on Centrelink and part-time jobs during my university, so we just over there and lived like kings.
I look back now and I’m so happy I did that, but I remember coming back and my father-in-law’s a very successful investor, developer, and builder, and he literally did everything but grab me buy the collar and slap me across the head, saying that I had made the biggest mistake of my life by spending all this money. So after six months of saving, really, really hard, and working really hard, I was back to square one. So again, it took me about another twelve months to get everything together but when I did have that money, I didn’t spend it this time and I went out and bought my first investment property using the first time buyer’s grant, where I got free stamp duty. So, a bit of a story, a bit of a learning experience, but, you know, savings isn’t always linear and just because you fall down once on your goal, doesn’t mean you can’t get back on the horse and go again is what I’m trying to say. If my father-in-law was watching this video, I’m sure he’d be slapping me again across the face.
The other thing which is important to remember which most people that are looking to save a deposit for a house or a unit in the first twelve months often forget, is having a bit of a buffer in place after you’ve spent your money. So when I was buying my first, probably three to five properties, every time I got enough savings in the bank to buy again, I just put everything on the line, and sometimes even more than I had to make that purchase because I knew that if I kept investing this way, I would achieve my goals, and I wanted to achieve them quick. But the reality is, sometimes things in life change, sometimes interest rates change, sometimes you get fired, sometimes the expenses in your life double, sometimes you have an unexpected thing come into your life like a bub, for example, or you go from two wages to one and it’s always good to have that buffer up your sleeve when things happen like that.
So what I’ve learned now, is that I personally like to have at least a year’s worth of living and investment-related expenses in the bank at all times, but that is quite a bit of money for most people especially if you’re looking to save your first property. So, you know, maybe work on creating a small buffer and then over time, grow that buffer, just so that you’ve got that security, that if the worst case scenario happens, you can get through a challenging time without having to offload the property that you’ve bought at a loss which, obviously financial hardship is one of the number one reasons why people lose money on investment properties, then they’re motivated to sell but it’s not the right time to sell, it’s not the right market to sell in, or they drop the price because they’re so motivated to move the property.
So the last thing I wanted to talk about today is understanding how the banks and the people that lend you the money actually see you and putting yourself over that twelve month period that you’re saving that deposit in the strongest possible positions. So the number one way to achieve that is to get a full-time job. If you’re working casually at the moment, if you’re working part-time, or if you’ve got your own business but your accountant is telling you to write off all of the income that you make each year so on paper you’re not paying any tax, then it’s going to be very, very difficult in this current lending environment to actually move forward. So a full-time job is a great way to move forward and it’s the most stable thing that the banks look at. So they look at the stability of that weekly income coming in week in, week out, and that ticks their box in terms of approval and risk.
Some of the other things that I wanted to talk about is just putting yourself in a position where you can show proven savings over a period of time. So the banks don’t like to see somebody’s bank accounts going backwards every week. They want to see proven savings where you’re going $400, 800, 1200, and then you get up to your 20 grand or whatever your goal is over that period of the next twelve months, but the reality is proving savings is huge. And one of the ways that you can prove savings is obviously just save your money.
The other one is through things like rent, through car repayments, through consistent credit card repayments, but the last thing that you want to do over that twelve months when you’re getting ready to move forward is actually get yourself into a position where you’ve got a red tick against your name from some creditor, you know, a credit card, a bank, a personal loan, a car loan, etc., a loan that you’ve got for another property, that is the worst possible thing and they will see that because they all have access to all of this information and that can really stop you moving forward, even though you might have the savings and the job there to guarantee it, it can actually really have an effect on you long-term.
So, I hope today’s video gave you some different ideas around how to save a deposit for your next house or unit in the next twelve months.
I’m Ben Everingham, and if you’ve got any questions, please feel free to jump over to www.pumpedonproperty.com If you’re in a position where you’re almost there and you’ve almost got your savings together, feel free to click ‘Strategy Session’ on our website, which is www.pumpedonproperty.com, and I’d be more than happy to explain where the current market is in Australian and talk through your opportunities and I suppose sit with you and help you go from where you are right now to developing a plan to where you would like to be in the future. So, thank you for your time.
Until next time, stay hungry. Thank you.