Step 3: Type Of Buyer – FHB, Investors and Next Property

Depending on the type of buyer you are will determine how you view your Off the Plan property. Here are some tips to help you in your decision making process:

Step 3.1: First Home Buyers
Step 3.2: Buying an Investment Property
Step 3.3: Buying Your Next Property

Step 3.1: First Home Buyers

Buying your first home can be a challenging and very rewarding experience at the same time.

Off the Plan EXPRESS is here to provide important information to help guide you through the home buying process.
Step 3.11: Quick first home buyers guide
Step 3.12: Changing from renting to owning?
Step 3.13: Property checklist for first home buyers
Step 3.14: Important questions for first home buyers
Step 3.15: Saving for your first home?
Step 3.16: How much money do you actually need to buy property?
Step 3.17: Having trouble finding your first home?
Step 3.18: Cashflow for first home buyers
Step 3.19: What is the first home buyers grant?
Step 3.111: Who is eligible for the first home buyers grant?
Step 3.112: First home owners grant benefits

Step 3.11: Quick first home buyers guide

  1. Work out your borrowing capacity with a mortgage broker or bank
  2. Where are you looking to buy?
  3. Search for a property
  4. What are the upfront, settlement, holding and sales costs?
  5. Does it meet your requirements?
  6. Exchange on the property
  7. Find out which loan is right for you
  8. Get your loan pre-approved
  9. Settle on the property

Step 3.12: Changing from renting to owning?

Rent Own
You are limited in making any improvements to the property You are free to personalise and improve the property however you like and any improvements will usually add value
You have freedom to move to a new property once your lease expires You have less freedom to move around, however you can control who lives or rents the property
Renting is a cost which cannot be reclaimed unless you have some business component to your property Repayments with principal and interest reduce the mortgage and go towards paying off your mortgage
You can rent based on your budget A mortgage may be more expensive than renting, however enables you to get a foothold into the property market
Renting won’t enable you to build wealth through property Owning property gives you the ability to build wealth which makes up the bulk of many Australians wealth
Your maintenance and upkeep is nominal when renting You have a personal responsibility to keep the property up to a certain standard
Your rent is set and will only change once the lease term ends or a structured increase occurs Interest rates vary which can create times of higher and lower repayment periods. Currently we are in a low interest rate period
There are limited tax advantages for renting property There are many tax advantages to owning investment property

Step 3.13: Property checklist for first home buyers

Has the development been DA approved? Yes No
Has the developer / builder completed other projects? Yes No
If relevant, is the architect / designer well known? Yes No
Is there a completion date? Yes No
Are the number of properties in the project within acceptable limits? Yes No
Is the property near public transport? Yes No
Is there a solid return if used as an investment? Yes No
Is there a body corporate? Yes No
Does the property have appeal to renters and future buyers? Yes No
Is the property in a flood zone? Yes No
Is the property near shops, cafes or entertainment? Yes No

Inside the Off the Plan property

Is the size of the property adequate? Yes No
Are there enough bathrooms? Yes No
Is there a car space? Yes No
Are there built-in wardrobes? Yes No
Are there different colour schemes / customisable options? Yes No
Is the aspect of the property desirable? Yes No
Is there a lift? Yes No
Do the interior finishes follow the latest trends? Yes No

Outside the Off the Plan property

Is there a communal bbq area? Yes No
Is there a gym, pool or sauna? Yes No
Are there visitor parking spaces? Yes No
Is the design architecturally relevant? Yes No
Is the property positioned in a good location for the street? Yes No

Step 3.14: Important questions for first home buyers

    1. How much deposit have you saved up?
    2. Do you know your maximum borrowing capacity?
    3. Will you use this property as your first home or first investment?
    4. Which capital city are you looking to buy in?
    5. Can you afford units, houses or townhouses?
    6. How many bedrooms does the property need?
    7. Which amenities are important for your home or investment?
    8. Is public transport a necessity?
    9. When do you need this property completed by?
    10. What do you need to make your lifestyle as you want it?
    11. Do you have a particular shopping precinct you enjoy?
    13. Will you be near specific entertainment activities you enjoy?
    14. Are educational institutions important?
    15. Where do you work and how far are you prepared to travel?
    16. How many people do you have in your household?

Step 3.15: Saving for your first home?

You will need a 10% deposit to purchase your first property. Saving for this can be a long-term process. Below is a list of how you can save $100 per week or over $5,000 per year.

Make your own lunch for work instead of shop bought $50
Buy 1 coffee per day instead of 2 $20
Cook in bulk and freeze for future meals instead of take-aways $20+
Use public transport instead of taxi services $20+

Step 3.16: How much money do you actually need to buy property?

For off the plan purchases you only need a 10% deposit. However when settlement approaches you will have two choices.

  1. Put in another 10% deposit i.e. 20% total deposit.
  2. Use Lenders Mortgage Insurance (LMI) which is a type of insurance protecting the lender.

Other costs when buying Off the Plan property

  • Conveyancing cost – usually a few hundred to thousand dollars
  • Stamp duty – varies with each state, but there are stamp duty concessions for first home buyers when buying off the plan property
  • Loan costs – includes one upfront set up cost
  • Step 3.17: Having trouble finding your first home?

    There are 5 reasons why first home buyers struggle to get into the property market:

    1. The initial deposit is too high
    2. Ability to repay the loan
    3. Cost to hold the property
    4. Can’t find the right property
    5. Too time consuming searching for a property

    Step 3.18: Cashflow for first home buyers

    You will need to understand your cash flow when buying your first property to live in or invest.

    How much will the property cost you to hold per month?

    Your first property to live in

    Loan repayments @ 5% on $600,000 $2,500
    Less allowance for expenses $200
    Monthly shortfall $2,700

    Your first investment property

    Rental Income $2,200
    Loan repayments @ 5% on $600,000 $2,500
    Less allowance for expenses $200
    Monthly shortfall $500

    Step 3.19: What is the first home buyers grant?

    The first home owner grant (FHOG) scheme is a single payment to first home owners funded by the states and territories of Australia.

    The goal for the scheme was to offset GST on home ownership.

    Step 3.111: Who is eligible for the first home buyers grant?

    • If you are planning on buying your first home with another person, both of you have to be first home buyers
    • You or your spouse needs to be a permanent resident or Australian citizen
    • You must be buying or building your first home in Australia
    • You need to live in the property as your primary residence for at least 6 months within the first 12 months of purchasing
    • Your homes purchase price must not exceed the states maximum threshold

    Step 3.112: First home owners grant (FHOG) benefits

    Last Updated: May 16th, 2016
    State Max. benefits FHOG Max. value Duty benefits Max. duty value Governing body
    NSW $30,568 $10,000 $750k $20,568 $550k osr.nsw.gov.au
    VIC $34,046 $10,000 $750k $24,046 $600k sro.vic.gov.au
    QLD $25,112 $15,000 $750k $10,112 $500k treasury.qld.gov.au
    WA $24,858 $10,000 $530k $14,858 $430k finance.wa.gov.au
    SA $32,852 $15,000 $575k $17,852 $500k revenuesa.sa.gov.au
    ACT $22,682 $10,000 $750k $12,682 $442.5k revenue.act.gov.au
    NT $26,000 $26,000 / / / treasury.nt.gov.au
    TAS $10,000 $10,000 / / / sro.tas.gov.au

    Step 3.2: Buying an Investment Property

    Investment property has become one of the best ways for everyday Australians to build wealth. Off the Plan is being utilised as one of the main ways for investors to accomplish their goals.

    The key goals for investors are either maximising long-term capital growth on the property price or maximising rental returns.

    To achieve this investors try and identify areas which are likely to outperform the wider market in terms of economy wide growth.

    Questions you should ask when buying investment property

      1. Do you have a 10% deposit or equity to borrow against?
      2. If you own other investment properties do you know your total borrowing capacity?
      3. Are you buying for rental returns or capital growth?
      4. Which capital city are you looking to buy in?
      5. Are units, houses or townhouses inside your budget?
      6. Do you understand the demographics of the area?
      7. Are incomes increasing in your local area of choice?
      8. What do residents do for work?
      9. Are there multiple sources of work for residents?
      10. What sort of rental yield can you expect?
      11. Are there any new infrastructure projects planned or under construction?
      12. What is the vacancy rate in the local area?
      13. Is the local area in undersupply or oversupply?
      14. Do you know what sort of amenities the local area has?
      15. How far from public transport is important to you?
      16. Is the area a desirable location?
      17. Is there population growth?
      18. Can the property be purchased in your SMSF (Self Managed Super Fund)?
      19. Does the area have amenities such as schools, shops and entertainment?
      20. Is the economy based on one industry?

    Cashflow

    When buying property for investment, you should understand your income and expenses.

    Will there be a surplus or shortfall when calculating how much the property will cost you to hold?

    Rental Income $3,000
    Less loan repayments @ 5% on $650,000 $2,708
    Less allowance for expenses $200
    Monthly surplus $92

    Step 3.3: Buying Your Next Property

    Buying your next property Off the Plan is a time when many home owners downsize, upsize or continue the accumulation phase.

    Typically the purchaser will already have a property and will look towards a second or third property which will be used as a primary residence or investment.

    Questions property purchases often ask

      1. Will you be liquidating a property or borrowing against another property to fund this next property?
      2. How much deposit will you have?
      3. Are you looking to occupy or invest with this purchase?
      4. How many bedrooms are you looking to purchase?
      5. What capital city do you most prefer?
      6. What sort of amenities do you or your prospective tenants need?
      7. How many bedrooms do you require?
      8. Is public transport important?
      9. Will this next property put your cashflow in surplus or shortfall?
      10. Are you wanting to diversify your portfolio?

    Cashflow for your next property

    It is important to understand your cash flow when purchasing a second or third property.

    Can you afford to purchase a second or third property?

    Your current cashflow after purchasing a second property
    Rental Income $5,000
    Less loan repayment @ 5% on $1.1m $4,583
    Less allowance for expenses $500
    Monthly shortfall $83
    Your cashflow after purchasing a third property
    Rental Income after next property $7,200
    Less loan repayment @ 5% on $1.55m after next property $6,458
    Less allowance for expenses after next property $700
    Monthly surplus after next property $42

    Congratulations on understanding which type of buyer you are! Professional support makes the entire Off the Plan process much smoother due to the experience and knowledge of the EXPRESS team. Let’s find out more.