Property myths busted – Part 2: what deposit you need, bidding skills, first home owners grant, the 6-year CGT exemption & off-market opportunities (Ep.72)

In this week’s episode, Dave, Cate and Pete take you through:

1. Weekly market insights 1 – New home loans see a record jump in August
   ABS figures released for August show a jump of 12.6% increase in new home loans (excluding refinances), and the largest month on month increase since 2002. It’s also the first time in 11 years that there’s been more first home buyers than investors purchasing in the market. So, what does that entail for the property market? The trio share their insights.
2. Weekly market insights 2 – More than 50% of mortgage repayment holidays have ceased
   In a really encouraging sign, more than half of the Australian’s who opted for repayment holidays have recommenced their repayments, contributing to a more positive outlook for our economic recovery than the previously reported forecasts.
3. Weekly market insights 3 – Property prices remain resilient
   CoreLogic data for the last quarter reveals that Sydney is down by 0.9% and Melbourne 0.27%, while Adelaide, Brisbane and Perth have increased. As the trio revealed in “Market update #7”, history shows that during previous economic downturns, property prices have remained stable due to low interest rates and reductions in supply as well as demand. This recession is no different, history repeats!
4. Myth #1: You need a 20% deposit to purchase a property
   This is wrong on two levels: the amount that you pay to a real estate agent that you’re not willing to walk away from and your contribution to settlement are two different things (and neither of them are required to equate to 20%). The trio explain why.
5. Myth #2: A successful auction bidder doesn’t need skill, only the most money
   Planning and preparation does the heavy lifting for getting great results. Your strategy and behaviour can knock the competition out of the park, even if their pockets are deeper than yours. We share with you the tactics that will have opponent auction bidders shaking in their boots, (even if you are shaking too).
6. Myth #3: You lose your First Home Owner’s grant if you purchase an investment property
   Many people incorrectly believe that if you purchase an investment property first, you’re no longer eligible for the First Home Owner’s grant when you then go to purchase your home. The Planner, Buyer and Professor reveal how you can access the grant, even if you’re not a first-time buyer.
7. Myth #4: Eligibility for the 6-year capital gains tax investment exemption
   If you’re thinking of moving out of your principle place of residence and renting it out, there are key requirements that are often missed by many in order to claim the capital gains tax exemption. But is this strategy right for you? The property with the highest capital growth prospects is the one you want to be claiming the exemption on.
8. Myth #5: Off-markets opportunities are all motivated vendors
   The reality is that there are 3 different kinds of off-markets and only one that is worth your time. Home buying is a lengthy process as it is, and time is our most precious commodity. Don’t get caught out with time-wasters!
9. And of course, our ‘gold nuggets’

Resources:

• All things property tax – how to understand your deductions at tax time (Ep.44)
• Mortgage Strategy 101 – Ep 4. Optimise Investment Deductions
• Mortgage Strategy 101 – Ep 9. – Maximising your tax deductions by using a redraw facility
• Should you get a depreciation schedule?
• Three key triggers telling you to get a depreciation schedule
• Negative gearing table 
• Chiselling Away at Negative Gearing – How do the Changes to Property Deductions Impact You? 
• Bidding tactics 101 (Ep.20)
• The art and science of removing emotions when buying property
• Making the first move – why the first property you buy is the most important of all
• The seven rules of bidding at auction
• There’s more to an auction than just putting your hand up
• The critical mistakes of property investment – starting without a plan
• The ‘best and highest’ method of bidding
• Why short-term investing has long-term consequences
• Property Cycle Management – why now is always the best time to buy if it suits your personal economy and you have a long-term property plan (Ep. 12)
• Questions to ask when buying an investment property
• How our mortgage strategy helps us to hold properties
• How to assess and select property like an A-grade Buyer’s Agent (Ep. 7) 
• Five mortgage strategies that can grow your wealth  
• Mortgage Strategy 101 – Ep 5. Risk Management.   
• How to succeed with Property and Create Your Ideal Lifestyle   
• Mortgage Strategy 101 – Youtube video series 

Market update– the Property Planner, Buyer and Professor’s insights

• ABS figures for new home loans in August showed a record jump of 12.6% (excluding refinances) largest month on month increase since 2002. First time in 11 years that there’s been more first home buyer loans v investment loans, and also a huge jump in owner occupier loans. Owner occupiers are driving market recovery so far.  
• When the investors start coming back into the market, that’s when we’ll see prices go to the next level. 
• Real estate institute of Australia – mortgage repayment holidays that people took, half have recommenced with their normal repayment schedule. Something we saw people endeavour to do, to take a conservative approach and grab the opportunity to have their buffer around them. Which is a really encouraging sign. 
• CoreLogic information in the last quarter – Sydney down 0.9%, Melbourne 0.27% and Perth, Brisbane and Adelaide are up. However, as we’ve talked about during previous recessions, property prices were fairly resilient. Because interest rates are generally lower during a recession to stimulate the economy and supply as well as demand is low.  

Show notes:

• Myth 1: you need a 20% deposit to buy a property 
• The deposit is what you pay the real estate agent – normally 10%, but it is negotiable. The higher the property value is, the less requirement to pay 10%.  
• The purpose of the deposit is to show that you are serious about the property. 
• Contribution to settlement – 20% number is talked about a lot in relation to loan to value ratio. But that in itself is a wrong number, because you have purchase costs on top of the purchase price itself – the actual amount you need to settle on the property is probably 25%.  
• However, you can borrow up to 95-97% of the value of the property. there are financial institutions that allow you to borrow up to 95-97% of the value of the property – but pay Lenders mortgage insurance. 0.5% to 4% ball-park of the loan amount paid, depending on the loan to value ratio of the property. 
  • This means you only pay 3-5% on the difference between the purchase price and the loan 
  • But you still have to pay purchase costs – government fees, solicitor, bank fees, adjustments between vendor and purchaser 
  • Then there is mortgage insurance premium – a percentage of the total loan amount, which increases: 
    • The higher the loan amount 
    • The higher the LVR 
    • Eg: $500,000 loan amount at 95% LVR= 2.95% rate for LMI = $14,750 LMI 
    • Eg: $500,000 loan amount at 90% LVR = 1.73% rate for LMI = $8,650 LMI 
• The buyer may pay the full deposit or part deposit with the remainder paid by a date specified in the contract of sale. 
• First home loan deposit scheme – you can come up with 5% and the government will guarantee the 15%. 
• Purchasing your second property – when you can use equity from the value of your current property instead of cash savings for the contribution to settlement and purchase costs to lower the LVR on the second purchase. 
• Myth 2: A successful auction bidder doesn’t need skill, only the most money 
• The auctioneer’s job is to put people under pressure and then give you time, but if you don’t have a plan you’re already under the 8 ball.  
• Intimidation tactics, people can get freaked out by it and stop bidding. 
• Haven’t done homework, don’t really know what it’s worth and scared that they’re bidding too much. 
• If you’re at an auction where it is a heavily controlled auction and you need a full payment, or subject to finance or long settlement period, you can’t bid. If you can’t meet those conditions, you should negotiate that before the auction. 
• Planning and preparation does the heavy lifting for getting great results and doing something with confidence. 
• You can change other bidders behaviour and control your own behaviour. Eg: You may provide tells by looking at your partner, discussing with them and making it clear you are at your limit. 
• Myth 3: You lose your FHO grant if you purchase an investment property 
• If you buy an investment property first, most states will allow you to then access the first home owners grant provided that you bought your first property after July 1 2000 and you have not lived in it. 
• The first home owners grant is for your first home and this is differentiated between previous investment you may have purchased.  
• The property that you purchase using the first home owners grant, you can rent it out at first, but all states require you to move into the property within 12 months of either settlement or completion if building. 
• Myth 4: the 6 year Capital Gains Tax investment exemption 
• You can move out of a property and still claim it as your principle place of residence if It’s sold within 6 years. Eg: if you’re moving interstate or regional area. Where you’re looking to buy the next home may not have the same prospects for capital growth. You can consider which property you claim as your principle place of residence. The one with the greater capital growth, is the one you want to be claiming the tax exemption on.  
• You’re eligible for a full main residence exemption if the dwelling: 
  • has been the home of you, your partner and other dependants for the whole period you’ve owned it 
  • has not been used to produce assessable income – that is, you’ve not run a business from it, rented it out or flipped it 
  • is on land of two hectares or less. 
• A dwelling ceases being your main residence once you stop living in it. However, in some cases you can choose to continue treating a dwelling as your main residence for capital gains tax (CGT) purposes even though you no longer live in it. 
• Generally, you can treat the dwelling as your main residence for: 
  • up to six years if it is used to produce income 
  • indefinitely if it is not used to produce income 
• The primary clarification that may be missed by many is that if you move into another property that you own, and you want your old property to remain the PPOR, then: 
  • You need to nominate this in your tax return 
  • You cannot claim the secondary property as your PPOR. You can only claim one property at any one time. 
• Myth 5: Off markets- they aren’t all real/motivated vendors 
• The reality is that there’s three kinds of off markets 
  • Where the vendor is motivated but under time pressure and don’t have time for a campaign and auction. 
  • Where the vendor is not thinking about selling and someone has nagged them, they’re willing to sell but at an inflated price – these are time wasters. 
  • Pre-market – the agent calls it an off-market, but you’re seeing it before the photographer and the floor planner, it’s going to hit the internet.  
• Buyers have to be aware of what off market that they’re going to see. 

David Johnston- The Property Planner’s Golden nugget: if you’re considering moving to a new location and you have an existing PPOR and you’re looking at buying a new home, move to the new location and trial living there first. Figure out if you enjoy the new job, enjoy the new location before committing to the purchase. When you do comit to the purchase, make sure you spend the time necessary to optimise your mortgage strategy, tax strategy and property planning strategy, as there’s a lot to consider and work through when your transitioning from a PPOR to a new PPOR and whether you keep the old one as an investment property.  

Cate Bakos – The Property Buyer’s Golden nugget: work out your walk-away price with some science long before auction day. If you get a little nervous, remember that everyone who wants to bid is feeling nervous too, speak up, do it loudly, don’t consult, remember your magic number – you’ll be surprised at just how intimidating you can be even if you feel like you’re shaking in your boots.