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417 | Home Deposits Made Simple – Chat with Julia Hartman, Michael Ragavan & James Bowe!

One of the greatest barriers that an investor will face when entering the property market is… 

Saving for a home deposit.  

With high housing values and a steadily rising cost of living, saving for that first big leap onto the property ladder can seem daunting to some and impossible to others.  

Here to part the sea of confusion and simplify home deposits, we’ve got a fantastic number of guests on the couch (In fact, this is the MOST guests we’ve had on at a single time 😮)  

Please welcome…  

Julia Hartman, founder of the Ban Tacs group and Chief Technical Tax Advisor for Empower Wealth Tax! No stranger to the couch, she’ll be breaking down the Australian government’s latest and greatest home deposit schemes to help you understand how you can maximise the benefits from it.  

Michael Ragavan from Our Leg Up, an innovative and revolutionary platform that seeks to tackle the problems around borrowing power, skyrocketing Lenders Mortgage Insurance (LMI) and Loan to Value Ratio (LVR) stopping investors from getting into the market. 

And last but not least…. 

James Bowe from OwnHome, a mind-blowingly cool product that helps home buyers pay off their mortgages while living in their property.  

Tune in as they dissect and break down the many ways people can save and afford their home deposit, and how it is possible to buy your home with just $35K!   

A super exciting, insightful and practical episode, listen in now!!  

 

 

 

 

P.S. We have NO commercial ties to any of these businesses – we just think the work their doing is life-changing stuff, and good enough to be shared with the community.  

 

Free Stuff Mentioned… 

 

Want to work with Bryce & Ben’s Award-Winning Team? 

 

Here’s some of the gold we cover… 

  • 0:00 – Here’s what we’re covering today… 
  • 3:59 – Is FOMU stopping you??  
  • 9:59 Welcome back Julia from Ban Tacs!  
  • 11:53 – THIS is why Julia wrote the blog!  
  • 13:11 – Is it possible to buy a home with $35K?!  
  • 14:35 – What is the First Home Buyers Guarantee (FHGB)?  
  • 15:37 – Here’s how it works… (You can read the blog here!)  
  • 19:09 – This is basically what you’re deciding… 
  • 20:43 Who would benefit MOST from this?? (+ who qualifies!)  
  • 22:20 – But what if I want that money back from my Super??  
  • 25:17 What does this look like...as a Sole Parent?  
  • 26:26 – You have to pass these 2 tests!  
  • 28:36 – As a Couple with Children  
  • 30:55 – As a Couple with no Children 
  • 35:01 – And, as a Single Person with no Children! 
  • 40:05 – South Australia: “It’s a brain drain for the other states!”  
  • 43:42 Meet Michael from Our Leg Up! (& what problems they’re trying to tackle!) 
  • 45:28 – How does “Our Leg Up” work?  
  • 47:25 – Rising LVR and LMI: What’s considered a good rate today?  
  • 48:59 – Let’s break it down: What’s a Charge (aka. Equity investment)?! 
  • 50:50 – “It’s lazy equity”  
  • 52:49 – How does this help first-home buyers??  
  • 53:55 – The process of developing Our Leg Up + what’s next!  
  • 55:01 – …and this is why it’s a Win-Win situation!  
  • 58:01 – If you’re interested, here’s how you can learn more! 
  • 58:40 – What criteria does Our Leg Up look for?  
  • 1:01:55 Meet James from OwnHome + the challenges their tackling… 
  • 1:03:49 – This is how the idea was born! 
  • 1:04:48 – How this 4-step journey works!  
  • 1:07:02 – “You share the capital growth”  
  • 1:08:24 – Who are they trying to help?  
  • 1:11:32 – How does OwnHome make money?  
  • 1:13:47 – Why is there a time expiration? 
  • 1:14:46 – Paying LMI, Capital Gains Tax & Stamp Duty!  
  • 1:20:28 – How do they get their Capital Reserve?  
  • 1:21:39 Limitations and future plans for this business! 

And… 

  • 1:24:54 – Julia’s Special Appearance Life Hack: CGT Record Keeping & the best way to do it! 
  • 1:29:56 NSW’s (great) Stamp duty legislation change!  

 

Free Report: Home Deposits Made Simple – Two Years at $200 Per Week and No LMI

This blog was originally posted on Ban Tacs and written by Julia Hartman, founder of the Ban Tacs group and Chief Technical Tax Advisor for Empower Wealth Tax. 

This report is referenced in Episode 417 | Home Deposits Made Simple – Chat with Julia, Michael & James! Give it a listen now. 

Combine the First Home Guarantee with the Super Saver Scheme to buy a home and nearly one-third of your deposit becomes tax savings.  If you have a child, the government will provide you with mortgage insurance at no cost, so you won’t need the full 20% deposit.

The ideal candidate for this arrangement is someone who is on a good income (this means the tax incentives are greater and they can afford the repayments on 95% of the purchase price) but are struggling to get a deposit together, possibly because of high rents in the area or recent difficulties that have passed.

While this blog assumes that the saver has not ever owned a house before, some of these concessions like the government guarantee for sole parents can apply to subsequent purchases of a home.  Individuals can also utilise the Super Saver Scheme, even if their partner has previously owned a home.

 

The First Home Owners Super Saver Scheme

This scheme allows you to withdraw some of your superannuation to buy your first home but will require you to make voluntary contributions first.  The gift is, these contributions can come from before-tax dollars.  If you play your cards right, this means you are only taxed at a rate of 15% on the earnings that you put aside for your home deposit.

For example, if you decide you can afford to save $200 per week from your take-home pay, here are the 2022-2023 tax rates:

 

If you earn $140,000 a year, your marginal tax rate is 39%. That means for every $10,000 you earn you only get to take home $6,100.  If instead, you put the money into super where it is only taxed at 15%, you will have $8,500 tucked away in super, saving for your deposit.

Now at $140,000, your employer will be putting $14,000 into super for you, under the guarantee.  In total, you can only have $27,500 in tax-effective (concessional) contributions a year.  To stay under the cap of $27,500 you could put an additional $13,500 into super to save for your home.  If you have been on similar or lower wages over the past couple of years but have not made any extra superannuation contributions, then you will have over $20,000 in unused cap.

This can be carried forward for up to 5 years allowing you to contribute more than $27,500. Under this super saving plan, you are allowed to contribute $15,000 a year, after the 15% tax.  That is a maximum contribution of $17,647 from your before-tax wages.  This can be achieved with just a little help from your accumulated unused caps from previous years.

In short, the scheme allows you to redirect $17,647 of your before-tax wage into super, leaving you $15,000 a year towards your deposit.  If instead, you had taken the $17,647 as wages you would have lost 39% in tax leaving only 10,764 or $207 per week in take-home pay.  This arrangement will increase the amount you can save by nearly 50%.

Note: If you have already made some voluntary contributions to super these may also qualify to be withdrawn to buy a home. 

At the end of two years, you have a $30,000 deposit, plus a bit of earnings and hopefully some savings too.  Let’s say you have $35,000 to use as a deposit plus savings for the stamp duty which should be minimal on your first home.

 

The Technicalities:

In the tax return for the year that you withdraw your deposit from the super fund, you need to include the amount in your tax return but you get a 30% tax offset.  For many people now that might mean a top-up tax of 9%.  That is their tax rate is 39% including Medicare so 9% after the tax offset.  But from 1st July 2024 people earning between $45,000 and $200,000 will only have a tax rate of 30% so the offset will fully cancel all the tax. This means you will need to pay the Medicare levy. If you are reading about this now then you probably won’t be ready to withdraw until after 1st July 2024.

What happens if you decide not to buy?  You have at least 12 months to find a property with an automatic extension of another 12 months but if you still haven’t purchased a home and don’t want to put the money back into super you will be taxed at a further 20% on the amount.

In both cases make sure you have private health insurance if this is going to take your income as a single person with no children beyond $90,000 or a couple combining beyond $180,000.

You must apply for a release of the funds before signing a contract

Once your savings have been released, you have up to 12 months (or other period allowed) from the date you requested the release of FHSS amounts to sign a contract to purchase or construct a home.

The contract you enter into has to be for a residential premise located in Australia. It cannot be any of the following types of property:

  • any premises not capable of being occupied as a residence
  • a houseboat
  • a motor home
  • vacant land except for house and land packages.

Note: If you purchase vacant land to build a home on, it is the contract to construct your home that must be entered into to meet the FHSS scheme requirements. The contract to construct that home must be entered into within 12 months (or other period allowed) from the date you requested a release. In this situation, you must not have purchased the vacant land before applying for a FHSS determination.

 

How to Buy a House with $35,000

A lot depends on the price of houses in the area you want to buy in but there are also incentives for families.  Here is a guide to how much you will have available to spend, without having to pay Lenders Mortgage Insurance, depending on the dynamics of your household.

It is important to note that there are two tests you need to pass with the bank and it doesn’t matter how well you do on one, you still have to pass the other.

  • The first test is having enough deposit. This is achieved without mortgage insurance by either having saved 20% of the house price or qualifying for the government deposit guarantee discussed further on.
  • The second test is your ability to meet the repayments, which is determined by how much you borrow in relation to how much you earn and your family dynamics. Here is a link to a useful calculator to help you calculate this.

The following addresses your family dynamics and what your $35,000 deposit will allow you to buy.  You still need to run through the calculator (from the second test) above to make sure the bank will lend you that much.  That is the catch with low deposit borrowings.  If you only have a 5% deposit then you have to pay off a whopping 95% of the purchase price whereas a 20% deposit for the same house will result in a much smaller loan and smaller repayments because you are only paying back 80% of the purchase price.

Here is the plan based on your family dynamics; continue reading even if you are single as there is a plan for you too.

The catch is these guarantees have a limited number of places and are touted as family housing assistance, so it is assumed that having children will help.  In particular, single people with children can qualify with as little as a 2% deposit.  Nevertheless, let’s look at a few scenarios to show how any household dynamic can buy a house in 2 years.

Sole Parent – The government will guarantee your deposit when you have as little as 2% but you still have to be able to afford to pay off the 98%.  If you have $35,000 plus stamp duty as a deposit then you can borrow $1.715 mil but, of course, you probably can’t afford the repayments on such a large loan.  The point here is it’s not the deposit that will hold you back but t your ability to repay the loan. You can check your ability by using this calculator to see what the banks will lend you. If you have a good income, however, you should have no problem getting a modest home in most parts of Australia.

Couple with Children – The government will guarantee your deposit when you have as little as a 5% deposit.  The “ability to repay” test should be a lot easier to pass with two incomes and with two incomes over the last 2 years you may have managed to save two lots of $35,000.  But let’s say you haven’t had two incomes for the last 2 years because one parent has been at home with the children.  Now they have returned to work, your savings are diminished but you have stuck with the Super Savings Scheme for the working spouse so together you have just $35,000.  From a deposit point of view, this will allow you to borrow $665,000, allowing you to purchase a house for $700,000 assuming, now that you are back on 2 incomes, that you can afford the repayments on $665,000.  This might not get you into inner Sydney but it should get you into most areas.

Couple with no Children –  You may not qualify for the government guarantee on your deposit unless you move to South Australia – see more information below.  Nevertheless, don’t give up on avoiding Lenders Mortgage Insurance!Let’s see how you can get the 20% deposit together.  If you have no children then both of you can participate in the Super Savings Scheme so you will have a $70,000 deposit which will allow you to borrow $280,000 which, on two incomes you should have no problem repaying.  The trouble is this only gives you $350,000 to spend on a property so possible, but very limiting.  Just one extra year of saving through super will give you a $105,000 deposit allowing you to buy a property worth $525,000 which is getting much closer to the mark.

Single Person no Children –   You should seriously consider moving to South Australia while you have no family commitments and taking advantage of their 3% deposit guarantee, more details below.

Otherwise, let’s look at how you could get together a full 20% deposit.  With only one income, the ability to repay the loan may be an issue.  Use this calculator to see what the banks will lend you.  While the $35,000 from the Super Saver Scheme will certainly help, you are going to have to save another $300 per week out of your take-home pay over those 2 years, and even then you will only be able to spend around $350,000.  You may need more time, a second job, perhaps move to South Australia, live a frugal lifestyle for 2 years, move back in with your parents or decentralize but it will be worth it.  Two years is not that much time in your whole lifetime to get to the next level of wealth creation.  It is that first house that is the hurdle, after that you have a great source of cheap borrowings for further investment.

If you do make some extra savings over and above the contributions to Super, consider living off them at the start of the third financial year of saving so that you can contribute all of your wages into super for a few months to get the tax benefits on another $15,000.  The maximum is $50,000.

 

How the Federal Government Guarantee of Your Deposit Works

The places for this are limited and released each year so it is a step of faith to save through super with this in mind but as you can always choose to withdraw those savings from super and pay the top-up tax, it is no longer a case of “buy a home or your savings are lost until you retire.”

If you qualify for the government guarantee, the bank treats you as having a full 20% deposit for that side of the 2 tests.  They don’t charge you mortgage insurance on the shortfall because the government is the mortgage insurer.  Of course, you still need to repay the full amount that you are borrowing.  To be clear, the government are only guaranteeing your deposit, not paying for it.  So if the government offers a 15% guarantee because you only have a 5% deposit you still have to make repayments on 95% of the purchase price, which is test number 2.

This guarantee also has an income cap of $125,000 for singles and $200,000 for couples but this is as per your notice of assessment, taxable income.  This means that those contributions to super will not be counted as your income for this test.  A win-win!

You also need to be an Australian resident over 18 intending to live in the property.  There is also a cap on how much the property can cost depending on the location – you can go to this page and put in your area’s postcode to determine the cap on specific locations.

For more information, click here.

 

How the State Government Guarantee of your Deposit Works in South Australia

How clever is South Australia!  This is the perfect scheme to attract skilled labour to the state.  To qualify for this government guarantee you have to have an education level of certificate III or higher and live in or move to South Australia.

The lender is a South Australian Government organization and they only require a 3% deposit provided you can afford to pay off a loan for the other 97%.  Houses are generally cheaper in South Australia as it is.

For more information, click here. 

 

Ultimately the message is, don’t give up. House ownership can be done!

To read the original blog on BAN TACS – National Accountants Group, click here. 

 

333 | Are We Property Spruikers?

Right. Let’s have the uncomfortable conversation – is The Property Couch just a platform for another couple of Spruikers to push property on you!?!

Look, we get it… this is a fair question to ask. One we recently received recently from a listener! And, who knows, maybe it might even be something weighing on the back of your mind as well.

So… Are we Property Spruikers?

Listen now, and you’ll hear our answer… we’ll leave it in your court to decide what you believe to be true.

Just a heads up – this is a Q&A episode, folks! So, while we definitely strip down to the bare bones on whether or not we are Spruikers, we’ve also got a couple of other themes in store for you…

 

 

Free Stuff Mentioned

 

The questions we answer…

Question about “Are WE Property Spruikers?” from Daniel/RIPPAA

Massive fan of your show, which leads me to my questions regarding in particular Episode 325 – How to buy on a hot property market.

Listening to your show for quite a while, I’ve found that you guys always seem to advocate for property being an effective means of investing. However, sure you’ve got to be in a point in time where that is not the case. Investing in shares & stocks, generally speaking was probably not the best idea, what about property? You guys have done episodes on warning against spruikers and so I’ve been having concerns about, “What about The Property Couch then – does it fall under that category?”

However, until you guys did this recent episode 325, which to be honest was very refreshing to hear that acknowledgement of you guys just really giving that message of warning of cautioning I should say against buying at this point in time which I really appreciate,

that message of you guys caring about the community really came through. So my question is when do you guys see, at least a minimum point in time, until which the market is gonna change and sort of calm down a bit?

 

Question about Land Tax from Bruce Adkins

Hi Bryce and Ben. My question is about land tax. After starting out with a passive ‘buy any hold’ strategy, and then moving on to some renovations. I have finally landed on a strategy 3 or 4 years ago of buying splitter blocks, knocking down the existing house, subdividing into 2 or 3 lots, and then building new homes on each lot. When I can afford to, I keep the new houses and rent them out I do. Occasionally I need to sell one or more of the houses to assist with cashflow, or to help fund the next project. All my properties are in Brisbane and surrounding areas as I feel the need to touch and feel the sites and keep an eye on construction, etc. Early in my property investing journey I did invest in a location distant from my home. After a little bit of research and a quick flight to inspect, I purchased the property and the whole experience was a disaster, made worse by not being around when things went wrong. This experience convinced me that I need to invest in my own backyard, and my current, more active investment strategy reinforces the need to invest locally.

My current portfolio is now more than a dozen properties with an unimproved land value of around $8 million, and the annual land tax bill is really starting to hurt.

Apart from investing in different States (which I will find hard to get my head around), Do you have any other strategies for minimising the land tax impact of a large and growing portfolio?

I love your podcasts and would love any ideas you have for easing the sting of land tax.

 

 

Question on Lenders Mortgage Insurance (LMI) from  Francis Rivero

Not really a question but I would like to hear your thoughts on the following:

My wife and I bought a PPR in November 2018.

  • Purchase price – $345,000
  • LVR – 90%
  • LMI – $9700

Through making extra repayments and recovering a strong valuation result yesterday ($420,000) we are now sitting at 72% LVR just 2 years later. I realise this is just the way it is but I can’t help feeling like $9700 is a huge amount of money to pay in order to protect the bank for such a short time. Fair enough if we are still 5 years off getting down below 80% but I’m sure this happens to lots of people who buy well and are diligent with their money. Like I said, no specific question but would love to get your take on this.

 

Question on Being Gazumped from Matt Rose

Hi Ben, Bryce and the great Stig. I’m looking for some advice as my wife and I have been left disillusioned by the property system while trying to buy our 2nd investment property, this time in Melbourne.

The sequence of events went like this – we put in an offer on contract and put down 5% deposit, the agent phoned to say the owner has accepted, the agent then proceeded to shop our offer around telling everyone our exact price, the agent then entered into some sort of silent blind auction and sold it to someone else last night without coming back to us on the new price even though they told everyone else our price. Is this illegal or unethical and if not, how do we as a community vote to put better rules in place to protect the consumer?

 

 

 

 

331 | What Is Your Money Personality? – Chat with Effie Zahos

Did you know we all have a distinct “Money Personality”??

Yep – we do! And in this episode, we’re giving you the complete lowdown so you can identify which one is YOUR personality (and what it says about your money habits!), as well as practical tips to improve your bank balance, make your Super work harder and build a nestegg for your retirement that won’t cost you “an arm and a leg” to set up!

Folks, joining us today is our good friend and one of Australia’s leading personal finance commentators, Effie Zahos! Effie is Canstar’s Editor-at-Large and has more than two decades’ experience helping Aussies make the most of their money. As the money expert for The Today Show, Effie offers her insights into current money matters and – get this! – prior to joining Canstar, Effie was the editor of Money magazine for more than 20 years. (… Anyone remember our interview from the legend Paul Clitheroe!?! Well, Effie worked right alongside him… so you can bet on the fact she knows her stuff!)

We cover a lot of ground in this ep, like… the psychology of money, the best way to tackle debt and simple (but effective) money hacks to get your money working harder. You can see exactly what we cover further below.

EVEN BETTER, Effie gives us some exclusive insights from her new book, “Ditch the Debt and Get Rich” that’ll have you on track to earning a passive income & tweaking your spending habits like a pro!

So. Which Money Personality are you!?! Well, let’s find out….

Psst… bonus points up for grabs if you can guess Ben’s money personality! 🤣

 

 

Effie’s Books

 

Free Stuff Mentioned

 

Here’s What We Cover….

  • 01:50 – Who won our Start & Build giveaway this week!?! (a few more weeks to go!)
  • 04:06 – Mindset Minute!
  • 06:28 – Meet Effie Zahos…
  • 08:03 – Effie’s WORST Fear!
  • 10:57 – The day Bryce met Effie…
  • 12:56 – How to Retire on $2,000 a Week (how it started…!)
  • 13:58 – How to Ditch the Debt and Get Rich!
  • 15:00 – WHY are so many of us “bad” with money?
  • 16:19 – Reasons people derail from their financial goals
  • 17:17 – Triggers companies use to make you spend more money!
  • 18:19 – The $10,000 Online Shopping Cart….!
  • 19:51 – How to bring the future into the present so you can make lasting change
  • 20:30 – Latest Data on investment trends!
  • 22:33 – Why do you need to go BACKWARDS to go FORWARDS?
  • 23:52 – The #1 tip to “get the monkey off your back”!
  • 24:12 – Debt Avalanche vs Debt Snowball
  • 25:45 – Where do people get into financial trouble?
  • 27:13 – What Is YOUR Money Personality?
  • 27:32 – How to model the most successful investors…
  • 29:27 – The overlooked difference between SPENDING and INVESTING!
  • 30:12 – The 48-Hour Rule
  • 32:02 – The 2 Critical Things to put “side by side” to curb your spending
  • 33:08 – Generational Differences with Money Strategies
  • 35:29 – Do this immediately with your super!
  • 37:05 – Why “Balance is B.S” with wealth creation!
  • 39:12 – Why is writing your goals down so important?
  • 39:45 – Effie’s 3 Financial Goals This Year!
  • 40:43 – The “Coke bottle trick” that makes you money!
  • 42:02 – Why money makes money…
  • 43:26 – Investing in shares!
  • 44:52 – How much do you need to invest!?!
  • 45:35 – Understanding the psychology of wealth creation!
  • 47:08 – Buy now and pay LMI… or wait ‘til you have a deposit?
  • 49:37 – Pay off your mortgage or invest?
  • 54:36 – A key tip about Debt Avalanche…
  • 58:44 – Do you have this in YOUR car???

And…

  • 1:00:29 – What’s making property news?

 

 

 

264 | How $4,000 Turned into Six Properties – Chat with Joey

When he bought his first investment property, Joey D’Agata was too nervous to do his own bidding. But, flash forward four years, and he’s now self-built a high-income producing portfolio consisting of SIX properties. And, even more impressive… he’s only 26!!

So folks… how on earth did Joey make this happen for himself? Especially considering the fact that when he first started saving, he was earning less than $50,000 a year and was seriously concerned that someone in their twenties wouldn’t be able to afford to buy a SINGLE property, let alone go ahead and invest in six of them.

So, the multi-million dollar question is… how’d he do it?

Well, this is where the $4,000 comes in…..

… Keep in mind, there’s a bit more of a back story here, which we’re unpacking in this episode, but here’s the quick overview: Joey “embraced” Lenders Mortgage Insurance (LMI).

Now, when it comes to Lenders Mortgage Insurance, we always say… “Avoid it when you can, but embrace it when you have to.”

Why??? … well, that $4,000 cost went on to put Joey in a position where he could buy another FIVE properties.

 

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