Curious about buying real estate with no money down in Australia? This comprehensive guide reveals how to leverage equity to build your property portfolio faster. Understand the traditional approach, why it’s slow, and how innovative strategies can transform your financial future. Plus, discover the power of working with the right team to maximise your investments.
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Now, at this point, you've probably seen a bunch of videos already on YouTube suggesting how you can buy real estate with no money down.
In this article, I'm going to break down what is the closest thing possible that you can do that's similar in Australia.
I'm going to showcase exactly how you can use equity from one property to buy another, and what you're going to find is you'll be able to scale up your portfolio a lot quicker.
Yes, towards the end of this article, it gets quite advanced, but I urge you to stay all the way through.
If you're interested in what my thoughts are, then definitely keep reading.
The thing is, when you go out there and buy property, there's one way to do it, which is go out there with a 20% deposit and go and purchase it the traditional way.
There is also option two: the Use of Equity to buy a property.
When you're building out a portfolio, it's very important to get the strategy right and actually know which direction you're taking when you're buying property. It's not good enough here in 2024 to be going out buying property and hoping for the best.
There are so many resources out there, which is why you need the right team. That's why we have the buyers’ agency, Search Property. If you're interested, book in a FREE discovery call. We've just got some new sessions that have opened, and I'm sure they're going to get booked out ASAP.
Now, we're going to start off with a few things that are quite basic, but then we're going to move gradually through this article, higher up into a more advanced level, and what you're going to find and realise is that if you're doing it the traditional way, it is so slow. That's unfortunately what we get taught.
That's the maximum we get taught, and that's not even from school. It's probably from experiences or people doing it.
What I'm going to teach you right now is how to accelerate that so you can scale up your portfolio to five or ten properties.
The normal way to buy property right now is to have a 20% deposit, and then the rest will be made up of an 80% loan from the bank.
If you go out there and you assume to buy a property for $450,000, you would need a 20% deposit, which would be $90,000, and then you have some upfront costs such as:
Your upfront is $20,000.
Now, because this is the traditional way of doing things, you're not going to go and get a buyer's agent. Instead, you're like: I'm going to save my money. I want to do this myself and if possible , I'm going to showcase the importance of using one later.
Therefore, your upfront cost is $110,000 to purchase that property.
Now, as that property increases in value, the amount that you need as total upfront cash is also going to increase because, obviously, a deposit is going to be dictated by what the price of the property is.
If you're in the boat of going: Well, that's all well and good, but how do I get to five plus properties?
Well, option one is, if you've saved $110,000 for your first property, you just got to do that five times, which is just over half a million dollars.
Now I get it. There might be a handful of people reading right now that actually have this sort of cash, which is amazing. But for the majority of us, we don't have this sort of money lying around. I sure as hell know that I've never had $550,000 lying in my bank account doing absolutely nothing. So instead, we want that money to continue working for us.
Yes, you could go and save every single year, but is there another way?
Of course, there is, because otherwise, what the hell would the rest of the article be about?
Now, you have option two, which is using equity.
If you go out there and you use equity, we need to understand what equity is and how it works.
To showcase this, we'll look at example one and how you scale up, and then we're going to look at option two when you use equity.
Option one: In year one, what you're going to do is save $110,000. You'll buy the first property, and that's going to be at $450,000.
Now, I've put in here the average growth of 7% because long-term historical trends suggest that in Australia, real estate prices go up by 7%.
If we do this, how long would it be before we can buy again?
If we're purely using our cash, we're not sure how long this would take, because obviously, we've got life expenses, we've got life events that happen. Maybe you get married, maybe you have kids, whatever. So I'm going to assume that you're probably going to get it by year four. So you go ahead and you save the amount that you need.
Now, in this case, it's $125,000, not $110,000, and the reason is because the price of that same property is now worth $500,000, because there’s been four years that have gone by, right? So the price of the property is not the same as four years ago.
In this case, I’ve gone out there and said, well, we could look at different locations and whatnot, but it’s probably going to be about $500,000. So you do that in year four, and now you've got your second property.
However, how long does this process take to continue repeating?
You've also got to trust that the banking regulations, the banking industry, doesn't change the rules around what you can and can’t do.
In this case, if you can go out there and purchase all these properties, that’s fantastic. But if you look back at, say, 10, 15, or 20 years ago, it was far easier to purchase property back then because of how banks were calculating serviceability and borrowing capacity.
Now, you could be earning more and be on a lower interest rate, but you still wouldn’t be able to borrow the same amount that someone borrowed, say, 20 years ago. It becomes extremely difficult as we go through the next five to ten years. I believe it's going to be more difficult to scale up a portfolio.
That’s why you need to do it faster, have more time in the market, instead of being scared on the sidelines.
Now that we got that, let's look at option two, which is my preferred method and is exactly how I built my wealth.
In year one, I only need to save $75,000 and I'm going to purchase one property. So why $75,000, not $110,000?
Well, you can actually buy property with a 10% deposit, and as much as I think that is common knowledge, a lot of people still don’t know this. So I have to say it out loud: you can go and purchase property with a 10% deposit.
In this case, why is the $75,000? If the property is worth $450,000, because 10% of $450,000 should be $45,000, and I’m going to touch on that in a little bit. But the main point here is that we're using less cash and we're able to purchase the same property. You go ahead and you do that.
Now, when could I purchase my next one?
Well, effectively, probably in about 9 to 12 months. So within your first year of investing, you could go and double up and have two properties instead of the one. I’m not even saying go out there and purchase properties for like $380,000, $390,000, or $400,000. I’m saying $450,000, and the way that you would do this is by saving $30,000 in the year, which is about $600 a week.
I know it sounds like a lot, but if there are two people working and your expenses are managed, you might be renting, you don’t have a million-dollar loan, then yes, this is definitely possible. Equally, if you're making a lot in terms of $150k+ as an income, then of course this is possible.
But what you're going to do is save $30k in the year, plus the equity from the first property, which is going to allow you to buy the second property at again $450,000. Then you can go ahead and repeat this process.
Now, here's the spoiler: the first property is the hardest. The second, third, fourth, and fifth get easier and easier because you've got more of an asset base, which means your equity position increases exponentially.
That's why, when you get to your first foundation properties of, like, three or four, that's where it really begins to start exponentially growing. So when you go and purchase something, you're like: Oh, this is going to take forever.
Once you start compounding that growth and adding more assets into it, that is when you're going to get the compounding benefits.
I'm going to showcase how important that actually is in a second.
Now, the next question is: how does this work? Is it a scam? Is it a Ponzi scheme? Is it all a big bubble?
Well, let's break it down. If you were to go ahead and purchase a property for $450,000, a 10% deposit is $45,000, which we already assessed. Then, you have upfront costs like stamp duty, conveyancing, pest and building inspections, and you're including a buyer's agency fee.
Now, here, it's going to equal $30,000. Say you have a buyer's agency fee, which is between $13,000 to $15,000, and then you've also got your stamp duty and other upfront costs. So, the total cost here is $75,000.
In this case, your loan would be $405,000, and your LVR position would be 90%.
Now, here's where it starts getting interesting.
If you use Search Property's buyer's agency, last year, and you purchased a property, our average value in terms of how much we're getting it under market value is significant. So, if we're purchasing a property for $450,000, it's probably worth $12,000 more. So, that's the average of $12,000, plus we're purchasing in a high-growth area.
If we use 2022 annualised returns, our average growth on properties was about 12.12% in a year, where the market went down, and interest rates went up from 0.1% to 3.1%.
The entire market was apparently collapsing, yet we made 12.12% across hundreds of deals.
Now that we've established that after 12 months, if you purchased a property for $450,000 and it was under market value by $12,000, that would be worth $462,000 today. Then, you've got this growth of about 12%, which actually means that you made $55,994 in that year.
Now, imagine putting in $75,000 and making $56,000 back in the first year, and you get to hold the property. Every year, you're going to get substantial growth, plus the rental growth and the cash flow as well.
So, to summarise, your new value after 12 months is $517,994. Your interest-only loan is $405,000, and the reason it's still the same as what it was when it started is because you're paying interest only. You're not paying interest plus principal; you're not worried about paying down debt.
What you're trying to do is take on the debt, leverage it to go and buy more assets.
You can then look at debt reduction after you've bought the assets because the assets are cheap now, right?
You're securing good real estate, you're getting compounding growth, you're getting the rental cash flow, and the rental growth, and that's going to help you pay off the loan even faster than someone that was paying interest plus principal from the beginning.
So, in this case, your LVR has now dropped from 90% to 78.1% because the value of your property went up, but your loan stayed the same.
Therefore, if you went ahead and said you've got a top-up of equity or you refinanced it at 90%, your new loan would be 90% of the new value, which would mean the $466,194.
Now that becomes your new loan. You need to minus your new loan from your old loan, and that equals $61,194.
In this case, if your required funds to purchase your second property is seventy-five thousand dollars, you just need $13,805 that you need to physically save yourself.
Now, you can understand how in the first property, yeah, it took some time, you had to grind, you know, you had to save as much as you could, and yeah, you might have taken some holidays.
However, in the first year, you're really just saving your own money.
In the second year, yeah, you're saving a little bit; you only really need to save $13,000, and the rest is made up of the equity you get from the first property.
Therefore, once you've done that on your second property, guess what happens on your third, fourth, and fifth? You're not putting any cash down that you're actually having to save.
Now those properties are growing, and there's two of them, so that's going to be enough to purchase your next property. After that, you've got three properties that are growing exponentially. You've got the compounding growth, and that allows you to keep building out your machine without you having to save your money.
Guess what you can do with your money?
You can start going on holidays, you can start living like a normal human being. You don't have to act like a robot just because you're looking at financial freedom, which is super difficult to get, but if you do it the right way, have the right team, you can actually get there a lot easier, and you're not going to have to struggle in the third and fourth year like most people think.
Let's take a look at what this looks like in 12 months from now.
In option one, you've gone ahead and your property is now worth $481,500. You have one property. Your total cash required was one hundred and ten thousand dollars, and growth at seven percent would mean $33,705 that year.
Now, that's expecting that you grow at seven percent; could be less, could be more. But in option two, you control $967,994, and you own two assets, okay? So two different locations, taking care of two different cycles, you're taking advantage of the property cycles.
In this case, your total outlay is actually significantly less than what you had to do for the one property in option one.
Not only that, if you're growing at the average of 12 here at Search Property, you're then actually making $117,320 in the same 12 months. That is actually 3.48x, so 3x what a normal traditional investment would have been in the equity game.
Imagine what it looks like when you get the cash input. How long did it take for me to get back out?
In this case, you're going to repeat this process within the next three to five years.
You've now built a substantial portfolio, and this portfolio will help you in your retirement.
Now what you can do is start looking at self-managed super funds, you can start looking at diversifying into other asset classes, but this gives you a choice.
This is the closest you'll get in Australia to putting no money down for real estate. It doesn't work like it does in the US, but this is the closest you'll get, and you can see the advantage of not just going out there and buying good quality assets, but doing it with the right team.
This is why I urge you guys to book a strategy session with my Search Property team. It is FREE and extremely limited because we don't take that many clients every month.
Why? Because we need to go and buy properties that actually grow at 12%. So we'd rather go in, build long-term relationships with people rather than having this mentality of a churn and burn, run a bunch of ads, and just get anyone that can work with us. It'd be great.
We want to know that you're the right fit for us, because then accordingly, we can build that long-term relationship up over time.
If you are interested in services, go and check out our website.
I hope you go and share this because we need more people to be educated around these things. So definitely go share it. I'll catch you guys in the next one.
Thanks, guys.
Disclaimer: Search Property Pty Ltd (SP) does not provide financial or investment advice and does not hold a financial services license as defined in the Corporations Act 2001 (Cth). Any advice given by SP is general in nature and does not take into account your personal circumstances or objectives, financial situation or needs.
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