Opportunities abound for property investors armed with a $100,000 deposit, but experts warn there’s no ‘one size fits all’ approach when it comes to investing your hard earned cash.
While it’s a sizeable chunk of change, how far does $100,000 really stretch in the Australian property market?
To avoid lenders mortgage insurance (LMI), banks generally require borrowers to put forward a minimum 20% deposit. There are exceptions, but based on this assumption a $100,000 cash deposit represents a $400,000 loan for a $500,000 property purchase – although investors will also need to come up with other upfront costs like stamp duty and legal fees.
“So the question is, how do you get the best return for your buy,” buyer’s agent Rich Harvey said. “We get asked this every day of the week.
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Three buyer’s agents have revealed the strategies and locations property investors could consider. Picture: Getty
“It takes people a long time to save that sort of money up. Firstly, recognise it’s not a small amount, it’s not an insignificant amount, it’s a substantial amount particularly for someone who is just getting onto the property ladder.”
But Mr Harvey said there’s no ‘one size’ tactic for an investor with $100,000 to spend, with many factors to consider including a buyer’s goals and financial situation, and whether other properties already make up part of their investment portfolio.
“I guess the other thing is, if the investor’s goal is more geared toward capital growth, as in higher capital return,” he said, “or is it geared more towards yields and cash flow?
Propertybuyer director Rich Harvey has identified locations investors could potentially get in with a $100K deposit.
“So that’s a key distinction you need to make when deciding on an overall strategy on where to buy a property.”
Buyer’s advocate Cate Bakos shares the same sentiment, noting some investors seek an investment property to pay down and enjoy the rental proceeds as potential income, while others want to amass capital growth and sell the property to put towards retirement.
“So depending on what you’re wanting to do, if you are wanting to have capital growth, then you also need to carry a lot of debt and have a negative cash flow, which is what most capital investors will do,” she said.
Options in the capital cities and regions
So, where would the experts put a $100,000 deposit in today’s real estate market?
Mr Harvey said Perth and Brisbane were areas that should be on investors’ radars.
“A lot of investors buying over in Perth are getting really strong yields and that market is predicted to do pretty well,” he said.
“I think an even better market than Perth for longevity would be Brisbane,” he said.
Brisbane home values have risen sharply in recent years, making it harder to find a quality investment for less than $500,000. Picture: Brendan Radke
“The challenge of buying a $500,000 property is you used to be able to get houses relatively easily, particularly in the areas between Brisbane and the Gold Coast, but now it’s getting more challenging to buy quality properties for $500,000, you really need $600,000.
“So $600,000 is now the new $500,000, so many investors and homebuyers driven by affordability have fled Sydney, Melbourne and gone north over the border.”
Brisbane had the “best legs for capital growth and yield”, he said, with lifestyle, affordability and strong rent returns a driving factor.
“My first preference would be to buy a house, second preference would be to buy townhouses, third preference would be units,” he said.
And while many regional locations may offer appealing rental yields, Mr Harvey said it was important to ensure that the capital value will not decline.
“There’s plenty of areas in central Queensland, or central New South Wales, or outback Victoria that you can buy in but the question is, will values stagnate over time?” he said.
“One area I don’t mind buying in is Townsville, and I would buy in Townsville over buying in Cairns because Cairns is a lot more tourism driven, whereas Townsville has five pillars to its economy and there’s much stronger potential for return.”
Buyer’s agent Cate Bakos sees opportunities in both the regions and capital cities. Picture: Aaron Francis
Ms Bakos agreed it’s possible to get a house in the regions for under $500,000 but advised to ensure it was within a sizeable district with good economic drivers and employment.
She pointed to Ballarat in Victoria as an example.
“We have a lot of good regions around Australia,” she said. “If I was thinking of regions it would be the bigger ones like Dubbo, or Bathurst in New South Wales, Toowoomba in Queensland.”
“Within capital cities, I would try and get a unit on land if I could, for that you could go into Adelaide and get something like that,” he said.
Propertyology head of research Simon Pressley – who specialises in regional markets – said $100,000 was sufficient to satisfy home loan deposit hurdles in many locations across Australia with a loan-to-value ratio of “circa 85% to 90%”.
Propertyology head of research Simon Pressley specialises in investing in regional Australia.
But in terms of a 20% deposit – and a purchase price of $500,000 – Mr Pressley said the options were slim.
“When investing in Australian real estate in this era, the sweet spot price range for well-chosen detached houses is $550,000 to $750,000,” he said.
“Non-negotiables for location selection should then include the local economy being very diverse and a housing supply pipeline which is broadly in line with the location’s long-term average.”
“When it comes to financial decisions of any kind, one of the single most intelligent statements ever made is ‘do not place too many eggs in one basket,’” he said.
All three experts were included in the latest realestate.com.au Hot 100, which identified 100 locations across the country tipped to outperform in 2024 and beyond.
Read more: Hottest investor suburbs to watch in 2024.
How far $100,000 really stretches
Assuming an investor’s borrowing power allows for a $500,000 purchase price, Mortgage Choice broker James Algar said a deposit of $100,000 was an ideal deposit size to get into the market.
“At that ideal amount, a 20% deposit is going to see you get the best interest rates,” he added.
But for those that don’t have additional funds to cover other upfront purchasing costs, Mr Algar said fees like LMI, stamp duty and conveyancing costs would heavily eat into the deposit.
In NSW, a customer looking to buy a $750,000 investment could do so with a $100,000 deposit, Mr Algar said, although it would likely require mortgage insurance due to the smaller than 20% deposit, and will also incur more than $30,000 worth of fees and charges.
“They are going to end up with some pretty hectic expenses,” he said.
“If you are losing $60,000 of your deposit, and its $100,000 to start with, you are losing more than half of it in fees essentially and you have got to hold that investment for a lot longer period of time.
“It is a far more viable transaction in that sub-$750,000 price bracket and I think that’s true wherever you look in the country.”
Before you get your heart set on buying a particular investment property, Mr Algar said it was vital to seek expert advice.
“Go and get some professional advice from a broker or a bank,” he said,
“A broker is going to give you a wider breadth of options and give you some clarity before you go out there.”
