What happens when you want to take advantage of a great property investment opportunity but your cash is tied up elsewhere? Melbourne-based property investor Kim Castles found the answer in a deposit bond.
Kim, 52, has been a property investor since she was just 19, so she knows a good opportunity when she sees one. When she was told about a property development in Maroochydore on the Sunshine Coast, she jumped on the plane to take a closer look.
It was a resounding “yes” but she didn’t have immediate access to her cash for the deposit. As is often the case for property investors, her cash was tied up in other properties.
“I didn’t want to go to the bank for a loan – they do thousands of checks, especially for off-the-plan developments. Even with my equity, the process would have been long and stressful, and I really wanted to move on this property,” Kim explains.
The Melbournian’s broker explained a possible solution: deposit bonds. A deposit bond is a simple and effective way of making sure that you can cover the deposit when you don’t have immediate access to the cash. The value of the bond is equal to the deposit needed and it acts as a guarantee that the buyer will pay the vendor the deposit in settlement day. Then, on settlement, the buyer pays the vendor the price of the property, including the deposit.
“Deposit bonds were a completely new concept to me. Ever since I bought my first property aged nineteen, I’ve always had the cash available,” Kim says. “I didn’t know how a deposit bond would work or even where to start!”
Luckily, her broker recommended Deposit Assure so she wasted no time getting in touch.
“Deposit bonds have been around for years, and now they are being recognised as smart option for property investors who have the equity but lack easy access to the cash for a deposit,” explains Etienne Rizzo, co-founder and director of Deposit Assure. “Even if buyers do have the cash, it is sometimes more worthwhile keeping it where it is – especially when you’re buying an off-the-plan property, where that cash deposit will be locked away for anywhere up to five years.”
The first step for Kim was to check with the developer that they would accept the deposit bond in place of a cash deposit. Many large developers, such as Mirvac, Caydons and Colliers, may request a deposit bond with an A+ credit rating. “The reason is simply because it gives the vendor peace of mind that in the unlikely event that the buyer does not complete the purchase and there’s a claim, their deposit will still be honoured,” explains Etienne.
Because Deposit Assure deposit bonds are backed by QBE Insurance (Australia) Ltd, Kim’s developer was happy to accept the bond.
Next, Deposit Assure’s team worked with Kim to complete the application. “They were professional, honest and really knew what they were doing,” she recalls. “This was really important to me. Because I was buying interstate, I needed to trust that everything would happen to plan. Deposit Assure made the whole process easy and it was completed well within our timeframe.”
Kim says she would definitely recommend a deposit bond as an option for investors like her. “Lots of people don’t have a deposit – either they’re trying to save, can’t access their own funds, or don’t want the hassle of going through a bank. A deposit bond is a really handy, easy alternative.”
If you’re a property investor like Kim looking to buy your next property, but lack access to the cash deposit, a deposit bond could help.
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