Canberra couple kick-start their property investment portfolio with Deposit Assure
When Canberra-based Stephen and Carla came up against a surprise hurdle to their investment property dream, they called on Deposit Assure for the answer.
Six months ago, Stephen, 36, and his wife Carla had never heard of deposit bonds. Why should they? After all, the two properties they had purchased previously had been secured through a straightforward home loan and bridging loan.
But this time, their property purchase was just different enough for a simple bank loan to be out of the question.
Like many savvy Aussies, Stephen and Carla decided to embark on an investment property venture. After doing their sums and market research, they came up with a strategy: they would sell their large four-bedroom home in Palmerston and purchase a smaller townhouse off the plan in the neighbouring suburb of Franklin. They would live in the new property for a short time, saving money and cutting their mortgage by as much as $150,000. Then, they’d use the equity to purchase a second home for themselves, leaving the Franklin townhouse as a rental property.
“Downsizing gives us an opportunity to get into the investment property market,” explains Stephen, who works for the Federal Government. “We’re not concerned about negative gearing, not really. For us, it’s about helping someone rent an affordable home. At the same time, we’ll be in our mid-thirties with the stability of a nest egg, which means we can retire and not live on the pension.”
The couple soon found the house they wanted: a three-storey, three-bedroom townhouse close to public transport, shops, restaurants and schools. In other words, the perfect investment property. And by November, the plan was well and truly in motion.
However, when the couple visited their bank to get the wheels in motion, there was a snag. Because they were buying and selling at the same time, they needed a bridging loan. However, the new property was being bought off the plan and the bank wouldn’t allow a bridging loan for settlement outside of three months.
To pay the deposit, their banker advised them to consider a deposit bond. A deposit bond is a substitute for the cash deposit that is required between signing the contract of sale and settlement of a property. Like a cash deposit, the deposit bond guarantees the commitment of a purchaser to an unconditional contract of sale. Then at settlement, the purchaser simply pays the full purchase price, including the deposit bond amount.
The bank didn’t offer deposit bonds, but told the couple to search online and speak to a deposit bond company, which is exactly what they did.
“I spoke to two deposit bond companies who didn’t impress me at all. I just didn’t have a good gut feeling about them. Then I called Deposit Assure and within the first 30 seconds, I was confident they would be able to help,” recalls Stephen.
This wasn’t Stephen’s first property purchase; in fact, it was his third. But with the previous two, he had gone straight to the bank, given the deposit and got the loan. Because he had never needed to use a deposit bond, he didn’t know what it was or how it worked.
“Deposit Assure turned a product I didn’t know about into something I had complete confidence in – they explained it so simply,” Stephen says. “I’ve always been about bricks and mortar banks, but I found Deposit Assure’s staff friendly and approachable from the start – especially compared to the other two companies.”
After speaking to Deposit Assure, Stephen and Carla knew there wouldn’t be any pressure when they settled, even if things were delayed by other parties. For example, any delays on the issue of a certificate of occupancy can mean settlement does not take place on the specified date.
Using a bridging loan from the start, the couple would need to go through multiple applications with the bank if there were delays and the bridging loan “timed out”. This would entail going through the whole process again, re-valuing the house, paying more fees, and so on.
The deposit bond, on the other hand, acts a guarantee for the deposit even if there are delays on the settlement date. So when it comes close to the settlement period, the couple can take out a bridging loan with ease.
As an added bonus to the couple, the process was very straightforward.
“Forms can be a pain in the neck! But with Deposit Assure, I was able to upload electronic copies of statements and other liabilities and so forth into the cloud, without having to print them out and get them all certified. It was so simple!” he says.
Now the couple is looking forward to moving into their new home. The next challenge is working out how they will fit everything into their new smaller home. Unfortunately for them, that’s one thing the team at Deposit Assure can’t help with!
“Buying this new property will set us up for life. And without Deposit Assure, it simply wouldn’t have happened.”
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