Property Hub - Investment Insights & Inspiration - Realty Talk Vault: Deposit Bond Ins & Outs

Episode Date: April 25, 2023

We bring you another classic Realty Talk episode from the vault, which was originally published on October 15, 2022, but is still just as relevant today. Buyers Agents can have a big impact on your property experience but how do you distinguish a great buyer's agent from an average one? To help you with this our host Bushy Martin reveals the questions you need to ask before engaging them. RealtyTalk is part of the Property Hub podcast channel, your home for property investment insights, inspiration, and stories from Australia’s top property experts, investors, leaders, and analysts. Subscribe now to get every RealtyTalk episode delivered to you each week for free, and also get full access to Get Invested, the leading podcast for Australians who want to unlock their full ‘self, health, and wealth’ potential and get inspired by the stories of investors, founders, and entrepreneurs. Subscribe to RealtyTalk on the Property Hub channel: Apple Podcasts | Spotify | Google Podcasts | Email Property Hub is a collaboration between Bushy Martin from KnowHow Property, Kevin Turner from Realty, Andrew Montesi from Apiro Marketing and Apiro Media, and Australia’s largest independent podcast network DM Media.  Business and partnership enquiries: [e-mail] omnystudio.com/listener for privacy information.

Hi and welcome. Now, on a recent episode of Realty Talk, we started looking at the benefits of using a deposit bond as a deposit to secure a property when your hard-earned savings or cash are tied up or otherwise exposed. So if you haven't seen that episode, make sure you have a look at it. And today, we're going to dive a little bit deeper to look at what situations and circumstances are best suited to using a deposit bond to secure your next property. And to do this, we're joined again by Grant Bailey, the Head of Partnerships at Deposit Assure. So welcome back to the show, Grant. Thanks, Bushy. Thanks for having me. Yeah, my pleasure. Now, Grant, to sort of kick things off, what do property purchasers need to

know about deposit bonds? Well, I think that it's just having that knowledge that they're available. I think the big thing is a lot of people aren't aware that the product exists. Traditionally, it's been distributed uh as a business to business proposition through mortgage brokers and banks etc but certainly i think uh when i always have the uh the summer barbecue conversation people ask me what do i do i i sort of hold up my on the back of my phone i've got the brand and they sort of try and have a stab at what it is so um so there's not a lot of people that are aware of it but certainly when you explain it to them um the the invariably response is gee i wish i had don't know and that was about that when i was purchasing the last property um so i think that's

the key is just being aware of it and hopefully things like this can can get the word out about the product um and that is it's just a safe alternative to paying a paying a cash deposit and as long as you can demonstrate your ability to purchase the property um it's an insurance issue product backed by QBE and we don't take any security off the purchaser. So the advantage of that is it can be put in place very quickly indeed. Oftentimes within a matter of hours, it can be facilitated. So which is great if you're competing with someone to secure the property or you're going to auction tonight and things of that nature. Yeah, spot on. Okay, that's great. Well, I'd like to sort of drill down a bit now and look at a number of different scenarios and

how deposit bonds can actually help in those scenarios so uh starting off uh let's have a look at the buying and selling exercise how does that shape up well it's just really um when you're selling existing property um oftentimes you're uh exchanged on on an existing property um and i've personally used the product in this case we'd uh exchanged on a on an apartment and we're looking around for properties and we're actually on our way to an open for inspection but went past another property that was open for inspection and this was on a Saturday and there was another party interested in the property all our money was tied up in our existing home pending the settlement of that home so we were able to literally that afternoon secure the deposit

bond notwithstanding it was a saturday and we exchanged on the sunday so and took the property off the market so um so it's a great tool if you're whether you're upsizing or downsizing you've exchanged on your existing property that haven't yet completed that sale and realized your funds that hey there's this one we want to secure in the meantime it's a great way and a lot of people use the product in that in that scenario certainly yeah it's a very useful scenario in terms of giving a little bit of an advantage there, as you just noted, in potentially pipping the post with another purchaser.

If you can put the cash on the dash, buy the deposit bond so quickly, then that gives you that advantage. So that's a good benefit. Let's turn now to first home buyers. Grant, where are the deposit bonds useful to them? Well, oftentimes the first home buyer doesn't have the full deposit

that the seller or the vendor requires. So certainly the first-time buyer might have a 5% cash deposit, but the vendor is wanting 10%. Alternatively, the first-time buyer is relying on a family-pledged loan, the bank of mum and dad, and they're lending them, say, 20% secured against the parent's property. And the first-time buyers are getting an 80% loan against the new property purchased to minimise mortgage insurance. so in those situations once again it's a timing issue that the 20% to complete on the purchase will be available at settlement however in the meantime the parents might be asset rich having spent their life paying off their home have a lot of equity if not unencumbered but don't have that cash deposit to put down to secure the property so once again if the first home buyer can demonstrate

they've got their mortgage in place the loan approval in place for the full purchase price we're comfortable in issuing the deposit bond off the back of that uh the loan approval yeah awesome okay well let's turn now to investors where where is a deposit bond of great benefit to them i think with investors you have a couple of scenarios if you you're looking at a lot of time investors wanting to maximize uh tax advantages and in doing so they're looking to purchase and borrow 100% of the purchase price. So in those cases, why put down a 10% cash deposit when for a small fee, you can put down a deposit bond. And then when it comes time to complete on the purchase, you pay the full purchase price. So that's a great advantage

for investors, but also purchasing off the plan. A lot of people purchasing off the plan are for investment purposes. Once again, I've used the product for that purchase buying off the plan. and oftentimes when buying off the plan the contract will have a sunset or registration date and invariably that's longer than the actual build time for the projects and the reason they have a sunset date is to allow for things like you know wet weather delays site contamination industrial disputes things like that so it's beyond the actual anticipated build but if I've I still have to put my money up for potentially for that period so if I'm buying for investment that's a great way to to use the product instead of putting out my own cash now when settlement

might not be till the end of 2023 or 24 or beyond depending on the project and where it's currently at it's a great way to keep hold of your own money and purchase a deposit deposit bond in that case when we do issue deposit bonds off the plan we do issue to the sunset date however if it completes more than six months before the expiry of the deposit bond date you will get a partial refund on that if you apply and just demonstrate that you've settled on the new property purchase so certainly for investors it's a great opportunity to say putting down your money as i said i've used it that way and we certainly get a lot of people that are purchasing off the plan, I'd say around about 70 odd percent are investors that are using the product for that

purpose. Yeah. Are there any other situations that we haven't talked about where deposit bonds can provide a great solution then, Graeme? Well, I think it's mainly for the short-term existing title property. It's the upsizes, downsizes, first-time buyers and investors. And in the off-the-plan space, it's with investors and primarily investors. And certainly there's a lot of downsizes that are moving out of home and want to get something fairly upmarket, we find a lot of the downsizing markets where they're purchasing for $2, $3, $4 million. Well, as a retiree, I might have funds in superannuation and things like that. I don't want to have to access that to put down on that sort of money, $2, $3, $400,000 when I've got a product like this

survival. So it certainly makes sense. Yeah, absolutely. Now, let's talk about the qualification process in terms of what does it take to actually secure a deposit bond? For first-time buyers or for anyone purchasing an existing title and a registered title property, it's just a case of demonstrating you have the loan approved, subject to valuation, then we can issue the deposit bond. Alternatively, if the loan approval is not where it needs to be, subject to valuation only, we can do our own assessment and issue the deposit bond on that basis. But they need to have equity in an existing property

or someone, a close family member, who would guarantee the equity in their property for the product. Two ways with the short-term product, up to six months for registered title property. For off-the-plan, you have to own an existing property and have equity in it to be approved, simply because loan approvals are only valid for about 90 days or so versus off the plan where we can issue the deposit bond for up to 60 months. So we don't rely on loan approvals, rather we

rely on an alternative assessment, which includes having equity in an existing property. Yeah, brilliant. Now, there's been a lot of movement in the industry with the digital revolution. Has this assisted the deposit bond side of the equation? Certainly. Deposit Assure are the only provider of deposit bonds that have a digital bond. And once again, it comes down to the speed of being able to facilitate things for people.

So it's a fully digital end-to-end process. So the application that goes out to applicants, they can docusign it, they get a payment link to pay it, then the deposit bond guarantee is issued electronically as well. that goes to their conveyance or solicitor which has an access code and then that gets forwarded to the vendor's solicitor conveyance which they also have a code so it's fully digital and secure and it's a great as I said things can happen in an hour or so from an application to exchanging on a property with a deposit bond application. That's an incredibly quick turnaround so when

and speed is of the essence, that's a great advantage. Final question then, Grant. Why do purchasers need to consider using Deposit Assure to secure their deposit bonds? Well, we've provided great product through the QBE, product underwritten by QBE. So QBE are APRA regulated and S&P A rated as well. So there's that security from not only the purchase perspective,

but also the vendor's perspective in accepting the product. and the the digital process which is unique in the marketplace we can facilitate the product for effectively anywhere in anyone in Australia if they're a resident in Australia no matter where you are if you have access to the internet we can help you and aside that we've got a great team support team in place so only this weekend we were referred late Friday a customer with from from nab the customer then reached to us out to us on saturday and they're all very stressed they wanted to secure this property they were selling a property for low twos and buying for 2.84 million dollars and they ended up sending the the details to us on sunday morning and funny enough they

exchanged on sunday with the real estate agent so because they were concerned that it come monday that the other party was interested wouldn't get their act together so i think it's that service that we have the team behind it regardless being digital we're able to help them uh secure the property and um and secure their their new dream homes so certainly upsizing so yeah well what i'm hearing there is it's uh it's not a monday to friday service you're offering uh people need help uh securing these over the weekend that's still an option as a grant correct it certainly minutes yes yeah that's that's great to great to hear because a lot of people do their property work over the weekend as we know yeah so that's awesome well look thanks again for opening our

eyes to the opportunities for deposit bonds and thanks again for your time on the show today thanks bushy appreciate the opportunity thanks right well as you can see there are a multitude of situations where deposit bonds can come to your rescue to help you quickly and easily solve the initial deposit hurdle when you're purchasing your next property so if this sounds like something you'd like to look at, reach out to a good mortgage broker or conveyancer and perhaps reach out to the team at Nighthow Property Finance or get in touch with Deposit Assure Direct on depositassure.com.au. Stay with us for more here on Realty Talk.