Buying Strategically with a Gift, Inheritance or Large Deposit
If you've saved a significant deposit, received help from family, or come into money through inheritance, you're in a really strong position as a first home buyer.
But being in a strong position also means you have more options and with more options comes an important question: how do you use that deposit in the right way, not just for this purchase, but for everything that comes after it?
The decisions you make now can set you up well for the future or leave you without the flexibility you need down the track. So in this resource, we're exploring:
How to think about your buffer and emergency fund
Whether to put all your cash in to reduce your loan amount and repayments
Why a larger deposit might let you skip the stepping stone property altogether
The importance of still focusing on asset quality
When it makes sense to bring in professionals like a buyer's agent or financial planner
This resource supports Episode 32 of the First Home Unlocked Podcast: Unlocking How to Buy Strategically with a Gift, Inheritance or Large Deposit
The Two Questions First Home Buyers With Large Deposits Usually Ask
When you're sitting with a large deposit, one of the first questions that usually comes up is: Do I put all of my cash in to reduce the loan and lower my repayments, or is there a more strategic way to use it?
The Two Extremes to Avoid
Chris explains that there are two ideas that can both be dangerous:
1. I'll just rush and use it all for a deposit and take a smaller loan
This can be quite dangerous because you want to potentially try to build buffers. If you put everything in, you're left without any safety net.
2. I'll only use a little bit for a deposit and keep the rest
The other option is keeping most of your money aside and not taking advantage of the options you've got. You could use a bit more safely, still have buffers, and potentially create better options for yourself.
There's a lot that goes on here. You're obviously in a fortunate position versus someone with a small deposit, but you want to make sure you use it the right way.
You need to be really careful about thinking it through and making sure you don't be too conservative, but also don't be too optimistic and too aggressive.
The Risk of Putting Everything In
You could put everything you have into the property, and that's going to reduce your loan amount and your repayments, which can be a really attractive option as a first home buyer. But it also means you're left without any buffers.
If something unexpected comes up after settlement or even years down the track, the access to that quick cash is now locked inside your loan.
What could happen:
Maybe you get injured
Maybe there's a gap between jobs
The hot water system breaks down
Your dog needs emergency surgery
You might be starting a family sooner than you planned
Whatever it is, getting that money back out can take time and depending on your situation, your income, and your LVR at the time, it might not even be an option.
What Do You Actually Need to Feel Secure After Settlement?
The question we always start with is: what do you actually need to feel secure after settlement?
That looks different for everyone, for some people it's a lump sum sitting there as a safety net. For others, it's knowing they've got a certain number of months' worth of expenses covered.
There's no right answer. It's whatever helps you sleep at night and once you've got that number, then you work out what you have left to put into the property.
Looking Ahead to Your Life Plan
It's also not just about the emergency fund. It's also looking ahead to your life plan. Are there big changes coming in the next five-plus years?
Are you planning to start a family or take time off work?
Do you have career changes coming up?
Are you thinking about starting a business?
Is there a chance you might move overseas?
Having money set aside for those moments will help save a lot of stress down the track.
How to Think Through Life Changes
A lot of people sometimes don't think about it, and maybe they're a bit too conservative. So asking questions like:
What's going to change with work? Are you happy there?
What industry are you in? Is it beneficial to swap jobs? Are you thinking about it?
Are you starting a business?
A lot of people, just by asking those questions, start to think it through and go, "Oh, I never thought about that."
Then you think about from a lifestyle point of view: is there going to be any major shifts?
Are you thinking about having kids?
Is there any major change you're expecting?
Just having these conversations and asking these questions now helps because if you are going to be uncertain, you do want to have bigger buffers just to give you that peace of mind.
The Property Itself: Can You Skip the Stepping Stone?
Once you have your buffer sorted, the next conversation is really around the property itself.
A lot of first home buyers are buying with what we call a stepping stone mindset. This is where you buy a property that serves you now and into the near future, you build some equity along the way, and then you upgrade into your forever home.
But when you've got a strong deposit, you might be able to skip the stepping stone altogether and go straight to a property you can genuinely grow into.
The Big Advantages of Skipping the Stepping Stone
Chris explains this is one of the big advantages, and it's for a few reasons.
You might have thought you had to look at an apartment, but maybe you could get a more rundown house. Obviously, something that's not going to be a money pit that you have to keep sinking money into, but maybe it's a solid house that's not ideal from a renovation point of view.
You might deal with a little bit of short-term lifestyle pain in terms of it's not fresh and new, but you can tidy things up just by doing things like painting.
Whereas a lot of people have potentially bought something a bit small because their budget only allowed them, and their only option is to sell that property.
The Challenge of Buying and Selling
The challenge is whether you paid stamp duty or not, and often the big thing that a lot of first-time buyers get burnt on here is the property they want to upgrade into grows at a faster rate than what they purchased.
So they still have built wealth, but once you take away all the costs to buy and sell, and their money's gone up (maybe their $200,000 has gone to $400,000), but the property they want to move into has gone from $1.3 million to $1.6 million, and they haven't really got ahead because of that.
If you can avoid any type of transacting in properties and buy a property that gives you a much longer runway, it's a much better decision and it's one of the advantages people with big deposits have: potentially they can miss that step altogether.
Staying Focused on Asset Quality
Even though you've got a larger deposit and access to a wider range of properties, it's still really important to stay focused on asset quality.
The quality of what you buy gives you the best chance of building that equity over time. And that equity is what opens up your options in the future.
The Advantage of Choice
You've got a big advantage with a bigger deposit and now it's a case of can that allow you to make a better decision than someone with a smaller deposit?
If budget was really tight, you might have to look at the apartment market, for example, and you might have to just buy something that maybe has got a few compromises. You might feel like that would be okay for you.
But if you spent an extra $100,000, for example, it might mean you can get:
A top floor with a view
The best one in the block
The bigger apartment
Better aspect
Parking
But because you've got this bigger deposit, it just gives you the option of getting a better quality asset.
The Fundamentals Still Matter
Just because a property is more expensive doesn't always mean it's going to perform well. The fundamentals are still the same regardless of your price point:
Supply and demand
Your street position
Your land size
The type of property
Who it's going to appeal to when you sell it one day
We covered asset quality back in Episode 6: Unlocking Asset Quality, and it's well worth going back and having a listen if you haven't already.
Bringing in Trusted Professionals
When you're starting with a bigger deposit, you've got options to bring in trusted professionals to help you buy your first home.
A Trusted Buyer's Agent
A buyer's agent is someone who works for you (not the seller) to help you find, negotiate, and secure the right property for your needs.
What a good buyer's agent can do:
They've got great relationships with agents
They're more likely to get you access to properties
They'll stop you buying a property when you just don't know what you don't know
They can help you negotiate, value the property, and complete due diligence
There's a long list of benefits and if you're using someone who's been around for a while, really knows their stuff, is willing to help you as a first-time buyer, and knows the market you're buying in, it can be a huge advantage versus someone who can't afford a buyer's agent.
What Makes a Great Buyer's Agent
When you engage a buyer's agent, you're getting a service. You're paying a fee (it can be a percentage or fixed fee), and regardless, if you wanted a fixed fee, you could just negotiate that.
For that fee, you engage them, they're working for you. They're not working for anyone else.
A great buyer's agent:
Usually has at least five years (closer to 10 years) of experience
Has that experience in the market you want to buy, rather than they've just started buying in this area
Ideally grew up in that area
Knows all the streets
Knows how the place has changed over time
Has been through multiple market cycles
Has got great relationships with the agents
Those buyer's agents can really help challenge you on your brief.
They might push you to consider other suburbs or different types of property, or stop you from moving down the wrong direction if you're heading toward a poor asset.
Then when you're aligned on your strategy, they're off looking for that and through their relationships with great agents, they're putting that brief out and saying, "We've got an active buyer looking for this. If you do have that, potentially either pre-market or off-market," they might even be able to get you access to it.
If it is a really good asset, they can then also help you understand what's market value. They'll compare different properties that have sold, giving you real confidence around how that agent wants to work and negotiate.
They'll guide you through that process. And it's extremely confusing and emotional, the whole buying journey. Finance is part of it, but the actual securing of the asset is obviously the hard bit.
If you'd like us to refer you a quality buyer's agent in your area, you can just reach out and we can point you in the right direction.
And if you want to learn more right now about how buyer's agents work, Chris hosts another podcast called Street Secrets, where he's interviewing some of the top buyer's agents from around Australia.
A Financial Planner
Another professional worth considering is a financial planner.
A financial planner will help you get clear on your overall wealth and lifestyle goals and then help you build a plan to get there. But one of the most important things they'll help you with, especially at this stage, is making sure you're protected.
Because when you take on a mortgage for the first time, it's worth asking yourself some important questions:
What happens if your income stops?
What if you get injured and can't work?
How would you keep up with your repayments?
If the worst was to happen, would your partner be able to manage on their own?
These are the kinds of things a financial planner helps you think through and put the right cover in place for.
A financial planner looks at the bigger picture: your cash flow, your insurances, your super, and other ways to build wealth over time and for someone in a position with a large deposit, that kind of guidance can really help make sure you're setting yourself up in the best possible way.
Don't Rush Just Because You Have the Money
When you've got a significant amount of money saved or received, there can be this pressure to act quickly as well. You've been waiting to get to this point and now you just want to move. But taking the time to be strategic is what protects your position:
Building the right team
Getting clear on what you actually want
Finding a property that genuinely fits your life
That's what protects the position you're in and sets you up for the future.
Final Tips for First Home Buyers With a Large Deposit
If you have a large deposit, you've got a huge advantage compared to if you didn't have that and it's just being really strategic on how you use that.
It's potentially not putting it all in (keeping a buffer), but it's just being a little bit more open to: what's the best way? How should you go about it?
Make sure you still keep buffers. It should almost take a lot of stress away. Chris thinks there's a danger of missing the opportunity around just comfort and peace of mind.
The Renovation Opportunity
Mos first-home buyers can't even look at properties that need a renovation and that's a big advantage for people with big deposits.
You can go, "Well, I'll buy something a bit cheaper that needs a bit of work. And I've got money to go and spend $100,000 on renovating it and adding some value to it."
So have a look at your options again. If you play this a bit smarter, you can get a much better result. Not just feel a bit more peace of mind because you've got a big deposit sitting in your offset account, but you've actually got to make a much better property decision because you had the ability to do so.
You Don't Have to Figure It Out Alone
In this resource we've talked about using your big deposit to your advantage, exploring all your options, and then choosing what fits your situation the best.
If you are at this point and you're ready to get started, you can Book a Get to Know You Chat.
