Coming up with another $40,000: Solutions for funding off-the-plan property buys

​Sasa Colevski, a diagnostic engineer, had to quickly find another $40,000 after the minimum deposit on his first investment property was increased by 10 per cent.

Colevski, who has two teenage children, purchased the off-the-plan apartment about 12 months ago for about $480,000. He plans to rent it out.

“The bank came saying the maximum they could approve is 85 per cent even though I had an approval of 95 per cent at the time of purchase and my circumstances had not changed,” he says.

His financial adviser, Chan & Naylor, arranged a second mortgage against the apartment in Liverpool, about 30 kilometres south-west of Sydney.

“This has cost me additional interest at a higher rate for the second mortgage, which seems unnecessary because none of my personal financial circumstances had changed,” Colevski says.

Like many investors, he was surprised by his bank’s decision to require a bigger deposit, typically a rise of between 10 per cent and 20 per cent.

“But I’m still enthusiastic about buying investment property,” he says. “There are plenty of opportunities for an investor in this area.”

Investors trying to settle on an apartment, or facing higher borrowing costs, have a range of options, says Tim Mackay, principal of financial advice firm Quantum Financial.

His recommendations for those facing a deposit shortfall and/or financial stress caused by higher costs after taking possession include: 

• Reviewing the family budget and reducing expenses by cutting back on luxuries.
• Earning more with extra part-time work.
• Increasing the investment property’s rent.
• Seeking a better deal on your loan.
• Reducing costs, such as real estate, management and maintenance fees.
• Considering whether the investment is worth keeping. Property markets are at record highs, so this could be a good time to sell.
• Considering temporary interest-only repayments.

Now read about SMSF solutions to off the plan property funding problems.

This story was first published at the Australian Financial Review.