Should Investors Use The First Home Buyer’s Grant?
Dilleen Property Group 2021
Should you take advantage of the ‘First Home Buyer’s Grant’ (FHBG)? I speak to a lot of people on a day-to-day basis and this is a very common question I get asked. If you're a first home buyer and the property is under $650,000, then usually there's no stamp duty. You're exempt from paying stamp duty, which can be a really good thing.
If you were to buy property in Queensland, the FHBG only usually applies to new properties. This usually includes house and land packages that are being built or new units. If I was looking to start building a property portfolio, I would not even worry about the FHBG or purchasing a new property. I would not worry about it at all. From my experience in growing a large property portfolio, most new off-the-plan units, off-the-plan townhouses, and house and land packages that you purchase from developers are going to be overpriced 95% of the time. Those types of properties are set at a premium price so the developer can meet their profit margins.
There are lots of investors that buy a property off-the-plan, but when it comes to the property being built and getting it valued by the bank, they end up having to come up with more money because the property was not valued as high as they had previously thought it would be. The property automatically drops in price because you're paying an inflated price for a ‘new and fancy’ property.
Off-the-plan brand new properties are often targeted towards first home buyers, and if you’re looking for a property for investment purposes with a high rental yield, this is not the property for you because the rental yields most of the time are very low. For example, if you buy a property outside of the Brisbane CBD that is off-the-plan for $600,000, the average rental return on that would be 4% or 5% max. Sometimes the developers will try to sweeten the deal with a guaranteed income for the first 1-2 years, which is highly unlikely. Generally speaking, a property purchased for $600,000 would only rent for $450-$500, which just isn't enough. When it comes to rental yields and building a portfolio, you can only buy so many properties at 3-4% rental yields until you get stuck with finance.
From my experience, when I bought my first property I never got the FHBG. I had to pay stamp duty on every single property I've ever bought. The reason why I am telling you this, is because I had no choice at the time. I had to buy an investment property because I couldn't meet the repayments for a first home buyer. I was on a very low income at the time so I had to buy the property as an investor which means I couldn’t get any of those first home buyer benefits.
I wouldn't recommend buying a property brand new just to save $10,000 - $20,000 on stamp duty. You must look at the bigger picture and ask yourself, is saving that $10,000 - $20,000 worth buying a property that may be $150,000 overpriced? Most people try to save money when they're investing in property, but because they try to save on stamp duty, they end up buying a property that's over priced. This is called purchasing with emotion, something most investors get caught up in.
In my opinion if you are looking at building a property portfolio, it is simply not worth trying to get the first home buyers grant at this stage. Trying to save on stamp duty, and trying to save on spending $10,000 - $20,000 can sometimes cost you hundreds of thousands of dollars more just by paying too much for buying the wrong property to invest in.
Disclaimer: This is not intended as legal, financial, or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature, you should seek advice from a qualified and registered legal practitioner or financial or investment adviser.
