This transcript was generated automatically and may contain small errors.
We've all got a budget to work with and do our best to hit our portfolio goals. But sometimes, it's the smallest movement in price that can make a massive difference in the growth of your portfolio. In this episode, I'm going to talk to you about how an increase of $50,000 to $100,000 could take away so many limiting options. And you might be surprised how little it changes your deposit by, but how much it can lower your time to buy and potentially increase your gains in the market. I'm Joma, Lead Research Analyst at InvestorKit.
Let's get into it. Naturally, we all like to stick to a low budget. It might be because we don't have much savings, we don't have as high borrowing capacity. It could be because we like good yield, making holding a property easier in this high interest rate environment. Or we just don't like debt.
Lower budget, lower debt, especially if it's the first investment property we're going to buy. Or sometimes, low prices seem like a deal, seem like we're buying something undervalued. Especially for someone living in Sydney where the median house price is $1. 4 million. When we see the $190,000 median price in Broken Hill, naturally we would think that's a bargain to buy a house for that little amount of money.
But it might not be the best idea to always stick to a low budget. Here are three reasons I'm going to show you. Let's start with the limited market options. Now that the national median house price has increased to $905,000, 80% of SA3 regions across Australia have seen their median house price exceeding $600,000. In a bucket of lower than $500,000, we still have 51 SA3s out of 330.
51 doesn't sound bad, but the reality is a lot of them are actually either remote or rural areas that do not have a sizable or reliable property market. Here are some examples. Barclay in the Northern Territory. It's a vast SA3, but there are only 1,200 houses in the whole SA3. Broken Hill, median house price is just $190,000, but the local economy is not diverse enough and the population is actually declining.
East Pilbara in WA. The economy is mining dominated. Close to half of the people living there are employed in the mining industry. While seemingly we have 51 regions to choose from, the reality is we may just have 20 to 30 markets available to choose from. So if you really don't have the savings or borrowing capacity to go for a higher budget, there's still decent market to buy in.
For example, Modura, Shepparton, Mount Gambier or Burnie. But if you have the capacity to just slightly increase your budget, you'll be immediately enjoying more market options. By increasing $50,000, you'll be having 21 extra markets and by increasing another $50,000, you'll be having 16 more markets to choose from. And then if it's possible to increase your budget to up to $650,000, there'll be another 19 regions to choose from. And you know what?
To increase $50,000 of budget, you don't actually need an extra $50,000 at hand. Here's an example. We just assume that you want to increase your budget by $100,000 from $500,000 to $600,000. These two tables are going to show you what's actually changing. For anyone who's listening to this on iTunes or Spotify, head to our YouTube channel to actually check these tables.
So while you're increasing your budget from $500,000 to $600,000, your deposit, let's assume that we're using 90% LVR loan, your deposit will be increasing by $10,000. Your stamp duty will be increasing by around $4,000 because that's 4% of the total property value. But aside from these two items, your other costs are actually staying the same. For example, building pest inspection, there's still for just one house, so they'll stay the same. Your convincing fee will be staying the same because still that's just one purchase.
And your insurance premium won't increase much because the property won't change significantly. Your building insurance premium will be changing, but in a very in-noticeable way. So in total, to increase your budget by $100,000, the actual increase you need will be just around $14,000. And again, if you have the extra cash and have the extra borrowing capacity, it's worth considering increasing your budget to increase your market options to potentially get into a market with better growth potential and easier to hold. So to summarize, budget is actually a very personal thing.
If you really don't have the extra cash or borrowing capacity, it's no problem to stay with a low budget. But if you do have the capacity to increase your budget, I hope what I've explained today has really illustrated the benefits in increasing the budget strategically when possible. If you have any questions, leave your comments below. We'd love to hear your thoughts on this one. I'm Joma, the Lead Research Analyst at InvestorKit.
I'll see you next time.
