DEPOSIT BONDS? What are they?

Hi there

A deposit bond basically replaces a cash deposit. If its for a future off the plan purchase then you'll probably need a long term bond which requires you hold a certain amount of equity in residential property. These bonds cost quite a lot – and if you don't proceed with the purchase, I think there's only a certain timeframe that you can cancel the bond and request a refund.

Cheers

Jamie

They're useful when you don't have the physical cash deposit and want to use the equity in your current property to place the deposit.   

A deposit bond is simply a guarantee offered by a second party that the seller will receive a deposit on the date contracted. If you die, get run over by a bus or go broke the deposit bond issuer meets your obligation and pays the deposit. It will then seek repayment from you (or estate) at probably quite high interest rates.

If you use them read the fine print carefully.

Issuers will vet your ability to pay the full contract price so you need to be able to prove this adequately.

Terms run from a few months to years.

If the builder goes bust before a deposit is paid get legal advice before handing over anything.

If a builder goes bust after you've paid a deposit builders insurance should protect your purchase but get legal advice anyway.

Google deposit bond issuers. There's plenty out there to give you a good idea of how it all works.

Deposit bonds are an acceptable financial instrument within the construction and building industry. Developers often lack sufficient funds to complete large projects. To obtain funding banks require the developer presell a percentage of units (OTP sales). Because these projects can take several years buyers are often reluctant to have capital for deposits tied up for years at a time. The deposit bond negates this problem by providing an industry acceptable financial document especially where banks are concerned.

Hi Kara

Do you need a short term or long term bond?

If you need an idea of how much they cost – here's a calculator https://www.depositpower.com.au/publics/guaranteeQuote.aspx

Cheers

Jamie

Hello Jamie & Shahin,

Thanks for your replies.

I'm looking at buying an established property, can draw my funds after 1st July to pay the deposit. The way I see it at the moment, the only advantage is I can secure the property before somebody else buys it, & have 6 weeks head start ( settlement time) on if I waited until July.

The owner wants full price at this stage if I delay settlement ( 4 months), so I'm thinking I'll take my chances that it doesn't sell & wait till July.

Another I looked at sat on the market for months & has recently sold, so fingers crossed while I wait.

Main drawcard with this property is it is Light Industrial/ Residential & 200m from main street. I wish to use it for a residence & business.

Cheers,

Kara