How much deposit do I need to buy an Investment Property?

November 14, 2012 5:02 pm
posted by James Parnwell

how much depositSo you are looking to buy your first investment property or perhaps trying to work out whether you can afford your second. The first question is often, how much deposit do I need to buy an investment property? Let me start by explaining that there are more ways to approach this than just saving up cash! Certainly saving up cash is a very good way to  go, but it can be tough depending on your circumstances. I will cover another few ways to get together a deposit.

How much deposit do I need in Cash to buy an Investment Property?

We need to be able to give the bank a minimum of 5% of the value of the investment property plus cover the other costs involved in purchasing a property. So what are the other costs? The main one is stamp duty, however you will need to allow for solicitors costs and few other items. Here is a scenario where we are considering buying a $400,000 property in NSW…

How much deposit do I need for a $400,000 property in NSW?

5% Deposit $20,000.00
Stamp Duty $13,490.00
Mortgage Registration $102.00
Land Transfer Registration $204.00
Solicitors Fees / Misc. $2,000.00
Total Deposit Needed $35,796.00


How much is the Lenders Mortgage Insurance?

If you put in less than a 20% deposit you will need to pay Lenders Mortgage Insurance (LMI). Whilst this can be quite expensive it is often necessary for people to pay this in order to get into the market. For the above example the LMI would be about $12,000. The more deposit you put in, the lower the LMI becomes. However, the good news is that you put most if not all of this on top of your loan, so it’s not money you need to save up!

How much deposit do I need for a brand new $400,000 property in NSW?

If $35,796 sounds like a hell of a lot of money to save, you might be right! However, there are some government grants around from time to time.

At the moment for example in NSW there is a $5,000 incentive for anyone who is buying a brand new property. The grant is clearly designed to stimulate the construction of new houses. Follow this link for more detailed information.

5% Deposit $20,000.00
Stamp Duty $13,490.00
Mortgage Registration $102.00
Land Transfer Registration $204.00
Solicitors Fees / Misc. $2,000.00
Grant -$5,000.00
Total Deposit Needed $30,796.00

What about the FHOG?

There is also the First Home Owners Grant (FHOG) which currently gives $15,000 to a first home buyer. Clearly, this is for people who are planning to live in the house. However, the law states that you need to live in the house for 6 months commencing within the first 12 months that you own the property. So some people buy their first property, get the $15,000 plus the $5,000 for it being a new property, live in the house for 6 months then convert it into an investment property.

Are there any other incentives out there to help me reduce my deposit?

I am in contact with builders who are currently happy to pay the balance of the Stamp Duty as an incentive to purchase with them. This means for the following example they kick in a further $8,490. I should point out that these offers come and go, however if you contact me I can put you in contact with builders who have different incentives going most of the time.

Property Price $400,000.00
5% Deposit $20,000.00
Stamp Duty $13,490.00
Mortgage Registration $102.00
Land Transfer Registration $204.00
Solicitors Fees / Misc. $2,000.00
Grant -$5,000.00
Builders Incentive -$8,490.00
Total Deposit Needed $22,306.00


Hopefully that is starting to sound a lot better!

How much deposit do I need if I don’t have cash?

If you don’t have cash, then you need equity! Equity is essentially some value in another residential property. For example, if you have a house worth $400,000 and a loan for $200,000 you will have $200,000 in equity. Now, you can’t borrow all of this, however, you could take out a loan of $100,000 against your existing property and use it as the deposit for your next property. Making sense? If not, shoot me an email and I will call you to explain!

How much deposit do I need if I don’t have cash or equity?

The next option is to look at a guarantor type situation. This would mean you need to use the equity from your parents property or another family members property to borrow the necessary deposit. Many parents are happy to help get their kids started in property and will let them use equity in their own home to get started.

Lenders are prepared to do this in some cases, so it is probably best if you contact me and I can help you with this scenario specifically!

What do I do if I don’t have cash, equity or a guarantor?

Well my friend, you need to marry into money or get a savings plan!

how much deposit investment property

Opportunities Everywhere!

I am in contact with many builders and developers so there are always loads of opportunities and incentives to help people like yourself get started. If you would like more information just click contact us and I’d be happy to chat with you!

Article by James Parnwell


This article is not designed to provide personal financial or investment advice. The information provided is general in nature and does not take into account your particular investment objectives, financial situation or investment needs. We recommend that you speak to your financial Adviser or Accountant before you make any further decision.




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2 Responses to “How much deposit do I need to buy an Investment Property?”

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