What Deposit Do I Need to Buy an Investment Property?

Are you looking to purchase your first investment property? Or perhaps you're planning to expand your investment portfolio? Either way, it’s important to understand how much deposit you will need.

What is the minimum deposit required for an investment property?

Whether you’re buying a residential or investment property, you will typically need a 20% deposit to avoid Lenders Mortgage Insurance (LMI).

For example, if you’re considering purchasing a unit valued at $650,000 as your first investment property, you would need a deposit of at least $130,000 to avoid paying LMI.

Essentially, the more deposit you have, the less you need to borrow, reducing your loan repayments.

Factors that influence how much deposit you’ll need

Loan-to-Value Ratio (LVR)
The LVR represents the portion of the property’s value a lender is willing to finance. Most lenders are comfortable with an LVR of 80%, meaning you’ll need a 20% deposit. Some lenders may allow a 90% LVR, reducing your deposit to 10%, but this usually comes with the added cost of LMI.

Property type
Investment properties, owner-occupier properties, and off-the-plan purchases all have different deposit requirements. The property’s location may also impact the deposit and loan conditions.

Your financial profile
Your credit score, repayment history, income, and employment stability all influence how much deposit you will need. Lenders prefer borrowers with a strong financial history, as they present lower risk.

Lender differences
Deposit requirements vary between lenders. It’s worth shopping around and comparing different loan terms to find an option that suits your financial position.

Other considerations when buying an investment property

Beyond deposit and loan requirements, there are other factors to think about when purchasing an investment property.

Does the property need repairs or renovations before it can be rented? Will these improvements increase rental value?

If buying a unit, consider strata fees. Can you manage ongoing council rates, and can any of these costs be passed on to tenants?

Owning a rental property means you’ll be responsible for maintenance. Are you prepared for ongoing upkeep?

If you plan to hire a property manager, factor in their fees as part of your ongoing expenses.

Have you researched the property’s potential for value appreciation? Is the location expected to grow in value over time?

Investing in property requires careful financial planning and market research. By understanding deposit requirements and ongoing costs, you can make informed decisions that align with your long-term investment goals.