What If I Don't Have A Deposit For An Investment Property?

Deposits, deposits, deposits, they’re front and centre on every prospective home buyer’s mind, particularly in an era of rising interest rates and more conservative bank lending practices. But what if there was another way?

Buying your investment property without a deposit may be difficult but with a dash of lateral thinking, it’s not mission impossible.


There Is Another Way

Whether you’re buying an owner-occupier home or an investor, buying a property, typically proves to be a time-consuming, protracted experience.

The canny investor’s rule of thumb says that deposit is a chunk of change equal to around 20 per cent of the target property’s value. At least that’s how your financier would prefer it.

And with current property prices, the way they are, that soul-destroying threshold 20 per cent deposit adds up to a lot of money, an awful lot of six-figure money.

Happily, there are other ways – and that’s good news. When buying an investment property, there are ways to avoid saving that 20 per cent deposit. Purchasing an investment property with a minimal deposit or none can be tricky but far from impossible.

Here are some options that allow you to buy an investment property with little or no down payment, unless you want to live with your parents forever. Yes, it’s true!


Can You Buy A Property With Little Or No Deposit?

Yes, acquiring an investment property with minimal or no deposit is possible, but it isn’t as straightforward as it once was.

Following the 2008 global financial crisis, Australian lenders reviewed their lending rules. The result is a financial system that is way risk averse when it comes to dishing out 100 per cent leveraged home loans than it once was, due to the high risks associated with that practice.

To be pre-approved for a home loan covering 100 per cent of an investment property’s purchase price, you’ll find these mortgages come with conditions attached.

This may include putting a guarantor in place for the loan or alternative conditions based on your repayment history, income or asset base.


Leveraging Your Existing Equity To Buy Another Investment Property

You can use your existing equity as a deposit. If you have sufficient equity in your investment property, it may not be necessary for you to save up for a deposit.

Another strategy is to save a minimum 10 per cent deposit and then speak with a mortgage broker to see if there are lenders who will finance your purchase on a 10 per cent deposit.

Secondly, some industry sectors such as legal and health care professionals can borrow with less than a 20 per cent deposit and aren’t obliged to pay loan mortgage insurance – a major saving.
A popular strategy is to dip into the Bank of Mum and Dad or other family members for a deposit.

Regardless of whether you get by without a deposit or not, developing a good saving habit will be invaluable in helping you reach your financial goals.


Final Observation

There are several options to purchase an investment property with a comparatively small deposit or no deposit. However, it’s critical that you identify the right strategy. One that fits your financial objectives and cash flow situation.