How Much Deposit Do You Need for an Investment Property?

The deposit is the number most investors start with, but it's only part of what you'll need. Here's a straightforward look at what lenders usually ask for and the other costs to budget for.

The short answer

Most Australian lenders want a deposit of 10% to 20% of the purchase price for an investment property. Twenty per cent is the benchmark because it avoids lenders mortgage insurance (LMI). Some lenders will go lower, but you'll pay LMI and the lending conditions are usually tighter.

What that looks like in dollars

Using a $600,000 purchase as an example:

• 20% deposit: $120,000, no LMI.
• 10% deposit: $60,000, plus LMI.

Those figures are only the deposit. On top, you need stamp duty, legal costs and inspections. A common rule of thumb is that these buying costs can add roughly another 5% to 6% of the price, which would be about $30,000 to $36,000 on $600,000. Stamp duty varies by state and by the price of the property, and in some states building costs on a new home aren't subject to duty the way land is.

So on a $600,000 purchase, the cash you need at settlement might be roughly $150,000 with a 20% deposit, or about $90,000 plus LMI with a 10% deposit. Treat these as illustrations, because your real numbers depend on your state, the property and your lender.

What is LMI?

Lenders mortgage insurance protects the lender, not you, if the loan defaults. It's charged when your deposit is under 20%. It can be a significant extra cost. On a $700,000 purchase with a 10% deposit, published estimates put LMI in the order of $12,000 to $18,000, and the cost rises as the deposit shrinks.

Can I use equity instead of cash?

Yes. If you already own a home with equity in it, a lender may let you use that equity for the deposit and some of the buying costs. This means the investment is secured against more than one property, which increases your risk if the market falls or your income changes. A broker can model how it would work for you.

The costs people forget

• Stamp duty and registration fees (the biggest cost after the deposit).
• Conveyancing or legal fees.
• Building and pest inspections, if you're buying an established home.
• Landlord insurance and the cost of getting the property tenant-ready.
• A cash buffer for vacancy, repairs and rate rises.
• Any buyer's agent or sourcing fees.

Does the deposit change for house and land?

With a house and land package, you often pay a deposit on the land first and then progress payments as the build advances, rather than the whole cost at once. Finance is staged too, so check the timing with your broker. It affects how much cash you need and when.

How to work out your own number

1. Choose a realistic price range based on your borrowing capacity.
2. Decide whether you'll aim for 20% or accept LMI.
3. Add 5% to 6% for buying costs, then a buffer on top.
4. Check how much usable equity you have, if any.
5. Get a broker to confirm what lenders will actually allow.

If you'd like to see which strategies fit your budget, try our Property Match quiz.

This article is general information only and is not financial, legal or tax advice. Investlogic does not hold an Australian Financial Services Licence. Lender requirements, stamp duty and LMI costs change often and vary by state, so confirm current figures with a licensed broker.