Investment in property is everyone’s wish especially when a person gets into job market, but this wish requires some effort because a person needs to browse about locations and potential properties they could but. They need to understand laws and schemes the government offer. Besides, they have to ensure to know what other costs and expenses they have to bear to fulfill their Australian dream, such as
- Property management fees
- Mortgage repayments
- Maintenance expenses
- Property insurance
- Strata fees
- Council rates, and others.
These expenses determine the rental income you will get after getting the ownership. While aiming to buy a property, you must point out factors that can negatively affect your capability to pay the holding costs, such as interest rates, rent reduction or vacancy periods. Determining these factors allow you to pick the location carefully during decision making process. It will drive you to seek help from experts and do not overly expect yourself to meet the requirements.
Understanding finances is important for people like us, the commoners who rely on their savings, salaries and small investments to get something big. Investing in property requires you to have some money in account that you can pay for deposit.
Deposit money is the first yet major step where people fall short. After all, majority of us are living paycheck-to-paycheck, and secondly, many of us are unaware of the schemes and ways we can use to save for deposit without affecting our life choices much.
How much deposit do I need for an investment property in Australia?
Before diving into loans and policies, it is important for you to understand the deposit. In case of investment property, you need to deposit 10% to 20% of the property value or hand the amount to a lender.
Unlike buying a home to live in, investment properties typically require a higher deposit. In Australia, most lenders expect a deposit of at least 10% to 20% of the property’s value. However, this can vary based on factors such as lender policies, financial history, and whether you’re using equity from another property.
If the lenders let you buy the property with 10% deposit, it means it has 90% Loan-to-Value ratio or LVR. It is the minimum deposit for investment property Australia. In this case, you have to pay Lenders Mortgage Insurance (LMI), which consequently hefts up the cost.
Yet, if you want better interest rates and avoid LMI, you need to have 20% deposit. It is the most common method to get the property.
What is the ideal investment property to deposit cash for?
Instead of picking a property at an affordable place that requires effort, it is essential to consider the following factors before investing in a property, such as
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Property location
The price and growth of the property rely on how much the location is well-maintained and favorite of commoners. If you have a property at a place where elites lives, your rental income will be amazing, but if you have bought a property at low-key area, your amount won’t be as much as you expected.
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Property size
If your property is larger than other properties in the location, the rent will be insane but if its normal-sized, you need to lower your expectations.
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Maintenance
How much the property is renovated and requires maintenance affect the cost and value.
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Ongoing fees
Fees and payment determine the value, which you need to pay to keep its value maintained.
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Potential growth
Changing market values, interest rates and above factors affect the growth of the property and they will consequently determine the cost and rental income.
- And others.
How to accumulate the deposit required for investment property?
Savings – most used method to save for investment property deposit
Utilizing the money you have in bank account or in the corner of the cupboard in bundles is a direct and straightforward method to pay for deposit. However, saving money is not as easy when you have mortgage and household expenses on the plate to pay. To keep aside a small portion of money for deposit, you need disciplined and goal-oriented mindset to keep your stick to the mission and manage to save minimum amount over time.
Here is an effective strategy to save the required amount with the passage of time:
- Set the goal amount
- Set aside 10% of the income for deposit
- Follow the drill for two years
- Measure the progress after two months
- By hook or by crook, do not spend that money
Saving money is not easy; therefore, people go for using home equity to get the investment property but if you get hang of disciplined mind, nothing will be challenging for you.
Low deposit investment home loans
If you do not have enough savings and equity cannot pay the deposit, you need to go for investment loan – a type of loan that paves the way to invest in property. These loans have stricter terms and higher rates than other kinds of loans. There are other kinds of loans that you can look at when you are up for investment property.
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Basic variable home loan
Basic home loan is ideal if you want to get a property and save money at the same time because it offers multiple benefits, which includes
- No annual fees
- Can withdraw cash freely without penalty
- Can apply online to save establishment fees cost
Basic loans paves the way to invest in property even if you have bare minimum amount in bank for deposit without worrying about repayments.
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Offset variable home loan
By using offset account and loans, you can reduce interest and fasten the principal’s payments while having access to withdraw money during emergency. Here are a few benefits of offset loans:
- You have 100% offset account
- Can make extra repayments without charges
- Can save $600 by applying online
Offset account ease the repayments with less interest payment and its facilities due to which you must avail it to pay for deposit.
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Splitting
You have option to split the loan into two accounts – one loan with variable rate and other with fixed rate. This feature gives you flexibility and benefit you repayment schemes.
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Principal and interest
Principal and interest are types of repayments. In principal, your borrowed amount is covered while interest covers fees, government charges and interest on the principal.
FHB to fasten the every downpayment for investment property
The Australian government offers multiple grants, and schemes, especially for first-time home buyers that consists of multiple benefits. FHB grants save thousands of dollars but it does not mean that you save for deposit or mortgage repayment. They are ideal for people who wants to get a property at low key area because the amount in these grants is not as much as the cost of the place. Take an example of one of the First Home Owner Grants in which it is required that the value of the property should be within $750,000. And in this range, you cannot found more than a few homes, especially in Sydney.
What you can do further to accumulate investment property minimum deposit amount?
Loans, and savings are not enough sometimes because of running expenses. You need to think of other ways to double your money. Here are a few ways to do it with minimum hassle.
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Side hustle
Learn a skill that requires less effort, join WhatsApp groups or network with like-minded people or make an account on upwork and earn some more dollars other than your income from it. It will help you manage your kitchen expenses or save a few more hundreds for your investment property. You can work a few hours as a hustler in different digital fields, such as content writing, social media management, virtual assistant, e-commerce and others. You cane ven start your brand on a small scale to drive profits and earn from it.
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Family’s generation wealth
If your parents have huge savings and willing to help you, you can use it to build your investment property. You can get inheritance from them and use for your future investment. Yet, you need to ensure that some of the amount of deposit should be from your savings as lenders want guarantee that you can save money and won’t put them in danger.
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Equity
If you already have a property under your name for years whose value has increased over time, it means you have built an equity which you can use to pay for deposit.
The maximum equity you can access or withdraw is usable equity. If you minus 80% of your property’s value from the amount outstanding on your home loan, you will get accessible equity.
There are multiple options to tap into your equity in terms of deposit for investment property. Some go with line of credit in which lender will let you re-borrow funds till a predetermined amount. Its key benefit is that the lender will change you interest on the amount you have borrowed.
Besides this, you can withdraw equity to the bank account in lumpsum amount; in such cases, you have to pay interest on that released amount.
Equity is a suitable option for a certain public who already have their own property. They need to consult a buyer agent to understand the science behind it properly
Consulting an expert – the worth it expense before paying deposit for an investment property
Making decision yourself by reading blogs like this is not smart strategy because no write-up can replace the experience and knowledge of buyer agents and property managers who can explain factually why and how much deposit needed for investment property. They will provide you map to save that much amount by using different schemes, loan plans and equity to make things easier for you.
We at Investor Partner Group offers free consultation to help you achieve financial independence sooner than you have planned by entering into investment property market to expand your portfolio. We have a team of buyer agents and property managers who can guide you from scratch. They can offer you plan after understanding your financial situation while ensuring that you are following it. They measure your success in following the plan and improvement in saving money for deposit.
For a moment, it seems foolishness to pay to buyer agents but this is the expense that can either bring loss or keep you from the same loss. All you need to do is to hunt a right buyer agent Australia and talk to them openly. You need to share your future plans in investment, your financial situation, your fear and things you are anxious about regarding property investment. These experts will listen to your problems and then come up with suggestions based on your personality to bring profit to your side.
Click here to book free consultation session now!
Conclusion
Getting money to deposit for investment property is a challenge of challenge for majority of us as we are dependent on our salaries every month to meet our kitchen expenses. Therefore, investing in property feels like burden but this burden is necessary as it will be a great help during your post-retirement life when you are living on your savings and pension. The rental income will let you maintain modest lifestyle at that time. Yet, you can get that if you have money to deposit for investment property in the beginning. The portion of that money needs to be from your savings to guarantee your lender that you are not spendthrift and can save money. To have money for deposit, you can go with multiple ways to save that much amount. The direct method is to keep aside a portion of your salary for deposit. The other is to pick any skill and do part-time job as a side hustle. Thirdly, loans can be a great help but ensure to consult a finance guy before making a decision or interest rate will give you shock later. Fourthly, generational money can let you invest in property with less effort. Besides all of this, equity is also a god option but its available for those who already have property.
Whatever way you pick, it is suggested to consult an expert because they can help you save money and make profit faster than you have expected.
