Smart investors can buy properties with little or no deposit - but which strategy actually works?
Blogger: Otto Dargan, director, homeloanexperts.com.au
Saving a deposit is hard work! I remember when I purchased my first investment property I felt like I was running after a speeding train. The more I saved, the more house prices increased.
I finally got into the property market, however many investors today will miss the boat if they don’t act quickly. So how can you buy a property without saving a large deposit?
105% guarantor loan
Do your parents own a property in Australia? If they do then they can provide a limited guarantee for your mortgage.
This means that you can borrow 105% of the purchase price, with no deposit and waived LMI!
What’s the catch? Most banks will not approve a guarantor loan for an investment property and some do not accept your parents as guarantors if they are already retired or if they already have a loan on their property. A good mortgage broker will know which banks can help.
An additional loan
Some lenders will allow you borrow 95% with an additional small unsecured loan for $15k to $20k to assist you with paying for costs such as stamp duty. That just halved your deposit. Not bad at all!
There’s a catch with this one too. You must have saved 5% of the purchase price yourself. You can borrow 95% for a home, yet only 90% for an investment property so this works well for people who intend to live in their property and rent it out one day in the future.
Vendor kickbacks and incentives
Developers and builders often have cashback offers or other special incentives which can be used to form part of your deposit.
That’s all great except that sometimes the bank valuer reduces their valuation by the size of the kickback. Banks often consider the real purchase price to be the purchase price less the kickback and they reduce the loan accordingly.
In some states there are grants for people who buy or a build a new property. Not just for first home buyers, investors can benefit too!
This is an effective way to reduce the size of your deposit because the valuer will not take the same conservative approach that they take with developer cashbacks.
Squeezing more from your equity
You can refinance your current properties and release equity to use as a deposit for your next purchase. I know, you’re thinking that I’m stating the obvious.
Here are the not so obvious tips. Firstly different banks have different valuers and different valuers have different opinions. A good mortgage broker can order valuations up front and then you can refinance with the lender that has the best valuation!
In addition to that some lenders allow you to refinance to 95% LVR. Just a disclaimer, you must be squeaky clean to get approved.
About the Blogger
Otto Dargan is a two-time winner of St George Bank's 'Australia’s Brightest Broker' competition and the managing director of specialist mortgage broker homeloanexperts.com.au.