Property is one of Australia’s best-loved investments, with the potential to deliver a winning combo of rental income, long term capital gains, and savings on tax. Even better, you may not need a big deposit to become an investor.
No-deposit home loans are pretty much a thing of the past, so if you don’t have much cash to put towards an investment property, it pays to think outside the square. We’ve done that for you, with 5 ways you may be able to invest with little or no deposit.
Strategy 1: Use home equity in lieu of cash
Home values are rising fast1, and if you’re a homeowner, you may have a surprising amount of home equity.
Equity is the difference between your home’s market value and the balance of your home loan. So, if your property is worth $500,000, and the balance of your mortgage is $300,000, you may have $200,000 in home equity. Some lenders will let you use this equity as a deposit on an investment property in place of cash savings.
If you’ve owned your home for a few years, there’s a good chance you’ve built up some reasonable equity, and this can be a valuable resource when it comes to property investment.
Our lending specialists help you to find out how much equity you have in your home, and how you might be able to use it to own an investment property sooner. One of the ways we do this is by arranging a lender valuation on your property, so you get a very accurate market guide.
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Strategy 2: Low deposit loans
For the most part, lenders like to see a 20% deposit when you’re buying a property. However, there are home loan options where you can have less of a deposit – sometimes this can be as little as 5%. This can be a lot more achievable than 20%.
When your deposit is below 20%, the lender will likely ask you to pay lenders mortgage insurance (LMI). Your LJ Hooker Home Loans lending specialist has access to a wide range of home and investment buying options and can let you know the possible LMI premium for your situation. Likely you won’t even need to pay this upfront with your loan.
Strategy 3: Buying your first home as an investment property
Buying an investment property rather than an owner-occupied home could open up a much wider choice of properties and locations because you don’t need to focus on your personal needs or preferences. So, it could be a great way to buy in an affordable location and take that important first step into the market.
This strategy could mean missing out on financial incentives like the First Home Owner Grant. However, you will have the benefit of regular rental income and potential tax savings, both of which can make it a lot easier to manage your loan repayments.
Strategy 4: Guarantor loans
Parents can help their adult kids become investors, by agreeing to act as a guarantor for the investment loan.
No cash changes hands – in most cases, mum and dad just need to have sufficient home equity to provide a guarantee in place of a cash deposit. Some lenders allow limited guarantees, letting parents specify how much of the loan they agree to guarantee, which can provide additional peace of mind.
Buying a property is one of the biggest financial commitments you’ll make. A guarantor might be the helping hand you need to get into property sooner.
Strategy 5: Buying a property through a self-managed super fund
If you have reasonable savings in super, it may be worth thinking about buying a rental property through your own self-managed super fund (SMSF).
This is a big step, and it’s important to speak with a financial planner so you make an informed decision.
Self-managed super fund loans involve you having an established or new set up of a SMSF trust and have access to sufficient cash reserves within the trust. Our SMSF loans offer a simple trust structure requirement so reach out to one of our lending specialists to find out more.
The key take-out is that there is a variety of strategies that can help you buy an investment property even if you don’t have substantial cash savings – or if you want to preserve cash for other purposes. Get in touch with us below and we’ll connect you with one of our local lending specialists for expert advice based on your circumstances.
Our lending specialists are available for in person, web based, or phone chats.
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This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice. You should always undertake your own independent property research.