In order to purchase an investment property you need some sort of a deposit. But how much of a deposit is required for investment property?
Much of a deposit is required for investment property. When you are investing in property you need to save a deposit in order for the banks and lenders to supply you with the rest of the money to purchase that property. But how much of a deposit do you need? It’s very common to try and save a 20% deposit for residential property and a 30% deposit for commercial property. The benefit of saving this 20% or 30% deposit is that you don’t need to pay lenders mortgage insurance.
Lenders mortgage insurance is a fee charged to you by the banks for an increase risk on your loan if you don’t have that 20% or 30% deposit. Because you don’t have as much if you default on your loan it could potentially be higher for the banks to get their money back so they charge you an insurance premium to cover themselves if that situation does arrive. That is why it is very common to save a 20% or 30% deposit.
If you don’t actually need to save that much for residential property you can save as little as 5% deposit and if you’re building a new property you need to save a 10% deposit. But you also need to save the stamp duty for the property and you need to be able to afford to pay your legal fees and all the other costs that come with owning your own investment property and purchasing your property. So you need to save a minimum of a 5% deposit for residential property or a minimum of a 10% deposit if it’s a construction loan which means that you are actually building the property from scratch and it’s not an existing property.
On a $1M property 5% would be $50,000. On a $500,000 property 5% would be $25,000. On a $1M property 10% would be $100,000 or $50,000 on a $500,000 property and 20% would be $200,000 on a $1M property or $100,000 on a $500,000 property. So that kind of gives you an idea of what sort of deposit you’re looking at.
You also need to work out the strategy that you are going to need to pay which is going to be your next biggest expense. You need to look at a stamp duty calculator which is the best way to calculate this and I will provide a link in the description below on the blog post if you want to check that out. Otherwise you can just going into Google and you can simply search for stamp duty calculator and you can get an accurate assumption of how much your stamp duty is going to be. It’s very hard for me to say or it’s just a certain percentage of the purchase price of the property because it does vary significantly based on your state and based on how much your property cost.
I hope that answers your question on how much of a deposit is required for investment property. If you to see the full transcript go to onproperty.com.au/244 because this is episode two hundred 244. And if you want to get access to a free video series showing you how to find positive cash flow properties go to www.onproperty.com.au/free and enter your email address.
Alright guys. Until tomorrow stay positive.