You can buy an investment property without a cash deposit, but not without security. The lender still wants around 20% of the purchase price covered. It just doesn't have to come out of your savings account.
Most people who buy this way do it in one of two ways. They use the equity in a home they already own, or a family member offers their property as security through a guarantor loan. Which option suits you, and whether it works at all, depends on your income, your existing loans, your job and the property you want to buy. Every scenario is different, so here's how each part works in practice.
Using equity to buy an investment property
If you already own a home, its equity is the most common way to buy an investment property without saving a deposit. Equity is the difference between what your home is worth and what you still owe on it. Most lenders will let you borrow up to 80% of your home's value without Lenders Mortgage Insurance (LMI), and the gap between that figure and your current loan is your usable equity.
Consider a buyer whose home is worth $900,000, with $500,000 still owing. 80% of the home's value is $720,000, which leaves $220,000 in usable equity. To buy a $750,000 investment property, they would need a 20% deposit of $150,000, roughly $29,000 in NSW stamp duty, and around $4,000 for legal fees and inspections. They release about $183,000 from their home as a separate loan split, take out a new $600,000 loan for the rest, and buy without touching their savings. Stamp duty depends on your state and changes over time, so check your state revenue office's calculator for the current figure.
How you set this up affects your tax position. Keeping the released equity in its own loan split, used only for the investment purchase, keeps that debt clearly separate from your home loan. That makes it far easier for your accountant to work out what's deductible, so talk it through with them before you sign.
"Last year we helped a couple in Beverly Park who'd owned their home for eight years. They had little in savings, but their home had grown enough in value that we could release $280,000 and buy a unit in Coogee for their future retirement goals."
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Why keeping your loans separate gives you more options
When you use equity, your current bank will often suggest securing both properties together under one lender. This is called cross-collateralisation. It's usually the easiest path for the bank, but it isn't always the best one for you. With both properties tied together, the bank has a say over both. Selling one, refinancing one or moving to a better rate can mean revaluing and renegotiating everything.
We try to avoid cross-collateralising wherever the scenario allows.
- Keeping the loans separate means your investment loan can sit with whichever lender offers the sharpest rate, rather than the one that holds your home loan.
- It also lets us use the lender whose policy suits each purchase, since banks differ a lot on how much rental income they count and which borrowers they favour.
- And when you're ready for your next property, or want to sell or refinance, you aren't locked into one bank's decision on everything. Sometimes crossing the securities is the only way a deal works, but it should be a choice you make knowingly, not by default.
How a guarantor can help get your foot in the door
If you don't own a home yet, or don't have enough equity, a guarantor loan can help. A family member, usually a parent, uses the equity in their own property as extra security for your loan. That covers the gap a cash deposit would normally fill. The guarantee is usually limited to the amount needed to bring your loan down to 80% of the property's value, so on a $600,000 purchase it might be around $120,000 to $150,000 once costs are included.
Not every lender offers guarantor loans for investment properties, and the list is shorter than for homes you'll live in. There's also real risk for the guarantor. If the repayments aren't made, the lender can recover the guaranteed amount from them, so everyone should go in with a clear understanding, and guarantors will usually need independent legal advice.
A guarantor loan shouldn't be permanent. We aim to release the guarantor as soon as there's enough equity, which happens when the property grows in value, the loan is paid down, or a mix of both, so the loan sits at 80% or less of the property's value on its own.
How much deposit you need, and when you can skip LMI
The standard benchmark for an investment property is 20% of the price plus costs. At that level you avoid LMI and have the widest choice of lenders. You can borrow more than 80%, but you'll usually pay LMI, a one-off fee that protects the lender rather than you. On a large loan it can run into the tens of thousands, and because it's often added to the loan, you pay interest on it too.
Depending on your profession, some lenders will let you borrow up to 90% for an investment property without paying LMI at all. These waivers are typically offered to professionals such as doctors and other medical specialists, lawyers and accountants, though each lender sets its own list and rules. If you work in one of these fields, it's worth asking, because the saving can be significant.
Government schemes like the First Home Guarantee and First Home Owner Grant are for homes you'll live in, so they can't be used to buy an investment property.
No deposit doesn't mean no costs
Whether you use equity or a guarantor, the purchase costs still need to be paid, either from savings or by borrowing a little more. Stamp duty is usually the biggest, and investors don't get first home buyer concessions. On top of that come conveyancing and legal fees, building and pest inspections, any loan or valuation fees, and LMI if you borrow over 80% without a waiver. We'd also always want you to keep some cash aside for vacancies, repairs or rate rises, because buying with nothing in reserve is where people get into trouble.
Be careful with vendor incentives such as free stamp duty or rental guarantees, which are common with new apartments. Lenders will often deduct these from the purchase price when they value the property, which can leave you with a lower valuation and a bigger gap to fill than you expected.
How lenders decide whether you can afford it
Equity or a guarantor gets you past the deposit, but it doesn't get you past serviceability, the lender's check that you can afford the total debt. This is where most no-deposit plans succeed or fall over. Lenders look at all your income and commitments, including your existing home loan, car loans and the full limit on any credit cards, not just the balance. They also test whether you could still make repayments if rates were about 3% higher than the rate you'll actually pay.
Rental income helps, but lenders usually count only around 70% to 80% of the expected rent to allow for vacancies and costs, and some are more generous than others. The property matters too. Standard houses and units in established areas are easiest to finance, while very small apartments, rural properties and unusual homes can need a bigger deposit or rule out some lenders entirely. For a rough idea of where you stand, try our borrowing power calculator.
Weighing up the risks before you commit
Borrowing the full price plus costs can grow your wealth faster, but it leaves less room for things to go wrong. If values dip soon after you buy, you could owe more than the property is worth for a while, which makes it harder to sell or refinance. A larger debt also means every rate rise hurts more, and a month without a tenant or an unexpected repair comes straight out of your pocket. If family has put their home on the line as guarantor, a bad outcome affects them too. None of this means you shouldn't do it. It means the numbers need to work on a bad month, not just a good one.
Two people with the same income and the same equity can end up with very different options depending on their job, their existing loans and the lender they use. A broker who works with investors can show you which lenders suit your scenario and how to structure your loans so you have more options next time.
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