How to buy an investment property with little to no deposit
The team at Naritas are often asked “is it possible to get 100% finance for an investment property”? Pros and cons aside, the short answer is that it is certainly possible to finance a very large percentage of a property – over 100% – but the potential finance costs can be considerable and need to be balanced against the risks & potential returns. Described below is a rough guide as to a common approach, the general qualification criteria and the estimated costs in today’s market.
- Must be a property owner with at least 5% equity in the property you own. The property won’t be refinanced or have its debt restructured, however, the equity is necessary to demonstrate you have tangible net wealth.
- Must have at least $8,000 in cash to meet costs associated with the proposed investment purchase such as LMI and due diligence costs such as paying for your solicitor/conveyancer and pre-purchase inspections.
- Minimum $100,000p.a. income for the primary applicant, or a minimum of $140,000 combined income for a couple.
- Clean credit with a minimum of a moderate to strong credit rating.
- Select a property you wish to purchase for $400,000 with a minimum rental return of $300 per week. Exclude properties outside of metropolitan areas, that are located in high density apartment blocks (i.e. blocks with more than 4 stories and/or more than 30 units), are under 60sqm internal size (which means usually select properties that are 1BR+), and that have flood ratings. Some examples of potentially acceptable properties can be found here and here.
- Apply for a personal loan of $35,000 over the maximum term allowable, ideally 7 years. Estimated rate would be around 10%.p.a. (give or take 5%p.a. dependent on the strength of your credit profile). NB: Speak with a credit adviser as many personal loan providers will not lend for a home deposit and the difference in delivery rates in this space can be considerable.
- Subsequent to being approved for the personal loan seek approval for a $380,000 mortgage at 95% LVR plus LMI.
What do the costs look like?
- Estimated LMI of ~$16,000 NB: You should consult with your taxation adviser as to whether this LMI premium can be claimed against your taxation liability).
- Estimated stamp duty, state fees and charges of ~$20,500 (this figure will alter slightly dependent on the state you are considering buying into – you can calculate these costs using the calculator located here).
- Estimated investment variable rate: 8.09% p.a. NB: This rate could be reduced to 5.34%p.a. if you increased your cash (i.e. savings) available for the purchase to $22,000 (up from $8,000).
How do I get assistance with getting approved?
The team at Naritas are experts in delivering timely guidance & finance approvals. We have over 100 lenders on our panel & a high quality team of dedicated advisers to steer you efficiently through the approval process.