Question, how much deposit for an investment property? Great question. Do we need 20%, do we need 30%, do we need 10%, do we need nothing? All good questions and where it comes from is the standard is a 20% deposit is required to buy an investment property, but that’s primarily if we want to not pay mortgage insurance, which is also an acronym of LMI. However, my view on mortgage insurance is, mortgage insurance is just a cost to borrow with allowing us to borrow more and therefore having to use less of our cash or equity to do a transaction.
It is tax-deductible. So if I had a multiple property strategy, I have no problem paying mortgage insurance, which means we need as little as 10%. It used to be 5% we can do 95% later for investment properties. Very, very difficult to find now. Crackdown a few years ago. So we’re really now looking at a minimum of a 10% deposit which will incur some mortgage insurance, but primarily 20%. So it depends on how much equity we’re setting off because we can use cash or we can use equity to buy an investment property. And the difference is cash, we’re physically, we’re drawing cash out of our home or out of our bank account and laying it down to purchase which means we’re only getting a 10 or a 20% or 90 or 80% loan instead using the 10 or 20% deposit. Or equity we’re not taking any cash out and then what we might be doing is just decreasing the amount of available funds we have on a loan on our occupier to actually fund the investment property transaction.
Are they loans where we make no deposit for investment properties? Well, the simple answer to that is no. There is no such thing as a 100% loan. But where the confusion can come in is what we can do is actually just use the equity in our property, as I said before, to go towards purchasing the investment property, which means we have 100% lend or maybe even 105% lend on the investment property to maximize tax deductions. But the cost of that is we’re reducing our balance available in our owner occupier.