Investment property deposits work differently to owner-occupier purchases — and one of the most common questions is exactly how much you need. The number isn’t fixed: it depends on the purchase price, your borrowing profile, and whether you’re willing to pay Lenders Mortgage Insurance. Here’s what you actually need to know.
The 20% rule — and why it’s not always required
The standard guidance is to have a 20% deposit to avoid Lenders Mortgage Insurance (LMI). LMI is a one-off insurance premium you pay when you borrow more than 80% of a property’s value — it protects the lender, not you, but you pay for it.
On a $600,000 property, 20% is $120,000. That’s a significant barrier to entry. But it’s not the only path.
Can you buy with less than 20%?
Yes — many investors do. You can borrow up to 95% of the property’s value with some lenders, meaning a 5% deposit (plus costs). But LMI on a 95% loan can add $15,000–$30,000+ to the cost of the purchase, depending on the loan size and insurer. That gets added to your loan balance, which means you’re also paying interest on it.
The question isn’t whether you can do it — it’s whether the cost is worth getting into the market sooner versus saving a larger deposit.
The other costs you need to cover
The deposit is just one part of the upfront cost. You also need to cover:
- Stamp duty — varies by state and purchase price, typically 3–5% of the property value
- Conveyancing/legal fees — usually $1,500–$3,000
- Building and pest inspection — $400–$800
- Loan establishment fees — vary by lender
- First property costs — landlord insurance, property management setup
For many investors, these costs add another 5–7% on top of the deposit. Plan for it.
Using equity instead of cash
If you already own a home with equity, you may be able to use that equity as your deposit for an investment property — without needing to save fresh cash. This is called cross-collateralisation or using a deposit bond, depending on the structure. Talk to a mortgage broker about whether this makes sense for your situation.
What lenders actually look at
Beyond the deposit, lenders assess your income, existing debts, credit history, and the investment property’s likely rental income (they usually apply a discount to projected rent when calculating serviceability). Getting pre-approval before you start searching tells you what budget you’re actually working with — and makes you a more credible buyer when you make an offer.
Making your deposit work harder
The deposit isn’t the only lever you have when buying an investment property. Experienced investors often use equity in an existing property rather than saved cash for the deposit on a new one. If your home or a prior investment has increased in value, you may be able to access that equity through a line of credit or loan top-up — effectively letting the market do some of the deposit-saving work for you.
If you’re paying Lenders Mortgage Insurance (LMI), it’s worth knowing that LMI is tax-deductible for investment properties — claimable over five years under ATO rules. This doesn’t make LMI cheap, but it does reduce the after-tax cost. Some lenders also allow you to capitalise LMI into the loan rather than paying it upfront, which preserves your cash for other costs.
For independent guidance on purchase costs, ASIC’s MoneySmart home loans guide is a solid starting point. When you’re ready to model repayments on your investment property purchase, our guide to the best mortgage calculators for Australian investors reviews the most useful tools.
One more cost worth including in your deposit calculations is stamp duty. In most Australian states, stamp duty on an investment property is charged at the standard rate with no first-home buyer concessions — and on a $700,000 property, stamp duty can easily add $25,000 to $35,000 to your upfront costs depending on the state. Including stamp duty in your deposit planning from the outset prevents the unpleasant surprise of discovering your 20% deposit leaves you short once transaction costs are factored in.
General Advice Warning: This article is general in nature and does not constitute personal financial advice. Please consult a licensed financial adviser before making investment decisions.
