The Pros and Cons of Investment Property Deposits

How Much Deposit Do You Need for an Investment Property?

You need at least 10 per cent of the purchase price as genuine savings to qualify for most investment property finance, though some lenders will accept this from equity in an existing property rather than cash. Lenders typically require a 20 per cent deposit to avoid Lenders Mortgage Insurance, and APRA's debt-to-income settings mean a larger deposit often determines whether your application gets approved at all.

The difference between a 10 per cent and 20 per cent deposit changes more than your upfront cost. At 10 per cent, you pay LMI, which can add thousands to your borrowing or require a lump sum at settlement. At 20 per cent, you avoid that cost entirely and access better investor interest rates. If you're buying in a suburb where rental yields are tight, say around Applecross or Cottesloe, the rate discount from a larger deposit can be the difference between positive and negative monthly cash flow.

Using Equity Instead of Cash Savings

If you already own property, you can use the equity in your home to fund part or all of your investor deposit without selling or withdrawing savings. Lenders assess the combined loan to value ratio across both properties, so if your owner-occupied home has significant equity and a low loan balance, you may be able to borrow up to 90 per cent of the investment purchase price while keeping your overall LVR within acceptable limits.

Consider a buyer who owns a home in Baldivis valued around the suburb's current median, with only a small amount owing on the mortgage. They want to buy a unit closer to the CBD as a rental. Instead of saving another 10 per cent in cash, they can refinance their existing home to release equity, then use that amount as the deposit and cover stamp duty and settlement costs in one transaction. The trade-off is higher total debt and interest payments across both loans, but it allows them to enter the investment market sooner and claim the interest on the investment portion as a deduction.

The LMI Question and Why It Matters for Investors

Lenders Mortgage Insurance protects the lender when your deposit is below 20 per cent, and you pay the premium. On investment property, LMI premiums are typically higher than for owner-occupied purchases because the lender views rental properties as higher risk. The cost varies by lender, loan amount and LVR, but at 10 per cent deposit it can reach several thousand dollars.

You have two choices: pay the premium upfront at settlement or capitalise it into the loan. Capitalising increases your loan amount and your ongoing repayments, but it preserves cash. If you're buying in a high-demand rental area like Joondalup or investing in a property that needs minor work before tenanting, keeping cash available for those early costs may be more valuable than avoiding a slightly larger loan balance. The interest on the capitalised LMI is also deductible because it's part of the investment borrowing.

How Deposit Size Affects Your Interest Rate and Loan Features

The size of your deposit changes the rate and product options available to you. Lenders reserve their sharpest investor interest rates for borrowers at 20 per cent deposit or lower LVR, and some lenders won't offer certain features such as offset accounts or rate discounts on investment loans above 80 per cent LVR. If your deposit sits at 15 per cent, you might get approval but miss out on the offset that would have helped manage tax and cash flow during vacancy periods.

When we work with clients refinancing from a previous investment purchase, the conversation often starts with LVR. If the property has increased in value and the loan has been paid down, the effective LVR might now be 70 or 75 per cent. That opens access to better rates and the ability to negotiate, which wasn't available when they first bought at 90 per cent. Deposit size at purchase sets your starting point, but equity growth changes the equation over time.

Deposit Requirements and the New Tax Rules from July 2027

From 1 July 2027, rental losses on most established residential properties purchased after 12 May 2026 can no longer be offset against your salary or other income. Losses are quarantined and can only be used against future rental income or capital gains from residential property. This changes how deposit size and cash flow interact, especially for buyers relying on negative gearing to reduce their taxable income in the early years.

If you're buying an established property and expecting to negatively gear, a larger deposit reduces your loan amount and your interest expense, which reduces the size of the loss you can quarantine. That sounds counterintuitive, but it also reduces the cash you need to cover each month out of after-tax income. For buyers in the 37 per cent tax bracket who were banking on a large tax refund to subsidise holding costs, the new rules mean cash flow becomes more important than tax planning. A 25 or 30 per cent deposit might make more sense than the minimum, even though it ties up more capital upfront.

Eligible new residential dwellings, including builds on vacant land and properties where the dwelling count increases, remain exempt from the quarantining rules. If you're considering new versus established, deposit requirements are similar but the tax treatment is not.

Stamp Duty and Settlement Costs Beyond the Deposit

Your deposit is only one part of what you need at settlement. Stamp duty in Western Australia is calculated on the purchase price, and for investment property there are no concessions or exemptions equivalent to those available to first home buyers. On a property purchased around the median for a Perth metro suburb, stamp duty can be several thousand dollars, and that amount is payable at settlement alongside your deposit.

You also need to budget for settlement costs including conveyancing, building and pest inspections, loan establishment fees and any strata report fees if you're buying a unit. Those costs typically add another few thousand dollars. If you're borrowing at 90 per cent LVR, the lender will want to see evidence that you can cover all these costs from genuine savings or equity, not from the loan itself. Running short on settlement day is not an option, and lenders assess your capacity to meet these obligations as part of the application.

Where Rental Income Fits Into Borrowing Capacity

Lenders include rental income when calculating your borrowing capacity for an investment property, but they don't use the full amount. Most lenders apply a shading factor, typically 80 per cent of the estimated rent, to account for vacancy periods, maintenance and management costs. If the property you're buying is expected to rent for $500 per week, the lender will assess your income as $400 per week from that property.

This shading affects how much you can borrow, particularly if you're already carrying debt or buying in an area with lower rental yields. A larger deposit reduces the loan amount you need, which reduces the minimum income the lender requires to service the debt. If your borrowing capacity sits close to the limit because of APRA's debt-to-income cap or the serviceability buffer, increasing your deposit from 10 to 15 per cent can be the factor that gets the application over the line. The current settings allow lenders to approve up to 20 per cent of new investor loans at a debt-to-income ratio of six times or greater, but most applications still need to fit within that boundary.

Call one of our team or book an appointment at a time that works for you. We'll look at your deposit position, your equity if you own property already, and help you understand what size loan you can access and what it costs to hold based on the suburb and property type you're targeting.

Frequently Asked Questions