One of the first questions many Australians ask when considering property investing is: how much deposit do I need for an investment property?

The answer isn’t as simple as saving 20% of the purchase price. Your required deposit can depend on the lender, your borrowing capacity, the property’s value, your financial position and whether you use cash savings or equity from an existing property.

It’s also important to remember that your deposit is only one part of the upfront cost. Stamp duty, legal fees, inspections, loan costs and a financial buffer can all affect how much money you actually need before purchasing.

If you’re new to property investing, our complete guide to property investing for beginners in Australia is a useful place to start.

How Much Deposit Do You Need for an Investment Property?

There is no single deposit requirement that applies to every investment property purchase.

Many lenders allow eligible borrowers to purchase an investment property with less than a 20% deposit, although borrowing with a smaller deposit can come with additional costs, including Lenders Mortgage Insurance (LMI).

As a general guide:

MoneySmart explains that some lenders may accept smaller deposits for home loans, but a smaller deposit generally means borrowing a larger percentage of the property’s value and may result in LMI.

For investment properties specifically, lending criteria can differ between lenders, so you should assess your individual circumstances rather than relying on a fixed deposit percentage.

What Is LVR and Why Does It Matter?

LVR stands for Loan-to-Value Ratio. It compares the amount you borrow with the value of the property.

For example, if you purchase a $600,000 investment property and borrow $480,000, your LVR would be 80%.

The calculation is:

$480,000 ÷ $600,000 = 80% LVR

Your LVR is important because lenders use it when assessing the risk associated with a loan. A higher deposit generally means a lower LVR.

You can learn more about how LVR works through MoneySmart’s explanation of Loan-to-Value Ratio.

What Is Lenders Mortgage Insurance?

Lenders Mortgage Insurance, commonly called LMI, is an insurance policy that protects the lender if the borrower cannot repay the loan and the property sale does not cover the outstanding debt.

It is generally associated with higher-LVR lending. Depending on the lender and your circumstances, having a deposit below 20% may mean you need to pay LMI.

This is one reason why a 20% deposit is often discussed when people talk about property investing. However, saving 20% isn’t necessarily the only way to enter the market.

The important question is whether the overall borrowing structure makes sense for your financial position and investment strategy.

Don’t Forget the Other Costs of Buying an Investment Property

A common mistake first-time investors make is assuming that the deposit is the total amount of money they need to purchase a property.

It isn’t.

Depending on your circumstances and the state or territory where you purchase, you may also need to budget for:

• Stamp duty or transfer duty
• Legal and conveyancing fees
• Building and pest inspections
• Loan application or establishment costs
• Lenders Mortgage Insurance
• Property valuation costs
• Settlement costs
• Insurance
• Initial repairs or maintenance
• A cash buffer for unexpected expenses

For example, transfer duty is a significant upfront cost in many property purchases. The amount varies between states and territories and can depend on factors such as the property’s value and how it will be used.

If you’re buying in NSW, you can check the Revenue NSW guidance on transfer duty. For Victorian purchases, the State Revenue Office Victoria explains land transfer duty.

These costs are why you shouldn’t simply calculate your target as “20% of the property price” and assume you’re ready to buy.

Can You Use Equity as an Investment Property Deposit?

Not every investor builds their next deposit entirely through cash savings.

If you already own property, you may have built up equity that could potentially be used towards another property purchase, subject to lender approval and your overall financial position.

For example, if your existing property has increased in value while your mortgage balance has reduced, you may have usable equity available.

However, equity isn’t the same as cash sitting in a bank account. Accessing equity increases your borrowing and therefore your financial commitments.

That’s why using equity needs to be considered alongside your income, existing debts, interest rates, borrowing capacity and long-term investment strategy.

If you don’t already own property, building a deposit through savings remains one of the most common pathways into property investing.

How Much Cash Should You Keep as a Buffer?

Putting every dollar you have into a property purchase can leave you financially exposed.

Investment properties come with ongoing costs, and unexpected expenses can happen at any time.

You may need to allow for:

• Mortgage repayments
• Council rates
• Water charges where applicable
• Landlord insurance
• Property management fees
• Repairs and maintenance
• Periods of vacancy
• Unexpected property expenses

A financial buffer can help you manage these costs without immediately putting additional pressure on your household budget.

The right buffer will depend on your income, expenses, debt levels, property and overall financial position.

Deposit vs Borrowing Capacity: What’s the Difference?

Having a large deposit doesn’t automatically mean you can borrow a large amount.

Lenders also consider factors such as your income, existing debts, expenses, credit history and other financial commitments when assessing a loan application.

MoneySmart explains that lenders consider your financial circumstances when determining how much they are prepared to lend.

This means there are two separate questions you need to answer:

1. How much money do I have available for the purchase?
2. How much can I realistically borrow?

The property you ultimately purchase needs to sit comfortably within both limits.

How Much Money Do You Really Need to Start Property Investing?

There is no universal dollar figure that applies to every investor.

For example, an investor purchasing a $500,000 property will have very different upfront requirements from someone purchasing a $900,000 property.

Your target amount may need to include:

• Your deposit
• Purchase and government charges
• Legal and conveyancing costs
• Loan-related costs
• Potential LMI
• Initial property costs
• An emergency or cash-flow buffer

This is why the better question isn’t simply “How much deposit do I need?”

It’s:

“How much capital do I need to purchase an investment property while still being financially comfortable enough to hold it long term?”

Your answer should also take into account your investment objectives. For example, an investor focused primarily on long-term capital growth may have different requirements from someone who is prioritising rental yield and cash flow.

If you’re comparing these two approaches, read our guide to capital growth vs rental yield.

Common Deposit Mistakes First-Time Investors Make

1. Focusing Only on the Deposit

Saving a deposit is important, but it isn’t the only cost involved in buying an investment property. Make sure you account for purchasing costs and a financial buffer.

2. Using Every Dollar Available

Having no cash reserves after settlement can make unexpected repairs, vacancies or changes in circumstances much harder to manage.

3. Assuming a 20% Deposit Is Always Necessary

A 20% deposit can provide advantages, particularly where it helps avoid LMI, but it isn’t automatically the right target for every investor.

The appropriate deposit depends on your circumstances, lender criteria and overall investment strategy.

4. Ignoring Borrowing Capacity

You might have enough savings for a particular property but not enough borrowing capacity to finance the purchase. Understanding your borrowing position before starting your property search can save a lot of time.

5. Choosing a Property Based Only on the Price

The cheapest property isn’t necessarily the best investment.

Location, demand, rental performance, future supply, infrastructure, property type and potential for long-term growth all need to be considered.

Investment Property Deposit Checklist

Before you start looking seriously at investment properties, work through this checklist:

• Calculate how much genuine cash savings you have available.
• Understand your borrowing capacity.
• Determine your target deposit percentage.
• Allow for stamp duty or transfer duty.
• Budget for legal and conveyancing costs.
• Allow for inspections and other purchasing costs.
• Understand whether LMI may apply.
• Consider whether usable equity is available.
• Keep an appropriate financial buffer.
• Make sure the expected repayments are manageable.
• Consider the property’s long-term investment potential.

Frequently Asked Questions

How much deposit do I need for an investment property in Australia?

There is no single deposit requirement for every investment property. Some lenders may accept lower deposits for eligible borrowers, while a 20% deposit is often used as a benchmark because it may help avoid LMI. Your actual requirement depends on the lender, property and financial circumstances.

Can I buy an investment property with a 10% deposit?

It may be possible for some borrowers, depending on lender policy, borrowing capacity and the property. However, a lower deposit can mean a higher LVR and may result in LMI or other additional borrowing costs.

Do I need a 20% deposit to invest in property?

No. A 20% deposit is not a universal requirement. However, having a larger deposit can reduce the amount you need to borrow and may provide access to different lending options.

Can I use equity instead of saving a deposit?

Potentially. Investors who already own property may be able to access usable equity, subject to lender approval and their financial circumstances. Using equity increases your borrowing, so it needs to be considered carefully.

What other costs should I budget for besides the deposit?

You may need to allow for stamp duty or transfer duty, conveyancing, inspections, loan costs, LMI, insurance, settlement costs and an ongoing cash buffer.

Is it better to wait until I have a 20% deposit?

Not necessarily. The right time to invest depends on your broader financial position, borrowing capacity, investment objectives and ability to comfortably hold the property. Waiting can strengthen your financial position, but it can also delay your investment strategy.

Ready to Understand What You Can Realistically Invest?

Your deposit is only one part of the property investment equation.

Understanding your borrowing capacity, cash flow, property selection, location and long-term strategy is equally important.

Whether you’re preparing to purchase your first investment property or looking to expand an existing portfolio, Compass Property Investing can help you take a more strategic approach.

Book a Free Consultation to discuss your investment goals and understand what your next step could look like.

Important: Property investment and lending decisions depend on individual circumstances. The information in this article is general in nature and should not be considered personal financial or lending advice. Consider obtaining appropriate professional advice before making an investment or borrowing decision.