How Much Do You Need for Property Investing?

Breaking Down the Initial Costs

Damien explains that beyond the commonly cited "20% deposit" rule of thumb (with 5% and 10% also sometimes mentioned), investors need to budget for purchase expenses on top of the deposit itself, including stamp duty, legal fees, buyers agent fees, building and pest inspections, and potentially minor renovation costs. Stamp duty is highlighted as typically the largest of these costs, and is calculated based on the state where the property is located (not where the buyer lives), varying meaningfully between states.

Using a $400,000 example property, Damien breaks down a base case: a 20% deposit ($80,000) plus roughly 6% in purchase costs (around $24,000), for a total of around $104,000 needed without lenders mortgage insurance (LMI). He notes the 6% purchase cost estimate is illustrative and will vary by state (citing Victoria as generally higher, and New South Wales and Queensland as generally lower), and may also include a modest allowance (roughly $5,000–$15,000) for tidying up an older property (not a full renovation) ahead of a new tenancy.

What Is Lenders Mortgage Insurance?

Jeremy explains that LMI exists because lenders take on additional risk when lending above a certain loan-to-value ratio (LVR). With a standard 20% deposit on a $400,000 property, a lender lends $320,000 and can reasonably expect to recover that amount if the property needs to be sold. With a smaller deposit (say 10%, borrowing $360,000), the lender's risk of not recovering the full loan amount increases, so that risk is passed to an insurer via a premium, which the lender then passes on to the borrower as LMI.

Jeremy notes that using LMI can let an investor enter the market with less upfront cash, improving their cash-on-cash return by borrowing more and injecting less of their own capital, something he describes as one of the more sensitive variables in his own return-on-investment calculations over the years.

Worked LMI Examples

Using the same $400,000 example property, Damien walks through a spreadsheet comparing different deposit sizes:

• 20% deposit: total entry cost around $104,000 (no LMI payable).
• 12% deposit: total entry cost around $72,000, with a modest LMI premium.
• 10% deposit: borrowing increases to $360,000, LMI premium rises from around $4,500 to around $7,000, bringing total entry cost to around $64,000.
• 5% deposit: total entry cost around $44,000, but LMI premium jumps to around $17,000, reflecting the lender's substantially increased risk at this level.

Damien stresses the importance of buying a genuinely good-quality asset when using a smaller deposit, since a property that falls in value on a highly leveraged loan can quickly result in negative equity. He also notes LMI is tax-deductible over a five-year period for investment properties (not owner-occupied homes), something he's seen some clients unknowingly miss out on claiming, and recommends discussing this with a tax accountant. Jeremy shares that he used LMI himself earlier in his investing journey, though these days tends to use a 20% deposit (and has even considered paying cash for a future purchase), while still recognising the return-on-investment benefits a higher LVR can provide.

Bringing in a Mortgage Broker

Damien and Jeremy bring in Alana, a mortgage broker from a Melbourne-based mortgage business who Damien has worked with for around six years, to walk through common strategies for entering the property market. Alana confirms that once LMI is capitalised onto a loan and the LVR moves past 90%, interest rates step up further, meaning a loan sitting at "88% plus LMI" is generally considered a sensible sweet spot, keeping the buyer just under that 90% threshold. She also explains that lenders generally view higher-LVR borrowers as higher risk, which is reflected in higher interest rates, and that smaller lenders in particular often manage their exposure by capping how many loans they hold within each LVR band.

Strategy: Equity Release

Alana and Damien walk through an example: an investor owns a $1 million home with a $500,000 loan (a 50% LVR). Rather than saving cash for a deposit on a new $500,000 investment property, the investor can release around $130,000 in equity from the existing property (covering a 20% deposit plus purchase costs) ahead of the new purchase, then borrow the remaining $400,000 (an 80% LVR) against the new property itself. This keeps the two loans cleanly separated for tax purposes, maximising the amount of deductible investment debt, though Alana and Damien both note it's important to seek tax advice to confirm treatment in individual circumstances. Alana notes this differs from using personal cash sitting in an offset account (for example, paying down the home loan directly and drawing on that), which generally wouldn't be treated as deductible investment debt in the same way.

Alana adds that investors can also use this approach on an existing investment property, and that in some cases, if LMI was paid on an original loan, a top-up premium (rather than a full new premium) may apply when re-borrowing up to the same LMI threshold against the new, higher property value, provided the investor stays with the same lender.

Strategy: Parental Guarantor

Alana explains a parental guarantor arrangement: parents use the equity in their own home or investment property as security (not their income) to support their child's deposit, while the child alone needs to demonstrate the ability to service the full loan. The guaranteed portion is typically required to be paid as principal and interest, even if the underlying purchase is an investment property, which is important to factor into cash flow planning. Parents' financial position, and the condition of their property, are both assessed as part of this process, and once the new property has grown sufficiently in value, the loan can typically be refinanced to remove the parental guarantee altogether.

Damien shares that this strategy is relatively rare among the clients he's worked with (around half a dozen cases), but recalls one example of a young Melbourne couple who used a parental guarantor to purchase one property with no cash injection at all, then used their own accumulating savings to purchase a second investment property with LMI just a few months later, allowing them to acquire two properties within a three-to-six-month window. Alana notes that in her experience, most parental guarantor arrangements are able to be released within about two years, provided the purchased property is well selected and achieves solid capital growth early on.

Strategy: Buying with Siblings or Family

Damien and Alana discuss buying property jointly with a sibling or family member, noting that without a clear "property share" loan structure, a lender may only count 50% of rental income toward servicing while still counting the full debt against both borrowers, which can significantly hurt borrowing capacity. Alana explains that some lenders offer a property share arrangement instead, where ownership, loan amount, and banking are cleanly split according to each person's contribution (for example, a 30/70 split), meaning only each person's own share of the loan affects their future borrowing capacity, generally a better setup for long-term planning. This type of arrangement is typically limited to a maximum of around four co-borrowers.

Other Options: Gifts and Private Lending

Damien notes that a gift or inheritance from family is another, though relatively uncommon, way clients have funded a deposit, typically requiring a letter or statutory declaration confirming whether the funds need to be repaid, which affects how the gift is treated for servicing purposes. Private lending is mentioned as a rarer option still, generally aimed at borrowers who don't qualify with banks or second-tier lenders, coming with substantially higher interest rates (Alana estimates potentially 10% up to the mid-20% range), and generally more suited to short-term projects like developments with a clear exit strategy rather than typical buy-and-hold investing.

Jeremy shares that he personally used vendor finance once, where the seller of the property lent him the deposit directly (while he covered stamp duty and other purchase costs himself) via a second mortgage sitting behind the primary lender's first mortgage, though he notes it ended up being a poor deal for him in that instance, and that this kind of lending has become considerably harder to access than it was 10–15 years ago. Damien also notes that Jeremy financed a New Zealand property purchase through a New Zealand-based lender directly, after first releasing equity from an Australian property.

Government Schemes: First Home Guarantee

Alana and Damien discuss the First Home Guarantee scheme through Housing Australia, which allows eligible buyers to purchase with just a 5% deposit (avoiding LMI) while the government guarantees the shortfall to the lender. The scheme is capped at a limited number of places annually (Damien cites a figure of around 35,000 applicants a year) and has income caps (around $125,000 for a single applicant, $200,000 for a couple) as well as property price caps that vary by state and by metro versus regional location (Damien cites examples of up to around $900,000 in Sydney and generally lower caps, around $800,000, in most other states' metro areas). Alana notes that in practice, borrowing capacity is often the bigger constraint, since even under the related single-parent scheme (allowing a 2% deposit), a borrower on a $125,000 income may only be able to borrow up to roughly $420,000, well under many of the relevant price caps, particularly in Sydney where that amount buys comparatively little.

Alana confirms lenders under this scheme still require evidence of genuine savings accumulated over a three-month period, though a strong rental payment history (a consistent on-time rental ledger) can also help support this requirement.

Government Schemes: First Home Super Saver Scheme

Alana and Damien also cover the First Home Super Saver (FHSS) scheme, which allows eligible buyers to make voluntary contributions into superannuation and later withdraw them (along with associated earnings) to help fund a deposit on a first home they intend to live in, offering a tax advantage compared to saving outside super. Alana notes this scheme particularly suits buyers whose income (and therefore borrowing capacity) has recently increased faster than their savings. Approval to release funds under the scheme must be obtained before purchasing. She flags one downside: funds held in a high-interest savings account carry minimal risk beyond inflation, whereas funds contributed to super may be exposed to investment market fluctuations depending on how they're invested. Damien shares he's also seen a client successfully transfer New Zealand superannuation savings into the Australian system in order to make use of this scheme.

Stamp Duty Concessions

Damien notes that first home buyers may also be eligible for full or partial stamp duty exemptions if purchasing a property to live in, varying by state (citing examples such as full exemption up to around $800,000 in New South Wales, tapering up to $1 million, and around $500,000 in Queensland).

Closing Thoughts

Damien and Jeremy thank Alana for her time and note she'll likely feature in future episodes. Closing out, Damien encourages listeners not to give up, emphasising consistency in saving over time rather than expecting rapid results, and flags future episodes covering the team investors typically need around them, along with the ongoing costs of owning a property (repairs, maintenance, and property management fees). Jeremy reiterates the importance of being cautious with high-leverage purchases (citing loans up to 90% LVR as an example), since a drop in property value at that level of leverage can quickly leave an investor in a negative equity position.