The deposit is the single biggest barrier to entering the property investment market. It’s also one of the most misunderstood aspects of property finance. Many would-be investors assume they need a full 20% deposit before they can start, and that belief alone delays wealth-building by years.
The reality is more nuanced. While 20% is the standard benchmark, there are legitimate pathways to purchase an investment property with as little as 5–10% deposit—though each option comes with trade-offs you need to understand before committing.
The Standard Deposit: 20%
A 20% deposit remains the benchmark for investment property purchases in Australia. On a $600,000 investment property, that’s $120,000. On a $900,000 property, it’s $180,000.
Why 20%? Because at this level, lenders don’t require you to pay Lenders Mortgage Insurance (LMI), which can add thousands to your upfront costs. A 20% deposit also gives you stronger borrowing power, access to more competitive interest rates, and a larger equity buffer if property values dip in the short term.
Advantages of a 20% deposit:
- No LMI required
- Lower interest rates from most lenders
- Stronger negotiating position with banks
- Greater equity buffer against market fluctuations
- Lower ongoing repayments
Buying with a 10% Deposit
Most major Australian lenders will approve investment property loans with a 10% deposit, but you’ll need to pay LMI. On a $600,000 property with a 10% deposit ($60,000), LMI could cost approximately $8,000–$15,000 depending on the lender and your financial profile.
LMI can be paid upfront or capitalised into the loan (added to the loan amount). While capitalising it avoids an immediate cash outlay, you’ll pay interest on that amount for the life of the loan, which significantly increases the true cost.
When a 10% deposit makes sense:
- You have strong income and serviceability but limited savings
- Property prices in your target market are rising and waiting to save 20% would cost you more than the LMI
- You can offset the LMI cost through favourable purchase terms (e.g., buying below market value through off-market channels)
Buying with a 5% Deposit
Some lenders will approve investment loans with as little as 5% deposit, though this is less common for investment purchases than for owner-occupied homes. At this level, LMI costs increase substantially—potentially $15,000–$35,000 on a $600,000 property.
A 5% deposit strategy carries higher risk. You have minimal equity, higher repayments, and limited buffer if the market softens. However, for investors with strong incomes and a clear long-term strategy, it can be a way to enter the market years earlier than waiting to save 20%.
Using Equity from an Existing Property
If you already own a home or another investment property, you may be able to use the equity in that property as a deposit for your next purchase—without needing to save additional cash.
Equity is the difference between your property’s current market value and your outstanding loan balance. Lenders will typically allow you to access up to 80% of your property’s value (some up to 90% with LMI).
Example: Your home is valued at $800,000 and your loan balance is $400,000. Your total equity is $400,000, and your usable equity (at 80% LVR) is $240,000. That $240,000 could be used as a deposit for one or even multiple investment properties.
Equity recycling is one of the most powerful strategies for building a property portfolio. For a deeper dive into this approach, see our guide on how to build a property portfolio.
Don’t Forget Stamp Duty and Upfront Costs
Your deposit is not the only cash you need. Stamp duty (called transfer duty in some states) is a significant additional cost that many first-time investors underestimate. Stamp duty varies by state and property value, but on a $600,000 investment property, expect to pay approximately:
- NSW: ~$22,000
- VIC: ~$31,000
- QLD: ~$14,500
- WA: ~$18,000
- SA: ~$24,000
Note: Investment properties do not qualify for first home buyer stamp duty concessions in any state. You pay full stamp duty from dollar one.
Other upfront costs to budget for include:
- Conveyancing/solicitor fees: $1,500–$3,000
- Building and pest inspection: $500–$800
- Strata report (if applicable): $200–$400
- Loan application fees: $0–$600
- Buyer’s agent fee (if applicable): $8,000–$20,000
A realistic budget for a $600,000 investment property purchase in most states is $140,000–$160,000 total (deposit plus all upfront costs) if you’re targeting a 20% deposit.
Deposit Strategies for Faster Entry
If saving a full 20% deposit feels out of reach, here are legitimate strategies to accelerate your timeline:
1. Salary Sacrifice into an Offset Account
If your employer allows salary sacrificing into a mortgage offset account, you can accelerate your savings while reducing your taxable income. This won’t work for everyone, but it’s worth exploring with your accountant.
2. The First Home Super Saver Scheme (FHSSS)
If you’re buying your first property (even if it’s an investment you plan to live in initially), the FHSSS allows you to salary sacrifice up to $15,000 per year into your super fund, then withdraw those contributions (plus deemed earnings) for a deposit. The maximum withdrawable amount is $50,000. This is particularly effective for those in higher tax brackets. For a complete breakdown of first-home strategies, see our first home buyer guide.
3. Guarantor Loans
Some lenders allow a family member (usually a parent) to use equity in their property as security for your loan, effectively eliminating the need for a cash deposit. This is more commonly used for owner-occupied purchases but can sometimes be arranged for investment loans.
4. Start in a Lower Price Market
If your target market requires a deposit that’s years away, consider starting in a more affordable market. A $350,000 property in a regional centre or a capital city with lower median prices requires a 20% deposit of just $70,000—a much more achievable target. Once that property grows in value, you can use the equity to fund your next purchase in your preferred market.
Tax Implications of Your Deposit Decision
Your deposit size affects your tax position as an investor. A larger loan (smaller deposit) means higher interest repayments, which are tax-deductible against your rental income. This is the foundation of negative gearing, where your investment property runs at a loss that reduces your taxable income from other sources.
However, maximising your tax deduction by minimising your deposit is not always the best strategy. The interest you save by having a lower loan balance will almost always exceed the tax benefit of a larger deduction. Don’t borrow more than you need just for a bigger tax write-off.
Talk to Us About Your Investment Strategy
At Strategic Buys, we work with investors at every stage—from those saving for their first deposit to those recycling equity across a multi-property portfolio. We can help you identify the right market, the right property, and the right entry strategy for your financial position.
Book a free strategy session to discuss your next investment →
