How to invest with a low deposit: Mozo's Steve Jovcevski

GUEST OBSERVER

With interest rates at record lows, investors have flooded the market wanting to take advantage of lower rates, particularly those who can’t afford to buy to live, are buying cheaper properties as an investment. 

But what if you don’t have a hefty deposit?

Most banks need borrowers to have at least a 10% deposit for the property, which means your deposit could be as low as $27,000 if you want to buy an apartment in Hobart or as high as $85,000 if you want to buy a house in Sydney (based on latest median property prices from CoreLogic RPData). 

My advice is that it’s never too early to start thinking about investing and the first thing to do is start saving – you don’t need an investment plan – just get saving. Not only is it building up your deposit but it’s a good look when you go to apply for a loan. Banks like to see a solid history of saving as well as paying bills on time, etc. 

If you want a more affordable investment property, perhaps it’s best to look outside your own capital city or in outlying suburbs.  Research suburbs which are under development or new land allocations where good deals could be found for newly built homes. 

Apartments are often the most affordable way to get onto the property ladder. Plus, you can always progress to investing in a free-standing house, down the track.

Investing in a suburb with good transport links and infrastructure, schools and shopping facilities will always be an advantage – even if it’s a new suburb. Look for suburbs next to those experiencing a boom, that’s where the bargains will still be found.  

Investors often think they’ll get guaranteed good returns, but it’s not without risks. Investing can be a drain on your finances when you have to maintain the property, take out landlord’s insurance and pay capital gains tax, but it has its benefits too. 

Downsides of having a small deposit:

• Banks can be a lot tougher with their lending requirements if you only have a small deposit 
• Unless you have a 20% deposit, you’ll need to pay mortgage insurance - which can be in the tens of thousands of dollars 
• It can make it harder to refinance down the track - you may be stuck with your loan for longer

STEVE JOVCEVSKI is a property investment and home loan negotiator at Mozo.com.au.