Hi Guys
I have heard allot of people talk about the amount of deposit they think is best for purchasing an investment propertysome say 10%.
others say 20%.
I have also heard people talk about no money down at all.My question is what is the ideal deposit amount to use for a +cf investor?
I know that using %10 will attract mortgage insurance but is this problem?
And if so why?What advantage’s if any, are there in using a 20% deposit?
Thank you [strum][whistle]
Hi Native Metal,
The key advantage of using a 20% deposit is that you do not have to pay mortgage insurance which is adds an extra 1-2% to purchasing, stamp duty and mortgage costs.
The disadvantage is that you use up more of your available equity with each purchase – whereas a 10% (or less) deposit maximises your leveraging capacity.
Consider the following – you have $100K in equity and find a number of properties all worth $100K.
To demonstrate the leveraging capacity (and ignoring purchasing costs to keep the maths simple for me) of 10% verse 20% deposits.
If you were to put 20% deposits in you would be able to buy 5 properties.
If on the other hand you were prepared to use a 10% deposit each time you could buy 10 of the same properties.
Obviously a very simplistic example and there are other issues to be considered; LMI availabity, purchasing costs, your mindset, serviceability issues and so on. BUT Hopefully this has demonstrated an advantage of using a 10% deposit against the use of a 20% deposit.
By way of an example we have used a bit of both, initially 20%, then 10% and now back to 20% as we have heaps of equity up our sleeves.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
I think 5% is ideal… But in the end it comes down to your comfort level.
Rgds.
Lucifer_auHi Lucifer,
Using 5% extends your leveraging capcity even further.
At 5% you could (simplistically) buy 20 properties – LMI may be a problem depending on where you bought and how much they were each worth.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping. PM welcome.
Lucifer,
There is no ideal level. It all depends on your situation, strategy & what you’re buying.
The less you pay the further your money goes…but the more highly leveraqed you are & at greater risk of external factors such as interest rate changes & changes in government legislation.
Cheers,
Aceyducey
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