Hi Everyone,
I’m new to this forum so i’ve never posted here before but i have a question.
Sorry if this sounds ridiculous but is it recommended that you buy a first investment property with a deposit or can it be done without one?
We have our own home that we are paying off and have a fair bit of equity and we were told that we could buy without a deposit but we weren’t sure if it’s a good idea.
Has anyone done this and did it work for you?
Thanks
Andrea
Hi Andrea, welcome to the forum.
You can buy an I.P without a cash deposit. You can use equity in your PPoR as the deposit, but it is still a loan.
Doing it this way means you are using 100% finance to pay for the I.P (actually it is more if you use the equity to also fund the purchase costs).The plus is that you don’t need any cash to start investing; the minus is that because there is such a large component of the purchase which is financed by loans, it is harder to obtain a positive cashflow from the property due to the higher interest payments.
Some people don’t mind this and are happy to have a neg cashflow. However, there is a limit to how many of these properties you can buy.I have done this with every I.P property I own, and I now have a mixture of pos and neg cashflow properties; the result is now a pos cashflow.
You will probably need to restructure your home loan to set up the right finance structure to begin and continue your I.P investing long term. Talk to a property-wise Mortgage Broker who has property investing experience to help you begin. There are a few great people on this forum who can. I am sure a few of them will come forward.
Read lots of books on Property Investing, follow this and other forums to keep learning.
Cheers,
Marc.
[email protected]“we get sent lemons; it’s up to us to make lemonade”
Some lenders also offer 100% finance for the purchase of investment properties – eg. St George.
Terryw
Discover Home Loans
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Send an email to get my newsletter.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks for the replies.
Does that mean that it is possible to do well with a mix of both negative and positive cashflow properties?
Andrea
i have just purchased my first ip with no deposit. i was told that i needed a dep bond certificate, which was fine, the bank organises this.
but when i went in yesterday to sign for the certificate i found out that it cost me $200.00 for this. I could of paid a lesser dep than 10 % and paid a smaller fee. this was never explained until i had no choice but pay the fee….I have learnt, ask more questions, do not assume they have told you everything..
Smiley[smiling]
i have just purchased my first ip with no deposit. i was told that i needed a dep bond certificate, which was fine, the bank organises this.
but when i went in yesterday to sign for the certificate i found out that it cost me $200.00 for this. I could of paid a lesser dep than 10 % and paid a smaller fee. this was never explained until i had no choice but pay the fee….I have learnt, ask more questions, do not assume they have told you everything..
Smiley[smiling]
Andrea
As has been mentioned you do not need a deposit to purchase an investment property but like anything if you don’t have one there is always a catch.
Either the loan is mortgage insured and you need to come up with the LMI premium or the lender self insures the loan and you pay a higher application fee.
If you have equity in your own property you maybe able to access this equity and use this combined with a new loan on the IP to make up the 100% +.
Remember before you make the jump into an IP purchase make sure you have your Trust structure in place or similar as this will need to be dated prior to the contract date. You MB should be able to assist you with all of this if he is IP proficient.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner. Ph: 07 3720 1888
[email protected]
Looking for life cover – We Guarantee to beat any quote you have in writing.Richard Taylor | Australia's leading private lender
Agree with all the above comments.
Elaborating on Richards comment. Talk to a good accountant as well as to a good MB.
And do not forget that 100% loan does not mean you do not need any money. You still have to come up with the closing costs of about 5-6%.
Dear Andrea,
As has been said, you can get 100% loans for investment properties. This implies that you do not need a deposit but as Bridge says you would still need monies for the closing costs:
Property Stamp Duty
Possibly Loan Stamp Duty
Your Legal Costs
Lender’s application fees
Plus the fees for a deposit bond if you used one.You could as you’ve suggested use the equity in your own property as security for the investment property as you’ve suggested. Many people do. However, if for any reason you defaulted on the investment property, and the lender forced its sale, if they could not recover their costs they could come after your own property.
Another option would be to take out a Line of Credit on your existing property. You ask your lender to provide you with more credit than you need to cover the mortgage on your existing property. You then use this credit, which naturally you’d need to make repayments on as the deposit for the investment property. Thereby keeping the 2 properties seperate. However, Line of Credits often come with higher interest rates.
A lender/ mortgage broker should be able to provide further advice.
Good luck
Neil and Kate Gorman
Mortgage Broker
Mortgage Choice – there’s only one choice
tel: 0430 500 848
e-mail: [email protected]
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