How to get your deposit ready for investing in property
Getting your deposit together is the first big step towards investing in property. There are several ways to make this happen, and the right choice depends on your financial situation and goals. Here are four common strategies:
Using equity
If you own a home, you may use the equity you’ve built to fund your deposit. For example, if your home is worth $800,000 and you owe $400,000, you have $400,000 in equity. Only part of this is usable though. Most lenders allow borrowing up to 80% of your property’s value without Lenders Mortgage Insurance. Using equity can fast-track your investment but know the risks.
Using direct savings
Building a savings plan is the most straightforward method. Start by setting a clear target for your deposit and work out how much you can save each month. Cutting back on non-essential spending and automating transfers into a dedicated account can help you stay on track. This method takes time, but it avoids extra borrowing and interest costs.
Using a self-managed super fund (SMSF)
Some investors choose to use their superannuation to buy property through an SMSF. This can be a powerful strategy, but it comes with strict rules and potential risks. You’ll need to follow compliance requirements and understand that your retirement savings are on the line.
Using inheritance or windfalls
If you receive an inheritance or a financial windfall, allocating part of it to your deposit can be a smart move. However, it’s important to balance this with other financial priorities, such as paying off high-interest debt or building an emergency fund, in case you haven’t already.
Preparing to finance your investment property
Once your deposit is sorted, the next step is making sure you’re ready to borrow. Lenders look for signs that you can manage repayments comfortably, so building a strong financial profile is essential. Plus, getting your finances in order now will make the process smoother and give you more confidence when negotiating with lenders.
Keep your finances stable
Banks prefer borrowers with steady employment and consistent income. If you’re thinking about changing jobs or moving house, it may be worth trying to hold off until after your loan is approved. Stability shows lenders that you’re reliable and less likely to miss repayments.
Pay your debts on time
Your creditworthiness matters. Late payments on credit cards or personal loans can hurt your chances of getting approved. Make sure you pay bills on time and try to avoid unnecessary credit applications. A clean record can help you secure better interest rates and terms.
Budget for all costs
Lenders will check your spending habits to see if you can handle loan repayments alongside everyday expenses. Review your budget, cut back on non-essential costs and factor in upfront and ongoing costs. This improves your borrowing power and makes it easier to manage your investment.
Reduce consumer debt
High credit card balances or personal loans can lower your borrowing capacity. Reducing these debts before applying for an investment loan may be one of the simplest ways to boost your chances.
How smart property investors pick the right property
Once your finances are in order, the next challenge is choosing the right property. This decision can shape your long-term returns, so it pays to do your homework.
Location research
Location is one of the biggest factors in property investment. Areas with strong job markets, good schools, and transport links tend to attract tenants and hold value over time. Research suburbs with planned infrastructure projects or population growth, as these can boost demand and rental income.
Rental yield and growth potential
Rental yield is the percentage of income you earn from rent compared to the property’s value. A higher yield means better cash flow, but don’t ignore long-term capital growth. Properties in high-demand areas may have lower yields but stronger capital gains over time. Balancing these two factors is key.
Understand market trends
Look at vacancy rates, average rents, and recent sales in the area. This helps you avoid buying in a market that is oversupplied or declining. Tools like property reports can give you a clear picture before you commit. Our guide about buying an investment property also provides more insight.
Get expert help with investment property finance
Getting your finances ready and choosing the right property are big steps, but you don’t have to do it alone. Speaking with a lending specialist can help you understand your borrowing options and find a loan that suits your goals. They can also guide you through the application process and answer questions about interest rates, repayments, and loan features.
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The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial and taxation advice before acting on any information in this article.
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