For investors with an established real estate investment portfolio, the media headlines of skyrocketing property values ​​across the country may have added a bit of a spring to their step or even evoked a small smile. victorious (or more).

But for those just trying to get their foot in the proverbial door of the real estate market, these staggering numbers are no laughing matter.

Indeed, saving a down payment for an investment property in today’s market is proving to be the biggest hurdle for most Australians looking to enter the property market with a property investment.

That said, it’s no wonder that there are a growing number of people looking for a home loan with little or no down payment in order to get into the home ownership ladder.

But just because you don’t have enough money doesn’t mean you can’t invest in real estate.

So can you buy an investment property with no down payment in Australia? The answer is yes. Believe it or not, you can actually invest in a property with little or no money if you are reasonable and have done your due diligence researching all of your possible options.

Having little money should not deter you from investing in real estate. However, you’ll need to be smart and consider a few key ideas throughout the process.

Before discussing the different options available, it should be emphasized that some options may only be viable for specific cases and will not apply to everyone. However, some of these options (which may be close to your current situation) can guide you in your investment strategy.

That said, let’s take a closer look at how you can buy an investment property with little or no down payment.

How can I buy an apartment building without a deposit?

There are several ways to buy an investment property without a large initial deposit in Australia, but the process can be much more complicated than the usual mortgage and investors may need to put in more effort to get the best deal.

Here are the different ways to do it:

  • Use the existing equity in your property

If you have existing equity in your current home or other investment property, you can borrow against it and use those funds to fund a new deposit, enabling you to purchase a new property.

It’s the perfect option for Australians who already own a property or home, but are looking to diversify and grow their portfolio. If you have enough equity in your current property, you won’t need to save for a down payment.

Another method to use is cash-in refinancing. If you have around 20% equity in the existing property, you can take out a new mortgage for more than you owe. Then you can use the extra money to buy another property or as a down payment on a property.

As a bonus, your capital will also grow faster with more properties, which equates to greater capital growth. Think of it as a snowball effect – the more equity you can access, the easier it is to expand your real estate portfolio.

However, it is important to note that this common strategy – used even by those with large scale wallets – also creates a higher level of risk.

As real estate investors grow their portfolios using existing equity so they don’t have to dip into their savings, they also run a higher risk of loan default or non-repayment.

But what if you don’t have an existing property with equity you can use? How can you invest without coughing up a big deposit?

For people in this situation, a viable option is to obtain a guarantor loan from lenders. Recently, banks have started offering 100% guaranteed loans if a close acquaintance or family member is willing to guarantee a percentage of the debt.

So how does it work? First, you will need a guarantor (usually a family member) who has his own property. Their real estate will serve as collateral for your lender. Since the bank has additional collateral, it is willing to lend the full amount required.

Under this option, you (the borrower) will make your payments like any other home loan, but the guarantor is held responsible if you do not make your payments.

Nowadays, most banks and credit institutions allow the guarantor to cover a certain percentage of the loan.

Ideally, the 80% LVR (loan to appraisal ratio) is yours, while the remaining 20% ​​is secured in cash or through the guarantor loan.

This means that in certain bank-approved cases, you can use a guarantor to cover the percentage you don’t have.

Depending on the terms and conditions, you can also withdraw the guarantor once you have obtained sufficient funds or equity to cover the debt. This way, your guarantor will only be involved in the mortgage process for a shorter period of time.

Moving on to less traditional ways of buying an investment property with no down payment, we look at seller financing.

Seller financing refers to an agreement where the seller handles the mortgage process instead of a financial institution. In simpler terms, this involves taking out a loan from the owner of the property rather than a bank.

By taking it directly with the owner, you don’t need to save a deposit. All you need to do is make an agreement with the landlord that you will pay the full price of the property with interest on an ongoing basis. This removes the need to have funds in advance for a deposit.

Let’s look at an example where this option might work. Let’s say you are currently renting a single family home. After years of renting, you might ask your landlord if they would be interested in selling the property to you.

If you paid your rent on time and you maintained a good business relationship with the landlord, you could eventually enter into a private agreement with the landlord. After entering into an agreement, a real estate attorney may draft a promissory note, used in place of a mortgage, which lists the terms of the agreement.

If you’re lucky, you might not need to pay a penny to secure the property. But in most cases, you’ll probably have to pay the landlord a deposit of around 5-10% of the purchase price just to get your landlord to sign on the dotted line.

Still, the down payment for these types of deals is usually lower than what most financial institutions can offer.

The seller will also likely expect a payment for the property down the line (eg five years later), but the payments will be amortized, usually at 30 years. You would then get a mortgage to pay off the balance.

Sounds like a dream deal, right? But before you get too excited about this option, we need to pass on the disclaimers. Firstly, while seller financing is legal in Australia, it is almost rare for owners to choose to go this route when selling their property.

Also, keep in mind that sellers can charge high interest rates, since there is no cap or authority governing the loan. Even if it’s risky, it offers a chance to buy a property without a deposit, or when the bank will not approve an investment loan. If you are able to find where it is on the table, it could work in your favor.

We leave no stone unturned as we also review the real estate options process. However, note that this process is harder to use and more complicated than seller financing.

The general notion of this option is that you approach the owner of a property with an amount that you are willing to pay for the option to purchase the property.

In this scenario, you would have an agreement to buy a property at a lower price if the value of the property increases. You also have the option of getting a full loan for the purchase price due to a higher property valuation.

As mentioned, this is more complicated than a standard property purchase and you will need to find a lender who is fully conversant with these agreements and who is willing to base the loan on the appraisal and not the purchase price. .

But if you’re willing to go all the way and choose this option, be sure to speak with a licensed mortgage broker to fully understand what you’re getting into. It is also advisable to research non-traditional lenders who may be more open to this option.

Finally, consider forming a partnership with someone who has the down payment for the property and is willing to pay the initial bill in exchange for your legwork. You can think of this as getting a financier.

Although this option only provides you with a smaller percentage of ownership of the property, it is a start and a good way to become a homeowner without saving for a deposit.

Preferably, you can seek a partnership with someone who is rich in money but short on time and wants to invest in real estate.

DDon’t discredit the time and effort that goes into buying a property – there’s a lot of research that goes into finding the right investment.

If you have good negotiation skills, you can also convince them to pay the deposit in exchange for your work in arranging the purchase.

Of course, you will have to take into account the legal requirements in this regard. It is advisable to seek the help of a professional legal adviser, so it is stated how profits and losses will be divided.

Disclaimer: The information provided should be considered general information and is not a substitute for independent investment or finance advice, which we strongly recommend.

Smart Property Investment provides Australian property investors with much-needed information, strategies and real-world experiences to help guide successful buying and selling decisions in the Australian property market.

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Interest rate

The interest rate is the percentage of the principal amount charged by a lender for the use of the loaned amount.

Interest rate

The interest rate is the percentage of the principal amount charged by a lender for the use of the loaned amount.

Real estate portfolio

A real estate portfolio is defined as a collection of real estate investments held by an individual, a group or a company.

Purchase price

The purchase price is the amount of money an investor or buyer pays for an asset, property or security, which becomes the basis for the loss or gain when the investment is sold.

How to buy an investment property with no down payment in Australia

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Last update: May 05, 2022

Posted: May 06, 2022