Most investment property buyers need a deposit of 20 per cent of the price to avoid lenders mortgage insurance, plus purchase costs, which in NSW are larger for investors because there is no first home buyer duty relief. Some lenders go to 90 per cent of the value with LMI added.
Existing home owners usually use the equity in their home as the deposit instead of cash. On an $800,000 investment purchase in NSW, a 20 per cent deposit is $160,000 and transfer duty is $30,187 at current rates.
What deposit do lenders want for an investment loan?
| Deposit | Loan to value | What to expect |
|---|---|---|
| 20 per cent or more | 80 per cent or less | No LMI, widest lender choice, sharpest pricing |
| 10 to 20 per cent | 80 to 90 per cent | LMI payable, fewer lenders, closer scrutiny of rent and serviceability |
| Under 10 per cent | Over 90 per cent | Rarely available for investment purchases |
The government schemes that let first home buyers in with 5 per cent do not apply to investment property: they require you to live in the home. The LMI calculator shows what the premium costs at each deposit level.
What does an $800,000 investment purchase need in cash or equity?
| Item | Amount |
|---|---|
| Deposit, 20 per cent | $160,000 |
| Transfer duty (general rates, 2026-27) | $30,187 |
| Conveyancing, inspections, registration | Typically a few thousand dollars |
| Loan amount | $640,000 |
So the investor needs roughly $192,000 to $195,000 from savings or equity before any buffer. The stamp duty calculator gives the duty at any price and the buying cost calculator adds the rest.
Can I use equity instead of a cash deposit?
Yes, and for existing owners it is the usual route. With a home worth $1,100,000 and $500,000 owing, a lender will typically lend up to 80 per cent of its value, $880,000, so up to $380,000 of equity is usable before LMI, if your income supports the extra debt. It is drawn as a separate loan for the deposit and costs, with the investment loan on top.
How it is structured matters: a separate loan for the deposit, rather than one loan secured over both properties, keeps your home out of the investment’s security and keeps the tax records clean. The guide to using equity and the home equity calculator explain the mechanics.
How do lenders assess an investment loan?
- Rental income is shaded. Lenders count a portion of the expected rent, commonly around 70 to 80 per cent, to allow for vacancy and costs. The rental yield calculator shows the return.
- Every debt is tested at a buffered rate. The existing home loan, the new investment loan and any other commitments are all assessed at the actual rate plus a buffer.
- Interest-only terms are common for investors but are assessed over the shorter principal and interest period that follows, which reduces borrowing power.
The investment loans guide covers structure, and the borrowing power calculator gives a first figure.
What else should an investor budget for?
- A cash buffer for vacancies, repairs and rate changes.
- Land tax, which applies to investment land above the NSW threshold.
- Strata levies for units and townhouses.
- The 2026 tax changes. For residential property bought after 7:30pm AEST on 12 May 2026, negative gearing is limited to new builds from 1 July 2027, and capital gains on gains accruing after that date move to indexation with a minimum tax. The negative gearing guide explains who is affected; your accountant should model it for your purchase.
Does paying LMI make sense on an investment?
Sometimes. A 10 per cent deposit means paying lenders mortgage insurance, usually added to the loan, and whether that beats waiting to save 20 per cent depends on what prices and rents do while you wait. On an investment loan, LMI is generally a borrowing expense deducted over five years, or the loan term if shorter; confirm that with your accountant. The LMI calculator estimates the premium, the LMI guide explains it, and the waived LMI guide lists the professionals who can avoid it.
Three ways to fund the same purchase
| Route | Cash or equity needed | Loan | Lenders mortgage insurance |
|---|---|---|---|
| 20 per cent cash deposit | $160,000 plus duty of $30,187 and costs | $640,000 | None |
| 10 per cent cash deposit | $80,000 plus duty and costs | $720,000 | Payable, often added to the loan |
| Equity from your home | An equity loan covering 20 per cent plus duty and costs | $640,000 on the new property | None, if both loans stay under 80 per cent |
The LMI calculator estimates the premium at 10 per cent, and the home equity calculator shows how much usable equity you have.
Interest-only or principal and interest?
On a $640,000 investment loan at the 6 per cent example rate, interest-only repayments are about $3,200 a month and principal and interest about $3,837 over 30 years. Investment rates are usually a little higher than owner-occupier rates, so treat these as a floor.
- Interest-only keeps repayments lower and the deductible debt intact, which suits investors who also have a home loan to pay down first. The period is limited, often to five years, and the repayment rises when it ends.
- Principal and interest builds equity and usually carries a lower rate, at a higher monthly cost.
The interest-only guide sets out the trade-off, and your accountant can say which suits your tax position.
How the rent changes the numbers
At $700 a week the property earns about $3,033 a month. Most lenders count around 80 per cent of that, about $2,427, towards your borrowing power, leaving room for vacancies and costs. The difference between the rent and the repayment is the holding cost you fund each month, before tax. The rental yield calculator runs it for any property.
Your second investment property: what changes
Each new loan is assessed with all your existing loans included, so the second property is usually harder than the first. A few things help:
- Keep each property’s loan separate. Securing one loan against two properties, known as cross-collateralisation, makes later sales and refinances harder.
- Know which equity you are using. An equity loan against your home for the deposit, with the new loan secured only by the new property, keeps the structure clean.
- Watch serviceability. Lenders count only part of each property’s rent and test every loan at a buffered rate, so the gap between rent and repayments compounds with each purchase.
- Order matters. Some lenders are more generous with investors than others, and the order you borrow in can decide whether the next loan is possible.
The using equity to buy guide covers how equity loans are set up.
Questions people ask
Can I buy an investment property with a 10 per cent deposit?
Yes, with some lenders, if you pay lenders mortgage insurance and your income supports the loan. Expect fewer lender options and closer checks than at 20 per cent.
Can I use the 5% Deposit Scheme for an investment property?
No. The scheme is for owner-occupiers buying a home to live in. Investment purchases need a conventional deposit or equity.
Do investors pay stamp duty in NSW?
Yes, at general rates, with no first home buyer exemption. On an $800,000 purchase that is $30,187 at 2026-27 rates. Foreign purchasers pay a surcharge on top.
Is it better to use savings or equity for the deposit?
Usually equity, for existing owners: it keeps savings available as a buffer and, structured properly, keeps the borrowing tied to the investment for tax purposes. Ask your accountant how the structure affects deductibility.
Does the rent count towards my borrowing power?
Yes, partly. Lenders count a share of the expected rent, commonly around 70 to 80 per cent, and test all your debts at a buffered rate.
Charles Touma structures investment loans for Sydney investors across a panel of more than 70 lenders, including how equity is released and which lender should hold which loan. A free 30-minute call works out the deposit and costs for your next purchase. General information only, not credit, tax or financial advice. Sources: Revenue NSW general transfer duty rates for 2026-27 and the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 as summarised by the ATO, checked 14 October 2026.
General information only, not credit, legal or tax advice. Your situation is assessed properly before any recommendation. Government scheme details change; figures are current at the time of writing.
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