Simple hacks to fund your investment property deposit

What size deposit do you actually need for an investment property?

Most lenders want at least 20% of the purchase price as a deposit to avoid Lenders Mortgage Insurance on an investment loan. If you're borrowing with less than 20%, you'll pay LMI on top of your loan amount, which can add thousands to your upfront costs and reduce how much you can borrow overall.

Consider a Geelong investor looking at a property around the current median in suburbs like Belmont or Grovedale. A 20% deposit means finding close to six figures in accessible funds. That's a lot to pull together from savings alone, which is why most investors we work with are funding their deposit through equity release, not a bank account.

How equity release works when you already own property

If you own a home in Geelong and it's increased in value, you can borrow against that equity to fund your investment property deposit. Lenders will typically let you access up to 80% of your home's current value, minus what you still owe on it.

In a scenario like this, your home is valued at $750,000 and you owe $400,000. The lender will lend you up to 80% of $750,000, which is $600,000. Subtract your existing $400,000 loan and you have $200,000 in usable equity. That's enough to cover a 20% deposit on a property valued around $800,000 and still leave room for stamp duty and other costs.

The advantage of using equity release is that you're not waiting years to save. You're turning the growth in your existing property into the deposit for your next one, which accelerates your timeline and keeps your cash reserves intact for other expenses or emergencies.

What happens if you don't have 20% to put down

You can still get an investment loan with a deposit below 20%, but you'll be paying LMI and your borrowing capacity will be reduced. LMI protects the lender if you default, and the cost increases the smaller your deposit gets. It's a one-off premium that's usually added to your loan amount, so you're effectively borrowing more to cover it.

Some lenders will accept a 10% deposit for investment property, and a few will go as low as 5% in certain circumstances. But at those levels, LMI becomes a significant cost and your interest rate may be higher. You'll also need to show strong rental income from the property and solid serviceability across your other debts.

How lenders assess rental income when calculating your borrowing capacity

Lenders don't count 100% of your expected rental income when they work out how much you can borrow. Most will use between 70% and 80% of the rent to account for vacancy periods, maintenance, and body corporate fees if applicable. This is sometimes called a rental income discount or shading.

If the property you're buying is expected to generate $500 per week in rent, the lender might only count $400 of that when assessing your loan application. They'll also factor in your other income, existing debts, and living expenses to determine whether you can service the new loan comfortably.

This is one reason why having a larger deposit helps. A lower loan to value ratio means smaller repayments, which makes it easier to meet the lender's serviceability tests even after the rental income is shaded.

Interest only versus principal and interest on an investment loan

Many property investors choose interest only repayments for the first few years of an investment loan. You're only paying the interest portion each month, which keeps your repayments lower and maximises your cash flow. Any rental income you receive goes further, and you can claim the full interest cost as a tax deduction.

Principal and interest repayments mean you're paying down the loan balance over time, which reduces your debt but also increases your monthly repayment. Some investors prefer this if they want to build equity faster or if they're planning to sell the property before retirement and want the loan paid off by then.

There's no universal right answer. It depends on your property investment strategy, your cash flow, and how long you plan to hold the property. We regularly see investors start with interest only and then switch to principal and interest once their rental income increases or they've built enough equity to feel comfortable.

How the 2027 tax changes affect deposits and borrowing strategy

From 1 July 2027, if you buy an established residential property after 12 May 2026, you won't be able to claim negative gearing losses against your wage income. Those losses can only offset rental income or capital gains from other residential properties. The 50% capital gains tax discount is also being replaced with an inflation-based discount and a minimum 30% tax on gains.

If you're planning to buy an investment property in Geelong and you want the full negative gearing benefits, you need to have settled before these rules take effect. That means getting your deposit sorted now, not in twelve months.

New builds are treated differently under the new rules. Investors buying newly constructed properties will be able to choose between the old 50% CGT discount or the new arrangements, whichever works out better. If you're weighing up an established property versus a new build, the tax treatment from mid-2027 onwards is now part of that calculation.

What costs need to be covered beyond the deposit itself

Your deposit is the largest single amount you'll need upfront, but it's not the only cost. Stamp duty in Victoria varies depending on the property price, and unlike owner-occupiers, investors don't get access to stamp duty concessions. You'll also need to budget for conveyancing, building and pest inspections, and lender fees.

If you're borrowing more than 80% of the property value, add LMI to that list. If the property has a body corporate, you may need to pay the first quarter's fees upfront at settlement. These costs can add up to several thousand dollars on top of your deposit, so make sure your equity release or savings cover the full amount.

Most lenders will let you borrow some of these costs as part of your loan, but that increases your loan to value ratio and may push you into LMI territory if you're close to the 80% threshold.

How to structure your deposit and loan to keep your options open later

If you're using equity from your home to fund the deposit, you'll likely be setting up two loans: one secured against your home and one secured against the new investment property. Keeping them separate gives you more flexibility down the track if you want to sell one property, refinance, or access more equity later.

Some investors use a line of credit or offset account linked to their home loan to hold the deposit funds until settlement. This keeps the money accessible and reduces the interest you're paying on your home loan in the meantime. Once you settle on the investment property, the funds are drawn down and the investment loan begins.

If you're planning to build a property investment portfolio over time, talk to a broker about how your loan structure now will affect your borrowing capacity for the next property. Poor structuring early on can limit your options later, even if your equity position looks strong on paper.

Call one of our team or book an appointment at a time that works for you to talk through your deposit options and how much you can borrow for your next investment property in Geelong.

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