Deposit Amount Ideas/Scenarios

Is it a good idea to add more deposit into a property say 25% if you can't borrow the required amount?

Also, would it be a good idea to put a 35% deposit down on a property so the loan is less in repayments?

Or do I keep to the traditional 20% deposit and use the additional savings as a buffer?

This question is quite subjective so I am more interested gaining some opinions from experienced investors as I am looking at purchasing my first property as an investment.

 

You are asking two different questions.

is it a good idea to put in say 30% for a 1m property if the bank will only lend 700k? Possibly. People do it often with upgrades. If fhb, you might want to talk to a good broker first.

is it good to put in 300k for a 1m property even tho bank will lend 800k? Or 900k? Lmi kicks in over 80%, usually. Generally you should keep as much buffer as possible, unless you cant handle having cash lying around.

generally you increase gains and losses with more leverage, and generally more liquidity is better than less. Generally.

 

Generally you'd borrow 80% and park the remaining cash in the offset account.

 

1: higher deposit. Yes I think it is a good idea as it enables you to buy the property or perhaps move to a different bank margin band (which can have a lower cost)
2: buffer. Yes it is very important to have a buffer. There are various ways to do this .

Personally I was told by the bank by reducing the lvr I moved from band 11 to band 10.
The improvement on margin was .2% on the the loans and unutilised facility.

 

What are your goals? Minimise repayments, maximise borrowing?

Is it for your home (security is an important factor) or investment where you want to reduce your taxable income through offsetting expenses?

There is no single answer as it's dependent upon your situation.

 

Someone might be able to wrap my head around this issue.
We drew equity on PPOR 175K thinking purchase price would be around 700K for investment. The 175 K loan is variable with CBA Interest only and cash is now sitting in offset account linked to that loan.

After talking to broker while we could get loan for 700 K interest rate would be significantly higher over 4.5% due to serviceability. So we decided to lower down purchase price of investment to 600k as we can get lover IO loan around 3% mark.

we have an option to purchase house for 545k plus stamp duty and solicitor fees.
What to do
1. Use all of 175 k for the investment purchase where borrowing from bank B will be less than 80%.
2. How to use this money to pay 20% deposit and leave some buffer.

 

Simple.
Why don't you just use 20% deposit + costs from the $175K you have, and borrow 80% LVR with Bank B.
This will leave you with some cash buffer like you want.

 

If you want to a) pay it off sooner b) want to lower your repayments or c) want to avoid/minimise LMI, then generally better to put down a bigger deposit.

But given that this is for an investment property - if negative gearing is something you're looking at, you might want to minimise your deposit so you can potentially reduce your taxable income. If you're thinking of further portfolio growth or have other plans in the pipeline, having a solid buffer could help you with the next step.

In short, it really depends on your strategy and goals.

 

I thought that I am not able to do that from tax perspective.
All of 175k is tied up in one loan with offset account for that loan .
If I can than great that would leave very good buffer.

 

You can do it yes, it's not complicated.

 

Hi Lindsay, can you please elaborate if possible. If 175K is currently sitting in an offset account linked to the investment loan and I only use let's say 150K for deposit, stamp duty, solicitor, pest inspection. How do I deal with the 25K left in that offset account? Leave it or split the loan, genuinely confused .

 

Depends what you want to do with the $25K, you can just leave it in the offset and keep it for any future maintenance etc on the property, invest it in another asset class, use it towards another investment property purchase, put it back on the loan, split the loan (depending on lender) etc.

 

Thank you Lindsay, I would not mind having a buffer in case I need to do maintenance to the property. I was just scared if not all money is used at once that I might have some tax issues I later.