How To Buy An Investment Property With Zero Deposit
With house prices increasing, people's equity in their own home is also increasing. If you have sufficient equity in your own home then did you know you could buy an investment property with zero deposit? Here is how it works.
We start by looking at how much equity you have in your home. Equity is simply the difference between how much your house is worth and how much you owe on your current mortgage. If there is sufficient of equity then we use your current home as security to borrow 100% of the purchase price of a new investment property without having to pay a cent in Lender's Mortgage Insurance (LMI).
What is sufficient equity? The loan-to-value (LVR) of the combined properties needs to stay below 80%.
Let's say your home is worth $1m and your remaining home loan is $600,000. This means you have $400,000 equity and an LVR of 60%. Now, we can your home as security to borrow $500,000 to purchase a $470,000 investment property and have $30,000 spare to cover stamp duty and legals. Your combined loans will then be $1.1m and your combined value of properties will be $1.47m. The overall LVR will be 75% which means you have purchased an investment property with zero deposit and have avoided paying any LMI.
If you have even more equity then you can buy more than a single property.
Most lenders will support this and the interest on the investment loan portion should be tax deductible if it is structured correctly.
If you are wanting to get more into the property market and build your investment portfolio then this is a great way to do it without consuming any spare cash you may have.
Reach out to us and let us do a free valuation on your home and run the numbers for you to let you know what is possible.