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Are you dreaming of becoming a property investor but daunted by the prospect of saving up a huge deposit? The good news is that there are ways to invest in property without an upfront deposit.
In this article, we'll delve into three strategies that can help you take your first steps into the world of property investment.
Some of the no-deposit property buying strategies available in Australia include:
A family pledge or guarantor loan is a way for someone without a substantial deposit to buy property. It involves a primary borrower who applies for the mortgage and a guarantor, often a family member, willing to guarantee part of the loan.
The guarantor can use their home's equity to guarantee part of their family member’s loan. This reduces the lender's risk, allowing the borrower to secure a mortgage with a lower or even no deposit. Other benefits of this type of lending include:
Over time, as the borrower builds equity, they may be able to release the guarantor from their obligation.
DPN finance can help with more information on family pledge loans. It's crucial for both parties to understand the financial implications, as a default by the borrower can have serious consequences for the guarantor's finances and credit.
If you are already in the property market you may have the option to use equity as a deposit on an investment property.
Once you have determined the value of your property and how much is owing, you can then establish the equity, plus a potential the lending amount. Essentially, this is your property’s current market value less any money you owe on it, with most lenders offering to fund up to 80% of the equity amount.
You can read more about using equity as a deposit here.
You can potentially use your superannuation to invest in property. This is another strategy that may suit people who don’t have a cash deposit saved up.
To purchase a property in super, you need to set up a Self Managed Super Fund (SMSF). Whilst there is no legislated minimum balance required to set up a SMSF, it’s advised to compare the fees you are paying on your current super to the ongoing cost associated with operating the SMSF. The general consensus is that the minimum fund balance you would need is around $200,000.
More information on property investment and self managed super funds
These days people keen to start investing in property have options to help them achieve their goal with little or no deposit saved.
We covered family pledge loans, buying property through your superannuation and using equity, all viable options depending on your circumstances.
Naturally there are pros and cons associated with each strategy. It is wise to speak to your financial planner or accountant to see which of these strategies best suits your needs.
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