07 August 2020 How to invest in property when you don’t have a large deposit

Buying an investment property is a popular wealth strategy for many Australians, but can it be done with a small deposit?

The answer will be unique to each circumstance, but it’s definitely not a “No”. There are lending institutions with options suited to financing a low deposit loan, but this can come with some added costs to offset the institution’s risks.

Part of the choice to be made is in whether to invest what you have sooner or later. With that question in mind, let’s dig deeper into the choices that investors need to weigh up when deciding if they can afford a property from a small deposit starting position.


It’s an old adage, but “every little bit counts” is apt advice when saving for a deposit. To do this, the single most helpful tool is a clear budget.

Your budget acts like a map to guide you toward how quickly you can grow your savings. Knowing how much money you have coming in and how much is going out allows you to trim expenses where possible to achieve those savings goals.

There’s no shortage of online savings calculators, apps and plans to help you. Moneysmart is an independent source of information and a great place to get started. Try their Savings Goals Calculator and Budget Planner.

From the position of a clear budget and an understanding of your starting position, it’s also important to weigh up the time it will take to continue to save versus the movement of the investment property markets.

It’s never easy to predict movements, but assessing the market may help to grasp if you are in a time when saving more will help you to get a better property, or whether the market is moving away from you faster than you can save. If it feels like the latter, then starting with a more affordable property could help you get into the market before finding it hard to catch up through savings alone.

Knowing your priorities

Before searching for the right property, it’s important to identify what you want from an investment. Review your long-term financial strategy and ask yourself how long you plan to invest. This will be shaped by how much money you aim to make from the investment and whether you are targeting monthly rental yields or capital growth from the sale of the property.

Any investor also needs to examine their ability to service the investment mortgage, so they must have a very clear understanding of that all important budget: income, living expenses and any existing debts such as personal loans or credit cards.

Approaching lenders

A smaller deposit equals a bigger loan, but there is also Lenders Mortgage Insurance (LMI), which is charged by lenders to those borrowing more than 80 per cent of their home's value. The amount of LMI differs according to the exact amount of your deposit and loan. It can be paid upfront or added to your loan.

In addition to your deposit, the amount you can borrow is dependent upon your income, assets and liabilities. One upside is that some lenders will take an estimated rental income into account when determining your borrowing capacity.

There are options for those who need to boost their deposit. Some may be able to use equity in another property as a deposit against an investment loan or request a loan from family members.

“The fifth largest bank in Australia is the Bank of Mum and Dad,” says financial planner Scott Haywood.

“So, if the parents and the whole family structure works, then the Bank of Mum and Dad should have the conversation with the child about getting into the property market because it can be very difficult to save a deposit.”

Finding the right property at the right price

Defence Housing Australia offers opportunities for those with small loans with some investment properties priced from $400,000.

“We have lower-priced properties to suit people with a lower budget,” explained DHA Associate Director, Investor Sales Kevin Chan.

“Our properties go from that entry point all the way up to $1.4 million. It just means you may be looking at smaller cities or regional areas rather than a property in Sydney or Melbourne.

“DHA has a mix of townhouses, units and houses so there’s a diversity of product and options available.”

Once you have assessed your financial position and your investment goals, you will feel more informed and confident about how best to use, or save for your deposit.

Attention: DHA does not take into account an investor's objectives or financial needs. Investors should always seek appropriate advice before making any investment decisions with DHA.