Do I use a 10% or 20% deposit when buying an investment property?

The decision to use a 10% or 20% deposit when buying an investment property will depend on several factors, including the price of the property, the lender's requirements, and your personal financial situation.

Using a 20% deposit can have several advantages, including:

• A 20% deposit will mean a smaller loan amount, and therefore lower monthly repayments. This also means a lower loan-to-value ratio (LVR). A lower LVR may lead to lower interest rates also, potentially saving you money in the long run.

However, using a 10% deposit may be more appropriate if:

• If you do not have enough savings to cover a 20% deposit, a 10% deposit may be a more viable option if you do not want to or cannot save a larger deposit. If using a 10% deposit, you will most likely need to pay Lenders Mortgage Insurance (LMI).

Note: If you have less than a 20% deposit, you may be required to pay LMI, which is an insurance premium to protect the lender in case you default on your loan. By putting down a 20% deposit, you can avoid this additional cost.

If you're just starting out on your investment journey using a 10% deposit and paying the additional cost of LMI is strategically a great way to enter the market, if you wait to save the 20% deposit you may find property prices keep moving up and ultimately will cost you more to enter the property market.

As an example, and excluding other associated purchasing costs, (to keep this example simple). If you had $100,000 in cash or equity, you could.

• Leverage the $100,000 as a 20% deposit to purchase 1 x property worth $500,000

Or you could

• Leverage the $100,000 as a 10% deposit to purchase 2 x $500,000 properties worth $1,000,000

Using the above example, you could have one property worth $500,000 or two properties worth $1,000,000 compounding in growth year on year. If the properties grow in value by 7% in the first year, the below is the difference in equity after just one year.

• $500,000 will have grown to $535,000 or additional equity of $35,000.

• $100,000 will have grown to $1,070,00 or additional equity of $70,000.

As the properties grow in value, you can extract the equity to continue to buy more properties. Depending on your personal situation, by using a 10% deposit strategy when buying investment properties and leveraging your money, you can potentially accelerate the growth of your property portfolio.

For me, I have used both 10% and 20% deposits when buying properties for my portfolio. It will always depend on a unique set of circumstances, including the price of the property, the lender's requirements, and your personal financial situation.

It is important to remember that buying a property is a big decision and you should always seek professional advice before making important decisions to determine the best strategy for your personal circumstances.