Can I Purchase an Investment Property with a 10% or 20% Deposit?

Want to purchase an investment property in New Zealand with just 10% or 20% deposit? We tell you what you need to know.

Investment properties are a favourite way for Kiwis to grow wealth and save for retirement. While the banks as a rule, require a minimum of 35% deposit, it is possible (and even common) to buy an investment property with as little as 10% or 20% deposit. This blog takes you through what you need to know. There are many reasons why a rental property can be a great investment!

How do I purchase an investment property with a 10% or 20% deposit?

Option 1: Buy a new build property

Banks will generally lend money against a 20% deposit, for an investment property if the property is a new build. Some main banks will even lend against as little as 10% deposit. This is to encourage new development. This new rule came into effect, as a result of the recent housing crisis. It was also introduced as part of an effort to cool the housing market. There are also some tax benefits for investing in a new build rather than an existing property.

At the time of writing, a property is considered a new build, if it is in the process of being built, or has been built within the last 6 months. The new build either needs to have or needs to be waiting on the Code of Compliance Certificate (CCC) to be issued. New builds can be bought either directly from the developer, or via a real estate agents.

There are other benefits to buying a new build, combined with the lending and tax incentives, make it a good choice for many investors. New builds mean little to no maintenance costs. Another upside, is that most builds come with a 10 year guarantee. Of course, always check this is the case on an individual basis! New builds are often in areas with modern urban design and up-to-date infrastructure. The comfort of living in a new home makes new builds desirable properties for tenants, reducing the risk of lost income due to periods of vacancy.

Option 2: Use a second tier lender as an alternative

Second tier lenders often lend on mortgages with just 20% deposit. They charge higher interest rates than the banks, this enables them to take more risks with who they lend to. For this reason, they can be a great option in certain circumstances for the right opportunity. Talk to us to fully understand what needs to be taken into account when making this decision.

Option 3: 20% deposit doesn’t mean 20% in cash savings – Use your equity

You don’t necessarily need to save up your deposit. If you already own a home then you can use any equity in your existing property. Many homeowners who have been in the market for 5 or more years, will have seen the value of their property grow significantly. This value can be used as a deposit to buy an investment property.

If you’re thinking of getting into investing in property, or want to grow your portfolio, get in touch with us and we can let you know what’s possible. When you’re ready to look for a property, we can identify your lending options and then manage the application process for you.