Common Mistakes with Investment Property Deposits

The deposit you put down on an investment property determines what you can borrow, how much you pay in insurance, and whether you can build a multi-property portfolio.

Investors in Sandringham often look at properties between the mid-six to seven-figure range, and the way they structure their deposit affects both the upfront cost and what happens when they want to buy again. A common assumption is that you need 20 per cent in cash to avoid Lenders Mortgage Insurance. That is usually not how lenders assess investor deposits, and missing that detail can make your first purchase your only one.

Why the 20 Per Cent Rule Does Not Always Apply to Investors

Most lenders cap investor loans at 90 per cent LVR if you are willing to pay LMI, and many will only lend at 80 per cent LVR without it. The 80 per cent threshold is a hard ceiling for investors at some banks regardless of how much cash you have. If you are using equity from your owner-occupied home rather than cash, the usable amount depends on the lender's serviceability calculation and the combined loan to value ratio across all your properties. A buyer with $200,000 in equity may find they can only access $120,000 of it once the lender applies its buffer and DTI assessment. Knowing how much you can actually use, rather than what you own on paper, is what separates a workable deposit from one that gets your application declined.

How Sandringham Buyers Typically Fund Their Deposit

Most investment purchases in Sandringham are funded through equity rather than savings. Buyers who own in nearby suburbs such as Brighton, Black Rock or Hampton East often have enough equity to cover a 20 per cent deposit plus costs without selling. That equity can be released through a refinance or a separate top-up facility, and the way you structure it affects both your interest cost and your ability to claim deductions. Interest on borrowings used to buy or hold the investment is deductible. Interest on borrowings for private purposes, even if secured against an investment property, is not. Keeping the loans separate from the start avoids a costly restructure later.

Consider a buyer who owns a home in Sandringham worth $1.4 million with a $400,000 mortgage. That gives them $720,000 in accessible equity at 80 per cent LVR, minus the existing loan, leaving $320,000 available. If they are buying an investment property and want to put down 20 per cent plus $30,000 for costs, that sets an upper price limit unless they bring in cash or accept a higher LVR. Running those numbers before you start looking prevents disappointment once you have made an offer.

When Lenders Mortgage Insurance Becomes Part of the Equation

Lenders Mortgage Insurance is a one-off premium that protects the lender if you default, and it is usually required on investor loans above 80 per cent LVR. The premium is calculated as a percentage of the loan amount and varies by LVR, loan size, and whether the property is owner-occupied or investment. At 85 per cent LVR on a $700,000 investor loan, the premium might be $15,000 to $18,000. At 90 per cent LVR it could be $30,000 or more. You can capitalise the premium into the loan, which means you do not need additional cash, but it increases the total debt and the interest you pay over time. Some lenders will not lend above 80 per cent LVR to investors at all, so your choice of lender becomes as important as your deposit size.

LMI can still make sense if paying it now allows you to buy sooner and benefit from capital growth, or if it preserves equity for a second purchase. The question is whether the cost is outweighed by the opportunity. That calculation depends on your income, the rental yield, and how quickly you want to expand your portfolio.

What Happens When You Want to Buy Again

The way you structure your first investment deposit affects whether you can buy a second property. Lenders assess your total debt, the rental income from existing properties, and your debt-to-income ratio across all borrowings. If you borrowed at 90 per cent LVR on your first purchase, you have less equity buffer and less serviceability headroom. If you borrowed at 80 per cent and preserved $100,000 in usable equity, you may be able to buy again within two years without waiting for significant capital growth. In our experience, buyers who plan for a second purchase before they make the first one structure their investment loans differently from those who see property as a one-off decision.

Rental income is assessed at 80 per cent of the actual rent, or sometimes less depending on the lender and whether the property is tenanted at the time of application. That 20 per cent discount is meant to account for vacancy, maintenance and management costs. If your property rents for $3,200 per month, the lender will only credit you with $2,560 when calculating serviceability. That gap matters when you are trying to borrow again.

Negative Gearing and the Deposit You Need to Make It Work

Negative gearing allows you to offset rental losses against your other income, which reduces your tax. That benefit still applies to properties purchased before the June 2026 announcement and will continue until you sell. For properties purchased after that date, the new rules quarantine losses unless the property qualifies as an eligible new build. The quarantine takes effect from July 2027, and it changes the way you should think about deposit size and borrowing capacity.

If you cannot offset losses against your salary, you need either higher rent, lower debt, or enough surplus income to cover the shortfall without tax relief. A buyer purchasing an established villa unit in Sandringham may face $8,000 to $12,000 per year in net rental loss under the new rules. That loss cannot reduce your tax unless you have other rental income to offset it against. A larger deposit reduces the loan size, which reduces the interest cost and the size of the loss. For some buyers, that makes an 80 per cent LVR structure more appealing than borrowing at 90 per cent, even if LMI is available.

Stamp Duty and Settlement Costs That Catch People Out

Stamp duty on investment property in Victoria is calculated on the dutiable value and does not include the concessions available to owner-occupiers. On a $900,000 purchase, duty is roughly $50,000. Settlement costs, including legal fees, building and pest inspection, loan establishment fees and any strata report or body corporate documentation, add another $5,000 to $8,000. Those costs sit on top of your deposit, and they are not usually funded by the lender. If you are using equity, you need to release enough to cover the deposit, duty, and costs in full. If you are using savings, the same applies. Underestimating this figure is one of the most common reasons buyers have to renegotiate or pull out after an offer is accepted.

How Debt-to-Income Limits Affect Your Deposit Strategy

From February 2026, lenders can only write a limited proportion of new investor loans at a debt-to-income ratio of six times or more. If your total borrowings across all properties exceed six times your gross income, your application will be assessed under the lender's limited quota, and approval is not automatic. This makes deposit size more important, because a larger deposit means a smaller loan and a lower DTI. A buyer earning $150,000 who wants to borrow $900,000 for an investment property sits at a DTI of six. If they already have a $500,000 home loan, their total DTI is 9.3, and they are now competing for a restricted pool of funding. Increasing the deposit to bring the new loan below $850,000 can be the difference between approval and decline.

You do not need to solve this on your own. Call one of our team or book an appointment at a time that works for you, and we will run the scenarios based on your income, your existing debt, and the type of property you are looking at in Sandringham. We work with lenders across Australia and can show you what is available before you start looking, so the offer you make is one you can actually settle.

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