Blog

how much money you need to buy an investment property

New investors like you are always asking how much money you need to buy an investment property. Unfortunately, there’s no one-size-fits-all with real estate.

As a rule, we at Safe Super Homes recommend that our clients need $250,000 in their superannuation fund or $250,000 equity in their home to 80% LVR* plus a healthy, steady income.

*The Loan to Value ratio (LVR) is the amount of your loan compared to the value of your property. LVR is calculated by dividing the amount of the loan by the value of the property. For example, if the property is worth $250,000 and you have a deposit of $50,000, the LVR will be 80%.

However, before you rule yourself out of the running, you should know that there are many variables to this equation and many things we can do to help you on your way. For example, did you know that if you’re investing with a Self-Managed Superannuation Fund, you can have up to 4 members contributing? That means the amount you alone need to save is quartered. Or, did you know that the more you have in home equity, the less you need in your super fund or in savings?

With so many variables, you can see why there is no magic number.

Let’s take a look at a few examples

Example 1

Let’s call them Partner A and Partner B.

Together, A and B own a house that is worth $580,000, though they still owe $280,000 on their mortgage. This means that they have $300,000 in their home equity.

Partner A earns $58,000 per year, and Partner B earns $52,000 per year.

They don’t have enough money in their superannuation fund to be able to use it to buy an investment property. Therefore, Safe Super Homes have been able to offer them a negatively geared investment property, which, when the build is finished, will cost them $550,000.

Because of the rental income they will receive and the added tax deductions concerning purchasing a brand-new investment property (i.e.: depreciation), the property will actually end up costing them next to nothing on a week-to-week basis.

In total:

Weekly outgoing costs (including loan repayments, land rates, insurances etc):

$568

                Weekly rental income:

$400

                Weekly tax savings:

$138

                Total weekly cost for $550,000 investment property:

                                $30

Yes, to buy this investment property, all Partners A and B will need is $1,000 deposit to Safe Super Homes and $30 per week once building is complete.

Example 2

Let’s call them Partner X and Partner Y.

They want to purchase a property with their superannuation and so have combined their individual super money into a Self-Managed Super Fund (SMSF) – which Safe Super Homes helped them to do. Together, they have $250,000 in their SMSF.

Partner X is earning $58,000 per year and Partner Y is earning $52,000 per year.

The brand-new investment property they want to buy is worth $570,000.

Because their SMSF already has $250,000 in it, they will need to borrow $400,000 to purchase the property; a loan which includes the cost of Stamp Duty, SMSF setup, land rates and insurances. They will borrow this through their SMSF.

The incoming and outgoing costs are all going through their SMSF, not their regular bank account – this is an SMSF loan.

In total:

Weekly outgoing costs (including loan repayments, land rates, insurances etc):

$600

                Weekly rental income:

$400

                Weekly super contribution (legally required 9.5% contributions from their employers):

$201

Therefore, X and Y are still earning $1 per week extra in their superannuation fund – the property is costing them NOTHING to own.

But that’s all dependant on your circumstances

Don’t forget, how much money you need to buy an investment property depends on many factors such as annual salary, dependent children, other investments, home equity and how much you have in your super fund. It is also dependant on how much the property will cost.

At Safe Super Homes, our building costs are standard because we offer no inclusions or extras. We simply offer a Series 1 or a Series 2 so that you have no surprises. The cost of the investment property is all dependant on which series home you choose and on the cost of the land. If you cannot afford a property in close proximity to the Berwick area, we have lovely blocks in Longwarry and Drouin which are more affordable and popular among tenants.

Partnering with friends

If you want to buy an investment property but don’t think you have enough, you can partner with friends and family to pool your resources. An SMSF can have up to 4 members meaning how much money you need to buy an investment property is shared. You can start an SMSF with family, or trusted friends, and go in together to buy an investment property. With a group, you can also buy an investment property which is negatively geared.

That doesn’t address my personal circumstances

You’re right. There are no hard and fast rules around how much money you need to buy an investment property – it’s all dependant on your circumstances and those of the people you are borrowing with.

The most important thing to remember is that we want to help you invest. We believe property investment is the safest place to put your money and will go to great lengths to get you there whether it be through SMSF property investment, negative gearing property investment or fractional investment. The only way you will know for sure how much money you need to buy an investment property is to come and have a talk to us. When you fill out an expression of interest form, we can determine what your borrowing capacity is based on your financial circumstances and help you make the decision from there.

We are the only organisation in Australia that offers you the safety of a 10-year rental guarantee – at no extra cost.

Book an appointment today – we will do everything we can to get you into the investment property market.