5 Strategies if you don't have the money to invest just yet

You might want to buy an investment property … but then you use an online calculator or talk to a mortgage broker and realise you can’t afford to invest (yet).

First-time investors often fall short when it comes to the deposit for a property.

Right now, you need a 20% deposit to buy a New Build and 30% for existing properties.

For a $500k entry-level investment, that means you often need at least a $100k deposit.

You don’t need this in cash; most property investors use the equity within their own homes as a deposit.

But not all first-timers have enough equity.

That’s why in this article you’ll learn the 5 strategies first-time investors can use to start investing.

For each of these 5 strategies, I’m going to assume you already own your own home.

#1 – Pay your mortgage off as fast as possible

It’s important to know you can pay your mortgage faster.

Most banks let you pay off an extra 5% without penalty.

If you increase your mortgage repayment, you’ll pay it off exponentially faster. Not only will you pay less interest, you’ll also get into a position to invest faster.

After all, if you have less debt you can borrow more against your own home for the deposit for an investment property. Effectively, every extra dollar you pay off your mortgage is an extra dollar towards a deposit.

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Here’s an example of how this can work.

Sarah is paying off a $350k mortgage, which is on a 30-year term at 6.79% interest.

Her minimum mortgage repayment is $526 per week.

At that rate, it will take 9 years before she pays $50k off the mortgage.

But let's say Sarah’s more ambitious and can afford a mortgage repayment of $700 a week.

Now, she’ll pay $50k off her mortgage within 2.8 years. This means she’ll get into her first investment property much sooner.

Another way to implement this strategy is to keep your mortgage repayment the same when interest rates drop.

#2 – Wait for your property to increase in value

Sometimes all you have to do is sit and wait.

Generally, for every dollar your property increases in value, you can borrow an extra 80c. This can be used as a deposit for your next investment property.

Kate and Scott purchased a home in Rolleston in 2019. They bought a 3-bedroom new build home for $570,000.

They have done absolutely nothing to the property, but the market has increased in value. So now their home is worth $820,000.

Their property has increased in value by $250,000. That has created an additional $200,000 worth of useable equity in their home. And they can use that $200k as the deposit on an investment property.

So even if you don’t pay your mortgage off faster, over time you will likely get into a position to invest. All you need to do is wait.

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#3 – Renovate your property to increase its value

If you prefer a more active strategy, then renovations may be right for you.

When you do up your property, it increases in value. That means you can borrow more against it.

Generally, I aim for a 2:1 ratio when renovating properties. If you spend $1 renovating, you should aim to increase its value by at least $2.

I once worked with a pair of investors called Emma and Tracey. They were sisters and bought a classic “doer-upper” in Hamilton. That was in 2022 and they paid $490,000 for the property.

It needed some TLC, but they were keen to get stuck in.

They got friends and professionals to help and spent $50k adding a bedroom, upgrading carpets, and giving the house a fresh paint.

They had the property re-valued 12 months later and it’s now worth $650k. This was 3x the amount they spent on renovations.

This meant they could borrow an extra $78,000 against their property (even after borrowing the money for the renovation). 

This gave them the boost they needed to invest in property.

To use this strategy, you’ll not only need to own your own property but also one that is worth renovating.

Typically, investors will start:

• repainting walls and cabinets
• replacing carpets
• installing new light fittings and switches
• improving kitchens, bathrooms, and landscaping.

These cosmetic touches tend to give the best value uplift while being the most cost-effective.

Once you have finished renovating, you’ll need to pay to get a registered valuation. This is so the bank will lend against the property’s new value.

#4 – Use other people’s equity

You can use the equity in other people’s homes for an investment property. This works the same as using your own equity.

Generally, this strategy involves the generosity of a close family member. That’s why this strategy is also referred to as “the bank of mum and dad”.

There are a few ways you can set this up. Often you might take out a joint loan with your parents against the equity in their house.

You would then use that loan as the deposit for your investment property. Then, once you have a tenant, you use the rent to pay for the additional loan.

To use this strategy you’ll need your family member to:

• have equity within their property that you can use, and
• they’ll need to be willing to help you in this way.

Some people don’t like talking about this strategy. They think “my parents never helped me” or “I wouldn’t want a house my parents paid for”.

That’s OK. Like all the strategies on this list, it won’t be for everyone. But it will be an enormous help for the people who can and want to use it.

#5 – Set up a regular automatic payment to save the extra bit you need

If you’ve got through the first four strategies and don’t quite have enough to invest yet ... that’s where you might set up a savings scheme.

Let’s say you’ll need an extra $10k deposit to get started. That’s where you could set aside enough money each week to save that extra bit.

Say you save $200 a week. After a year (at 2% interest) you’d have $10.5k to use for your first investment property deposit.

If you are going to use this strategy, the key is to set a definable goal you can work towards. For example, “I’m $10k off, so I’ll put aside $200 a week to get there within 12 months.”

After that, set up an automatic payment to go into a new savings account. This way you don’t notice the money leaving your account.

Even better, if you have a mortgage you can set up an automatic payment to put that spare cash into a revolving credit. This is a good way to reduce interest costs at the same time.

Here at Opes Partners we call this the Mortgage Buster.

Which strategy is the right one for me?

There may be only one or two strategies on this list that apply to you.

That’s OK. Maybe your property isn’t able to be renovated, or you don’t own your first home yet.

All you need to do is find the one or two strategies that DO work for you. That way you can get into a position to invest.