Investment property deposit requirements in New Zealand are significantly higher than for owner-occupied homes. Recent LVR restrictions mean investors need substantial deposits—typically 30-40% of the property value—making strategic planning essential.
Standard Requirements:
Why So High? The Reserve Bank restricts banks from lending more than 5% of new loans to investors with deposits below 35-40%, designed to:
Understanding regional differences and property types helps you plan your investment strategy.
| Location/Type | Minimum Deposit | Typical Deposit | Additional Costs | Total Funds Needed (Example) |
|---|---|---|---|---|
| Auckland Investment | 35% | 35-40% | $20,000-$30,000 | $300,000-$350,000 ($800k property) |
| Regional Investment | 30% | 30-35% | $15,000-$20,000 | $180,000-$210,000 ($550k property) |
| New Build (Auckland) | 30% | 30-35% | $25,000-$35,000 | $265,000-$315,000 ($800k property) |
| New Build (Regional) | 25% | 25-30% | $18,000-$25,000 | $155,000-$190,000 ($550k property) |
Cash Deposit: Actual savings you've accumulated in bank accounts or investments.
Equity Deposit: The difference between your property's value and what you owe, used as security for the investment property purchase.
Example:
You could use this $230,000 equity as deposit for an investment property.
Leveraging existing property equity is the most common way investors fund their deposits.
Step 1: Calculate Your Available Equity Determine your home's current market value (use recent sales or get a property valuation). Calculate 80% of this value (most banks' maximum LVR for owner-occupied properties). Subtract your current mortgage balance. The result is your available equity that can be used for investment.
Step 2: Understand the Equity Release Process Contact your bank or mortgage broker to discuss equity release options. The bank will conduct a valuation of your property to confirm value. They'll increase your home mortgage or create a second mortgage against your property. Your home becomes additional security for the investment property loan.
Step 3: Structure Your Lending Decide between cross-collateralization (both properties securing both loans) or separate securities (each property securing its own loan). Consider the implications of each structure for future flexibility. Ensure you understand the total debt servicing requirements across all properties.
Step 4: Apply for Investment Property Loan Submit application with investment property details and projected rental income. Bank assesses your ability to service both your home mortgage and new investment loan. They stress-test at higher interest rates (typically 2-3% above current rates). Approval depends on both deposit adequacy and income serviceability.
Step 5: Complete the Purchase Once approved, funds are released at settlement through your solicitor. Your solicitor manages the financial settlement including deposit and balance. Both properties are now secured under your mortgage arrangements.
What It Means: Using one property as security for a loan on another property.
Option 1: Cross-Collateralised
Option 2: Separate Securities
Beyond the Deposit: Having enough deposit doesn't guarantee loan approval. Banks assess whether you can service both mortgages.
Serviceability Calculation: Banks stress-test your ability to pay at rates 2-3% higher than current rates, and typically only count 70-75% of rental income.
Example:
This means you need:
| Strategy | Deposit Needed | Timeline | Risk Level | Best For |
|---|---|---|---|---|
| Save Cash | $165,000-$280,000+ | 3-7 years | Low | Conservative investors, high earners |
| Build Equity | $0 cash (use equity) | 2-5 years | Medium | Homeowners in growth areas |
| Lower-Value Regional | $110,000-$165,000 | 2-4 years | Medium | Cash-flow focused investors |
| New Build Concessions | $140,000-$240,000 | 1-3 years | Medium-High | Those with moderate savings |
| Partner Investment | Split 50/50 | Variable | High | Those with trusted partners |
Accumulating Portfolio: Each subsequent investment property becomes progressively harder:
Second Property:
Example Progression:
Brightline Test: Properties sold within 2 years (or 10 years for residential investment) may incur tax on capital gains. Factor this into investment strategy.
Interest Deductibility: Phased removal of interest deductions on residential investment properties increases holding costs, affecting how much debt you should take on.
Impact on Deposits: Higher holding costs mean you need:
Rent Your Own Home:
Company Structure:
Syndicated or Fractional Investment:
Mistake 1: Insufficient Cash Reserves Having just enough for deposit but no buffer for:
Mistake 2: Over-Leveraging Using all available equity leaves you vulnerable to:
Mistake 3: Ignoring Serviceability Focusing only on deposit without ensuring you can comfortably service debt in various scenarios.
Mistake 4: Poor Property Selection Buying solely based on price/deposit requirements rather than investment fundamentals (location, yield, growth potential).
Financial Position:
Knowledge and Planning:
Risk Management:
Q: Can I buy an investment property with a 20% deposit? A: Not typically with current LVR restrictions. Banks are limited in how much they can lend to investors with less than 30-35% deposits, making it very difficult.
Q: Is it better to use cash or equity for an investment property deposit? A: Both work, but equity is more common as it allows you to leverage existing property growth. Cash provides more flexibility and lower risk. Many investors use a combination.
Q: How much equity can I use from my home? A: Typically up to 80% LVR on your owner-occupied home. If your home is worth $800,000, you can borrow up to $640,000 against it (minus any existing mortgage).
Q: What happens if I can't afford both mortgages? A: This is why serviceability assessment is crucial. Banks stress-test your ability to pay, but you must also build your own buffers. If you genuinely can't service debt, you risk losing properties.
Q: Do I need a bigger deposit for my second investment property? A: The percentage requirement stays similar (30-40%), but serviceability becomes harder as you accumulate debt. You may need more equity buffer for banks to approve additional lending.
Q: Can first-home buyers purchase investment properties? A: Technically yes, but it's extremely difficult. You'd face the higher investor deposit requirements (30-40%) and wouldn't qualify for first-home buyer support schemes.
Q: What's the minimum income needed to invest in property? A: There's no fixed minimum, but you need enough income to service your home mortgage plus the investment loan shortfall (typically $1,500-$2,500/month extra). Most successful investors earn $80,000+ household income.
Q: Should I pay down my home mortgage or save for investment deposit? A: Building equity through paying down your mortgage can be strategic, but maintaining some cash reserves is also important. A balanced approach often works best—reduce debt while saving some cash for flexibility.
Q: How long should I wait between investment properties? A: Most investors wait 3-5 years between purchases to build equity through capital growth and debt reduction, and to stabilize their financial position before taking on additional debt.