Investing in property with zero cash

You only need to watch a few property shows and hear stories of the cost of Ponsonby properties 30 years ago, to realise that property investment can make you some serious money.

If you’re already a home-owner then the idea of owning more properties, reaping capital gains, and enjoying rental income can be very appealing. But how do you actually afford your next property venture, especially if you’re in the growing club of ‘asset-rich but cash-poor’ home owners?

Buying investment properties with little or no money is possible, by purchasing with your current equity.

So what is equity exactly?

Home equity is the difference between the value of your property and the amount still owing on your home loan. This might have been built up with an increase in value of your home or by paying down your mortgage over time.

How do I calculate my equity?

When using your home equity for an investment property, RBNZ loan-to-value restrictions usually apply which requires 20% equity to be left in your house after new lending is taken out.

Therefore, work out your ‘free’ equity with this simple calculation:

(80% of your home market value) minus (amount still owed on mortgage)

This is the equity that can be used to purchase an investment property (which can make up a deposit, or be the full purchase price of a property)

So how much can I actually afford?

With the latest investor lending restrictions, investors require a 35% deposit, (although this can often be paid in equity rather than cash, for an investment property). So $100,000 equity could mean you can buy with a purchase price up to $285,714 (divide your equity by 0.35)


Anna and Joe own a house with a value of $900,000

Mortgage remaining is $200,000

Equity can be borrowed up to 80% of property value = $720,000

Therefore $520,000 equity can be used as a deposit on an investment property. Because a 35% deposit is required for investment properties, Anna and Joe could potentially invest with a purchase price up to $1,485,714 (assuming affordability made this mortgage possible)

What else do I need to consider?

Other than the fact you won’t actually be living in the property, there are a number of factors which make investment properties different to your own home. A few extra things to consider when making decisions include:

Residential income tax – payable on rental income, although there are ways to structure your loan that may off-set or reduce these costs

Capital gains tax – payable on the sale of any investment property which you sell within 5 years

Collaterisation – risk of investing, and the impact on your own home when buying using equity

Other costs – such as maintenance, insurance, rates, accounting and legal fees

Property management – can cost around 8% of rental income, so an important cost to factor in if you’re wanting the property managed

If you’d like to discuss the possibilities of using your own equity to invest, a chat with an Apex mortgage adviser is a great place to start. Get in touch


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