How to Use Your Home Equity to Buy an Investment Property

One of the most powerful tools property investors have access to is equity — the difference between what your property is worth and what you owe on it. Accessing this equity can fund your next investment property purchase without needing to save a cash deposit from scratch.

What Is Usable Equity?

Not all of your equity is accessible. Lenders typically allow you to borrow up to 80% of your property's current value before requiring Lenders Mortgage Insurance (LMI). So your usable equity is calculated as:

Usable Equity = (Property Value × 80%) − Existing Loan Balance

Example: Your home is worth $900,000 and you owe $400,000. Your usable equity is ($900,000 × 80%) − $400,000 = $720,000 − $400,000 = $320,000.

That $320,000 is available to use as a deposit (or partial deposit) on an investment property.

How to Access the Equity

There are two main ways to access equity:

• Refinance: Your lender increases your home loan to release the equity as cash. You draw this cash down to use as a deposit on your investment property.
• Equity loan / line of credit: A separate loan facility is established against your home, which you draw from as needed. This keeps the loans separate, which is important for tax purposes.

Tax tip: it's critical to keep your investment borrowings separate from your owner-occupier borrowings. The interest on money borrowed for investment purposes is tax-deductible; the interest on your home loan is not. Mixing the two creates a contamination problem that's expensive to unwind.

Using Equity as a Deposit

Once you've accessed your usable equity, it serves as the deposit for your investment property purchase. On a $700,000 investment property, you'd typically need a 20% deposit ($140,000) plus buying costs (stamp duty, legal fees, etc.) of approximately $30,000-$40,000 — so $170,000-$180,000 total.

If you have $320,000 in usable equity, you have more than enough for this purchase and could potentially fund a second investment as well, depending on your borrowing capacity.

Borrowing Capacity Still Matters

Having equity is only half the equation — you also need the income to service the debt. Your lender will assess your ability to service both your existing loans and the new investment loan. Higher rental income from the investment property partially offsets this, but your salary income remains the primary serviceability factor.

Before accessing equity, have a mortgage broker calculate your borrowing capacity with the equity factored in. Many investors are surprised by how much they can borrow — and equally surprised when they discover their income doesn't support what the equity technically allows.

The Equity Snowball

The most compelling aspect of the equity strategy is how it compounds over time. Each investment property you purchase grows in value, generating more equity. That new equity can be used to fund the next purchase. Investors who follow this discipline — buying, holding, growing equity, then buying again — can build substantial portfolios over 10-15 years with a relatively modest starting point.

Getting the Structure Right from the Start

Loan structure is critical when using equity. Cross-collateralising your properties (linking them as security for each other) is a common trap that reduces flexibility and can create problems if you later want to sell one property independently. Each investment should ideally be secured independently where possible. Our team works with specialist mortgage brokers who structure investment loans correctly from the outset.