How to Use Your Equity to Buy an Investment Property
The deposit for your next property might already be sitting in the one you own.
Most investors think the only way to buy again is to save another deposit from scratch. It is not. If your home has grown in value, you can borrow against that growth and use it as the deposit on an investment property, often without putting in a cent of new cash.
I have done this across my own portfolio of five properties, and it is how a lot of everyday investors get from one property to several. Here is exactly how it works, how to size it up, and the catches worth knowing before you do it.
What "using your equity" actually means
Equity is the slice of your property you actually own: its current value minus what you still owe the bank. If your home is worth $800,000 and your loan is $500,000, you have $300,000 of equity on paper.
But you cannot borrow all of it. Lenders let you borrow against your property up to a point, and the sweet spot is 80% of the value, because that is the line where you avoid Lenders Mortgage Insurance. The portion you can actually tap is called your usable equity.
How to work out your usable equity
The formula is simple: take 80% of your property value, then subtract your current loan balance. What is left is your usable equity. Here is how it looks on an $800,000 home with a $500,000 loan.
Illustrative example. Usable equity = (value x 80%) minus current loan. Your lender confirms the value with a formal valuation.
So this homeowner has $140,000 of usable equity to work with, even though they have not sold anything or saved a new deposit. The bank revalues the home, lifts the loan up toward the 80% line, and releases the difference.
The rule of four: how far your equity stretches
Here is the part investors love. A deposit plus costs on an investment usually runs to about 25% of the purchase price (a 20% deposit to avoid LMI, plus roughly 5% for stamp duty and fees). Flip that around and your usable equity can support a purchase of roughly four times its size.
So that $140,000 of usable equity points to an investment property of around $560,000, funded entirely from equity you already have. You bring the strategy, the property does the rest.
Three ways to release your equity
There is more than one way to get the equity out, and the right one depends on how you plan to use it.
| Method | How it works | Best for |
|---|---|---|
| Separate equity loan split | A new, ring-fenced loan split secured against your home, used as the deposit. | Most investors. Clean tax trail, stays flexible. |
| Refinance and cash out | Refinance the whole home loan to a higher amount and take the difference in cash. | When you also want a better rate or lender. |
| Line of credit | A revolving facility you draw on as needed, up to an approved limit. | Active investors making multiple moves. |
A separate loan split keeps the investment borrowing cleanly identifiable, which matters for tax. General information only.
Keep your loans uncrossed
When you buy the second property, the bank will often suggest using both properties as security for the lending. It is convenient for them. It is rarely good for you.
Keeping each property as standalone security, with the equity released as its own split, means you can sell one, refinance one, or switch lenders without untangling the whole portfolio. I go deeper on this in my guide to structuring investment property loans, and it is one of the first things I check for new investor clients.
The part most posts skip
Equity solves the deposit, not serviceability. You still have to prove you can comfortably afford the repayments on both loans. Plenty of people have the equity but not the borrowing capacity, and that is the real bottleneck.
You are borrowing more against your home. If property values fall or rates rise, you carry more debt on the roof over your head. Build in a buffer rather than borrowing to the absolute limit.
Rates move. Most equity releases are on variable rates, which rise and fall with the lender, so do not assume today's repayment is locked in unless you have specifically fixed it.
Tax follows purpose. The interest on the portion used for the investment is generally deductible, while your home portion is not, so keeping them separate matters. This is general information, not tax or financial advice. Get advice specific to your situation.
See your equity and portfolio in one place
Compass is the free tracker I built for my own portfolio. Plug in your properties and it shows your equity, LVR, cashflow and net worth, so you can see how much you could release before you even call me.
Open the free toolBook a free strategy call
One short call, no obligation. I will work out your usable equity, whether your borrowing capacity supports the next purchase, and the cleanest way to structure it.
Book my free callMatty Teague, Mortgage Broker, Powered by Flint. Credit Representative 573962. Flint Group Pty Ltd ACL 488313.
FAQs
How much equity do I need to buy an investment property?+
Enough usable equity to cover a deposit plus buying costs on the next property. As a rough guide, your usable equity is 80% of your home value minus what you still owe, and the "rule of four" says you can buy up to about four times that usable equity. So roughly $100,000 of usable equity points to about a $400,000 purchase. Your borrowing capacity still has to support both loans.
Can I use equity for the whole deposit, with no cash?+
Often yes. If you have enough usable equity, it can fund the deposit and the buying costs, so you may not need to save a separate cash deposit. You still need to cover ongoing repayments and show the lender you can service the debt.
Will I pay LMI when I use equity?+
Not if you keep your borrowings at or below 80% of each property value. Releasing equity up to the 80% line avoids Lenders Mortgage Insurance. You can borrow above 80% and pay LMI to access more, but that is a separate decision worth running the numbers on.
Is the interest on the equity I release tax deductible?+
Generally the deductibility follows the purpose of the funds. If the released equity is used to buy an income-producing investment property, the interest on that portion is usually deductible, while the original home-loan portion is not. This is general information, not tax advice, so get advice specific to your situation from your accountant.
Does using equity reduce how much I can borrow?+
Equity solves the deposit, not serviceability. The lender still has to see that your income can comfortably cover the repayments on both the larger home loan and the new investment loan. Structuring the lending well, and choosing the right lender, is where a broker earns their keep.
Should I cross-collateralise the two properties?+
Usually not. Releasing equity as a separate loan split, rather than tying both properties together as security for one big loan, keeps you flexible to sell, refinance, or move lenders later. Cross-collateralising hands the bank more control over your portfolio.
I own five properties across NSW and Victoria and have used equity releases to grow my own portfolio. I help investors structure their lending so they can keep buying without hitting an avoidable wall.
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