Thinking of investing in property? One of the most common strategies is using the equity in your home to fund the deposit and costs for your next purchase. Equity can unlock opportunities without needing large cash savings, but it’s important to structure the loan correctly. Here’s a clear, step-by-step guide on how to use equity, the benefits, risks, and when it makes sense.
Next Steps – Get Expert Guidance
Using equity to buy an investment property can be a smart wealth-building move, but it’s not without risks. The key is structuring your loan properly and ensuring you can comfortably manage the repayments.
As an experienced mortgage broker, I can guide you through the process, compare lenders, and ensure your strategy is set up for long-term success.
To see how to use your equity to purchase your next investment property
What is Equity and How Does It Work?
Equity is simply the difference between your property’s current market value and the balance of your home loan. For example, if your home is worth $800,000 and you owe $400,000, you have $400,000 in equity.
Lenders generally allow you to access up to 80% of the property’s value (sometimes more with LMI). This usable equity can then be drawn out to fund the deposit and costs of an investment property.
How Much Equity Do You Need to Invest?
To buy an investment property, you’ll typically need:
- A 20% deposit of the purchase price.
- Around 5% for costs (stamp duty, legal, and other fees).
If you’re buying a $600,000 investment property, you’ll need roughly $150,000 in equity.
Steps to Using Equity for an Investment Property
- Get a Property Valuation – Your broker can organise this with the bank.
- Calculate Usable Equity – Determine the amount of equity you can safely access.
- Decide on Loan Structure – Equity can be released as a separate split loan, line of credit, or top-up.
- Secure Pre-Approval – Confirm borrowing power before making offers.
- Purchase the investment - using the released equity as the deposit and purchase costs.
Pros and Cons of Using Equity
Pros:
- No need for large cash savings.
- Faster entry into the property market.
- Potential to grow wealth through capital gains and rental income.
- Opportunity to build a property portfolio over time.
Cons:
- Higher total debt and repayments.
- Risk of overextending if property values fall.
- May impact borrowing capacity for future loans.
- Incorrect structuring could reduce tax effectiveness.
Why This Strategy Matters for Homeowners and Investors
Using equity allows everyday homeowners to become investors sooner, without waiting years to save a deposit. It’s one of the most powerful ways Australians build long-term wealth.
For example:
- A family with $300,000 in home equity could unlock $150,000 to purchase a $600,000 investment property.
- Over 10 years, if the property grows in value by 5% annually, the equity position could grow significantly—even after accounting for the debt.
Example: Leveraging Equity to Build a Portfolio
Imagine you purchased your home 8 years ago for $500,000 and it’s now worth $800,000. With $300,000 in available equity, you release $120,000 to fund a deposit on a $600,000 investment property.
This second property then grows in value, creating more equity to reinvest again. Over time, this “snowball effect” can help you build a portfolio and retirement income stream.
Structuring the Loan Correctly (Avoiding Pitfalls)
It’s critical to separate your investment loan from your home loan to ensure clarity on tax-deductible interest. Cross-collateralisation (where both properties secure each other’s loans) can limit flexibility and create risks if you want to sell or refinance.
A smart loan structure keeps your owner-occupied debt and investment debt clearly split, maximising flexibility and tax benefits.