Building a property portfolio doesn't always mean saving another large cash deposit from scratch.
If you already own a home or investment property, you may have built up equity that could help you purchase your next property.
For many Australian property investors, understanding how to use equity can open the door to further investment opportunities without needing to rely entirely on personal savings.
However, accessing equity isn't as simple as withdrawing money from your property's value. It involves understanding your borrowing capacity, available equity, lending requirements and the financial risks of taking on additional debt.
In this guide, we'll explain how property equity works, how to calculate usable equity and the steps involved in using equity to purchase another investment property.
Property equity is the difference between your property's current market value and the amount you still owe on your mortgage.
As you repay your home loan or your property increases in value, your equity may grow.
For example:
In this example, you have $300,000 in equity.
However, this doesn't mean you can automatically access the entire amount.
Lenders apply loan-to-value ratio (LVR) limits and assess your financial circumstances before approving additional borrowing.
Understanding the difference between total equity and usable equity is essential when planning your next property purchase.
Usable equity is the portion of your property's equity that a lender may allow you to access through additional borrowing.
A commonly used calculation assumes borrowing up to 80% of the property's value, although lender policies and individual circumstances vary.
| Description | Amount |
|---|---|
| Current property value | $800,000 |
| Outstanding mortgage | $500,000 |
| 80% of property value | $640,000 |
| Potential usable equity | $140,000 |
In this example, the homeowner may have approximately $140,000 in usable equity at an 80% LVR.
The calculation is:
Usable Equity = (Property Value × 80%) − Outstanding Loan Balance
Some lenders may allow borrowing above 80% LVR, although this can involve lenders mortgage insurance (LMI), additional restrictions or higher costs.
It's also important to remember that usable equity isn't automatically approved borrowing capacity.
Your income, expenses, existing debts and the lender's assessment criteria will determine how much you can actually borrow.
Instead of saving a new deposit entirely from cash, eligible borrowers may be able to access equity in an existing property to help fund their next investment.
This may involve increasing an existing mortgage, establishing a separate loan split or refinancing with another lender.
The funds can potentially be used towards:
The remaining purchase price is generally funded through a separate investment property loan.
This approach allows investors to use wealth accumulated in an existing property to help finance another purchase.
However, using equity increases your overall debt, and the additional repayments must be affordable.
Let's look at a hypothetical example of how equity could be used to purchase another investment property.
Suppose you own a home valued at $900,000 with an outstanding mortgage of $550,000.
80% of $900,000 = $720,000
$720,000 − $550,000 = $170,000
You may have approximately $170,000 in usable equity, subject to lender approval.
You find an investment property priced at $600,000.
A 20% deposit would be:
$600,000 × 20% = $120,000
You could potentially borrow $120,000 against your existing property to fund the deposit.
The remaining $480,000 could be funded through a separate investment loan secured against the new property.
You would also need to cover stamp duty, legal expenses, inspections and other acquisition costs.
These costs vary depending on the property's location and your circumstances.
If sufficient usable equity remains, some of these expenses may also be funded through additional borrowing, subject to lender approval.
If you borrow $120,000 against your existing home and $480,000 against the new investment property, you have taken on an additional $600,000 in debt.
Although you may not have used a cash deposit, the deposit was still borrowed.
Important: Using equity does not mean purchasing an investment property without financial commitments. It means using an existing asset as security for additional borrowing.
There are several ways borrowers may be able to access property equity.
Refinancing involves replacing your current home loan with a new loan, potentially with a different lender.
If your property's value has increased or your loan balance has decreased, refinancing may allow you to borrow additional funds.
However, refinancing can involve fees, changes to loan conditions and potential break costs on fixed-rate loans.
It's important to compare the overall cost of refinancing rather than focusing solely on the interest rate.
Some lenders may allow you to increase your current loan balance through a loan top-up.
This may provide access to additional funds without changing lenders.
Approval will depend on your property's value, available equity and borrowing capacity.
A separate loan split can help distinguish funds borrowed for investment purposes from funds used for personal purposes.
For example, you may retain your existing home loan while establishing an additional loan specifically for an investment property deposit.
This can make loan management and record-keeping easier.
However, the tax treatment of interest depends on how borrowed funds are used, not simply whether a loan is labelled as an investment loan.
A mortgage broker and qualified accountant can help you assess an appropriate structure.
The amount of equity required depends on the purchase price, deposit requirements, acquisition costs and lender policies.
For example, if you're considering a $500,000 investment property:
If you have sufficient usable equity, you may be able to fund the deposit and some purchasing expenses without using substantial cash savings.
However, the lender will still assess your ability to service the total debt.
Investors should also consider maintaining a financial buffer rather than using every dollar of available equity.
Yes, eligible investors may be able to access equity accumulated in an existing investment property to help purchase another property.
For example, an investment property originally purchased for $450,000 may have increased in value to $600,000.
If the outstanding loan balance is $350,000, the property's total equity would be $250,000.
At an 80% LVR:
$600,000 × 80% = $480,000
$480,000 − $350,000 = $130,000
This means there may be approximately $130,000 in usable equity, subject to lender approval.
Investors sometimes use this approach to expand their portfolios over time.
However, property values can fall, and future equity growth is never guaranteed.
Having substantial equity doesn't automatically mean a lender will approve another investment loan.
Lenders generally assess several factors.
Your income needs to support existing financial commitments and proposed additional repayments.
Home loans, investment loans, personal loans, credit card limits and other liabilities may affect your borrowing capacity.
Lenders consider household spending and other ongoing financial commitments.
Expected rental income from the new investment property may contribute to the assessment.
However, lenders commonly apply adjustments rather than counting the full rental amount.
Lenders assess whether you can afford repayments under their applicable serviceability requirements, which may include an interest rate buffer.
A lender may obtain an independent valuation of your existing property to determine how much equity is available.
The lender's valuation may differ from an online estimate or your own expectations.
Key takeaway: Equity provides potential security for additional borrowing, but your borrowing capacity determines whether you can afford the proposed investment.
Using equity can provide several potential advantages.
Accessing equity can reduce the amount of cash savings required for the next purchase.
This may allow eligible investors to consider another property sooner than if they were relying entirely on savings.
Equity can potentially be used to fund additional property purchases over time.
This may help investors build a portfolio of assets across different locations and property markets.
Access to equity may provide additional funding options when purchasing a property.
For example, investors may be able to retain some cash savings as an emergency buffer rather than using all available funds towards a deposit.
If an investment property increases in value over time, the investor may benefit from capital growth.
Rental income may also contribute towards ongoing holding costs.
However, neither capital growth nor positive cash flow is guaranteed.
Although equity can be a useful financial tool, investors should understand the risks before increasing their debt.
Borrowing against your existing property increases your total loan obligations.
If interest rates rise, repayments may become more expensive.
If property prices decline, your available equity may decrease.
This could affect refinancing options or your ability to purchase additional properties.
When you borrow against your home or another property, that asset may be used as security for the additional debt.
If you cannot meet your loan obligations, the lender may ultimately enforce its security rights.
Investment properties can experience periods without tenants.
Repairs, maintenance, insurance and other expenses can also affect cash flow.
Taking on additional debt may limit your ability to borrow for other purposes in the future.
It's important to consider how the investment fits into your broader financial position.
Cross-collateralisation occurs when a lender uses more than one property as security for a loan or group of loans.
For example, both your existing home and new investment property may secure the borrowing arrangement.
While this structure may be appropriate in certain circumstances, it can create complications when refinancing, selling a property or restructuring loans.
Some investors prefer separate securities and loan facilities to maintain greater flexibility.
The most suitable structure depends on the lender, available equity and individual circumstances.
A qualified mortgage broker can explain the advantages and disadvantages before you proceed.
Interest on money borrowed against an existing property may be deductible when the borrowed funds are used for an eligible income-producing investment purpose.
For example, borrowing against your home to fund the deposit on a rental property may create deductible interest, subject to the applicable tax rules.
However, the security used for the loan does not determine deductibility.
The purpose and use of the borrowed funds are key considerations.
If borrowed funds are used partly for personal expenses and partly for investment purposes, interest may need to be apportioned.
Maintaining separate loan splits and accurate records can help simplify this process.
Always seek advice from a qualified tax professional before structuring investment borrowing.
There is no single ideal time to access equity.
The decision should depend on your financial position, investment strategy and ability to manage additional debt.
Before proceeding, consider:
Accessing equity simply because it is available isn't necessarily a sound investment decision.
The additional borrowing should support a carefully considered strategy.
Using all available equity can leave investors with limited flexibility if unexpected expenses arise.
An investment may appear attractive based on potential capital growth, but ongoing repayments and property expenses must remain manageable.
Different lenders may assess income, rental returns, expenses and existing debts differently.
This can result in different borrowing capacities and loan options.
Combining investment and personal expenses within the same loan can complicate record-keeping and tax calculations.
Access to finance doesn't guarantee that a property is a suitable investment.
Location, rental demand, purchase price and long-term market fundamentals remain essential.
If you're considering using equity, the following process can help you understand the journey.
Step 1: Review Your Existing Property Value
Obtain a realistic assessment of your property's current market value.
Step 2: Calculate Your Potential Usable Equity
Compare the property's value with your outstanding mortgage balance and applicable lending limits.
Step 3: Speak With a Mortgage Broker
Review your borrowing capacity, potential loan structures and refinancing options.
Step 4: Establish Your Investment Budget
Determine a comfortable purchase price after considering deposits, stamp duty, holding costs and financial buffers.
Step 5: Identify Suitable Investment Opportunities
Research properties that align with your financial goals, rental requirements and long-term strategy.
Step 6: Conduct Property Due Diligence
Assess the property's condition, market value, rental demand and relevant risks.
Step 7: Finalise Finance and Purchase Arrangements
Work with your lender, conveyancer and other professionals to complete the purchase.
Step 8: Monitor Your Investment
Review rental performance, property expenses, loan repayments and your broader investment strategy regularly.
At DDP Finance, we understand that accessing equity and purchasing another investment property can involve important financial decisions.
Our mortgage broking team can help you explore available lending options and understand how your existing property equity may contribute towards your next purchase.
Depending on your circumstances, this may include:
Whether you're considering your first investment property or expanding an existing portfolio, understanding your financing options is an important step.
Ready to explore your property equity?
Contact DDP Finance to discuss your circumstances and find out what borrowing options may be available.
Visit: https://ddpfinance.com.au/
Equity can be a valuable resource for property investors looking to purchase another investment property.
By accessing eligible equity in an existing home or investment property, you may be able to fund a deposit and associated purchasing costs without relying entirely on cash savings.
However, using equity also means taking on additional debt.
Before proceeding, it's important to understand your borrowing capacity, loan structure, ongoing repayments and the risks associated with property investment.
With careful planning, professional guidance and a clear investment strategy, equity may help you take the next step towards your long-term property goals.
Yes. Eligible homeowners may be able to borrow against equity in their existing property to help fund an investment property deposit and purchasing costs, subject to lender approval.
The amount depends on the new property's purchase price, required deposit, acquisition costs and your borrowing capacity. A mortgage broker can help estimate your available equity and financing options.
Potentially, yes. Some borrowers use an equity loan to fund the deposit on another property. However, this increases total borrowing and remains subject to lender assessment.
Not always. Depending on your lender and circumstances, you may be able to access equity through a loan top-up or separate loan split. Refinancing is another option.
Yes. You don't need to own your property outright to access equity. What matters is the property's value, outstanding debt, lending requirements and your financial position.
Using equity involves additional borrowing and can increase financial risk. Investors should consider interest rates, rental vacancies, property values and their ability to meet repayments.
Interest may be deductible when borrowed funds are used for eligible income-producing purposes. The applicable treatment depends on how the money is used and the relevant tax rules. Seek professional tax advice.
Yes. Eligible investors may be able to access equity from an existing investment property to help finance another purchase, subject to valuation, lender policy and borrowing capacity.
