Using equity to buy investment property is one of the most powerful wealth-building strategies available to Australian homeowners: and one of the least understood. If you’ve owned your home for several years and property prices have risen (which they have in most Australian markets since 2019), there’s a good chance you’re sitting on usable equity right now that could fund an investment property deposit without touching your savings.
This guide explains exactly how equity works, how to calculate what you can access, and the step-by-step process to use it to buy an investment property in Australia.
What Is Home Equity?
Equity is the difference between what your property is currently worth and what you owe on your mortgage. If your home is worth $900,000 and you have $400,000 remaining on your mortgage, you have $500,000 in equity.
But you can’t access all of it. Lenders typically won’t let you borrow against more than 80% of your property’s value without requiring Lenders Mortgage Insurance (LMI). So the calculation for usable equity is:
Usable Equity = (Property Value × 80%) − Outstanding Mortgage
Example: ($900,000 × 80%) − $400,000 = $720,000 − $400,000 = $320,000 usable equity
That $320,000 could be used as a deposit on an investment property: potentially buying a $1.2M–$1.6M property depending on your borrowing capacity.
How to Calculate Your Usable Equity
Step-by-Step Equity Calculation
Order a bank valuation (free through your lender) or get an independent appraisal. Don’t rely on Realestate.com.au estimates: banks use their own valuers.
Multiply your property’s current value by 0.80. This is the maximum the bank will lend against your property in total.
Get your current loan balance from your online banking or last statement. The result is your usable equity.
Usable equity tells you what deposit you have: but you still need to qualify for the investment loan on the new property. Your income, expenses, and existing debt all affect this.
Three Ways to Access Equity for an Investment Property
1. Refinance and Cash-Out (Most Common)
You refinance your existing home loan to a new loan with a higher balance. The difference between the new loan and the old loan is released to you as cash, which you use as the deposit on your investment property. This is the most straightforward approach: one application, one lender, and you end up with a clean structure.
Example: Home worth $900K, existing mortgage $400K. Refinance to $720K (80% LVR). $320K cash released. Use $200K as 20% deposit on a $1M investment property. Keep $120K in offset as buffer.
2. Home Equity Loan / Line of Credit
Instead of refinancing your whole loan, you add a separate loan or line of credit secured against your existing equity. You draw from it as needed. This keeps your existing home loan separate and can make tax time simpler: especially useful if your home loan rate is already excellent and you don’t want to disturb it.
3. Top-Up Your Existing Home Loan
The simplest option: you ask your current lender to increase your loan limit up to 80% of your property’s value. The extra funds are deposited into your offset or redraw. This avoids break costs on fixed rates and doesn’t require a new credit application with a different lender.
Using Equity vs Saving a Cash Deposit. What’s Better?
| Factor | Using Equity | Saving Cash Deposit |
|---|---|---|
| Speed | ✅ Can act now if equity exists | ❌ Years of saving required |
| Cash reserves | ✅ Keep savings intact as buffer | ⚠️ Cash depleted post-purchase |
| Total debt | ⚠️ Higher total borrowings | ✅ Lower debt on home loan |
| Tax | ✅ Investment interest deductible | ✅ Investment interest deductible |
| Risk | ⚠️ Both properties as security | ✅ Investment property only |
Tax Implications of Using Equity
This is critical and often misunderstood. The interest on the portion of your home equity you use for investment purposes is tax deductible: but only if the funds are clearly traceable to the investment. This is why lenders and accountants recommend keeping the equity loan completely separate from your home loan.
If you mix personal and investment funds in the same account, you contaminate the deductibility. Work with a tax accountant experienced in property investment before you structure this. See also: full guide to investment property tax deductions.
Cross-Collateralisation. What to Avoid
Some banks will offer to use both your home and your investment property as security for all loans: this is called cross-collateralisation. Avoid it where possible. It gives the bank significant control over both properties, makes it harder to sell one without bank approval, and complicates future refinancing. Instead, aim for separate loans with separate security: your home secures the equity release, your investment property secures the investment loan.
How Much Investment Property Can You Buy with Your Equity?
Once you know your usable equity figure, divide it by 0.20 to get the maximum property value it could support as a 20% deposit. But remember: you also need to cover stamp duty, legal costs, building inspection, and a cash buffer (typically 3–6 months of repayments). Factor in roughly 5–6% of the purchase price in purchasing costs.
So if you have $300,000 in usable equity: $300,000 ÷ 0.26 (20% deposit + 6% costs) ≈ maximum property value of ~$1.15M. But you also need the borrowing capacity to service that loan on your income.
Real-World Example: Using Equity to Build a Portfolio
Sarah bought her Sydney home in 2019 for $850,000. It’s now worth $1.2M. She owes $620,000. Her usable equity: (80% × $1.2M) − $620,000 = $960,000 − $620,000 = $340,000. She uses $240,000 as a 20% deposit on a $1.2M Brisbane investment property, keeping $100,000 as a cash buffer. Her investment loan of $960,000 is interest-only for 5 years. The rent from the Brisbane property covers approximately 80% of the repayments: she tops up the rest from salary, but after negative gearing tax benefits her net out-of-pocket is under $400/week. In 5 years, both properties have grown, she uses the equity in the Brisbane property to buy a third. This is how compounding works in property.
Is This Strategy Right for You?
Using equity to invest works best when:
- Your home has significant equity (ideally $200K+ usable)
- Your income can service both the equity release and the investment loan
- You have a stable employment situation and a cash buffer
- You understand that you’re taking on more debt: and are comfortable with that risk
It may not suit you if your equity is minimal, your income is uncertain, or you’re already stretched on repayments. Speak to a mortgage broker before proceeding: the structure of how you access equity makes a significant difference to your tax position and flexibility. See our guide on using a buyers agent to find the right investment property once your finance is ready.
Frequently Asked Questions. Using Equity to Buy Investment Property
How do I use equity to buy an investment property in Australia?
Calculate your usable equity: (80% of home value) minus your mortgage balance. Access it via refinancing, a home equity loan, or a top-up. Use those funds as the deposit on an investment property, keeping the equity loan separate from your home loan for clean tax deductibility.
How much equity do I need to buy an investment property?
Enough to cover a 20% deposit plus ~5–6% in purchase costs. As a rough guide, $200,000–$300,000 in usable equity can support a $600,000–$1,000,000 investment property, depending on your income and borrowing capacity.
Is the interest on equity used for investment tax deductible?
Yes: but only if the funds are clearly used for investment and kept in a separate loan account. Mixing personal and investment funds in the same account compromises deductibility. Always get tax advice on structuring this correctly.
What is cross-collateralisation and should I avoid it?
Cross-collateralisation is when a lender uses both your home and investment property as security for all loans. Most property investors recommend avoiding it: it limits flexibility to sell or refinance individual properties independently.
Using your home equity to buy investment property is one of the fastest paths to building a property portfolio in Australia: but only if you structure it correctly, understand the risks, and have the income to service the additional debt. Get the structure right from the start and it becomes a compounding machine. Get it wrong and you’re giving the bank unnecessary control over your most important assets.
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General Advice Warning: This article is general in nature and does not constitute personal financial advice. Please consult a licensed financial adviser before making investment decisions.
