Using home equity to buy an investment property is the most common strategy Australian property investors use to purchase their second (and third) property without needing to save a fresh deposit from scratch. If you have owned your home for several years in a growing market, you may have accumulated hundreds of thousands of dollars in equity — and that equity can be accessed as a deposit for an investment property while you continue living in your home. Done correctly, this strategy is tax-efficient, structurally clean, and can dramatically accelerate your portfolio-building timeline. Done incorrectly, it can create messy loan structures with ATO implications that are expensive to unwind.
What Is Home Equity and How Do You Calculate It?
Equity is the difference between your property’s current market value and the outstanding balance on your mortgage. If your home is worth $950,000 and you have $400,000 remaining on your mortgage, your total equity is $550,000. However, most lenders will only allow you to borrow against equity up to 80% of the property’s value without paying Lenders Mortgage Insurance (LMI). The calculation for usable equity: (Property value × 80%) − Outstanding loan balance. Using the example above: ($950,000 × 80%) = $760,000 − $400,000 = $360,000 of accessible equity. This $360,000 can be used as a deposit and acquisition costs for an investment property — typically allowing you to buy a property worth $1.5M-$1.8M (if your income services the additional debt), since you only need a 20% deposit on the investment property.
Home Equity Access — Example Calculation
The equity calculation shows you have $360,000 to deploy — but serviceability is the second gate. You need enough income to service both the PPOR loan (which increases if you draw against equity) and the new investment property loan. A $360,000 equity draw plus a $1.44M investment property loan (80% of $1.8M) adds significant monthly repayments. Run the serviceability numbers with a mortgage broker before assuming you can borrow this much. Your income may limit you to a $600,000-$800,000 investment property even if the equity is available for a larger one.
How to Access Equity — Loan Structures
Option 1: Refinance and increase the PPOR loan. You refinance your existing home loan, increasing the limit to $760,000 (80% of value). The additional $360,000 is drawn into a separate loan split and used as the investment property deposit. This is the most common structure. Option 2: Line of credit (LOC) against the PPOR. A separate credit facility secured against your home, up to 80% LVR. You draw from this as needed for the investment deposit. More flexible but requires discipline not to use the LOC for personal spending (which would contaminate deductibility). Option 3: Cross-securitisation. One loan secured over both your home and the investment property. This is generally the worst structure for investors — it gives the bank significant control over both properties and creates problems at refinancing or sale. Avoid unless specifically recommended by a specialist broker for a specific reason.
The Critical Tax Structuring Rule
The interest on borrowings used to purchase an income-producing investment property is tax deductible. The interest on your PPOR mortgage is not deductible. When you draw equity from your home to use as an investment deposit, the drawn amount is used for an investment purpose — so the interest on that portion is deductible. But the structure must be clean: the equity draw must be in a separate loan split from your non-deductible PPOR loan, and the funds must go directly from the equity draw into the investment property purchase without being mixed with personal funds. Mixing investment and personal money in the same account contaminates deductibility and can result in the ATO disallowing part of your interest deduction. Get your accountant to review the structure before settlement.
Home equity is one of Australia’s most powerful investment levers — and most homeowners who have owned for 5+ years have far more of it than they realise. Structure it correctly, run the serviceability numbers, and this single strategy can move you from one property to two or three within a few years without saving a new cash deposit.
One Property at a time
Brick by Brick 🧱
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.
