Using Equity to Buy an Investment Property: How It Works

You've been paying off your home loan for a few years, property values have moved in your favour, and you've started wondering whether you could use what you've built up to buy an investment property. The short answer, for many homeowners, is yes — and it's one of the most common ways Australians grow a property portfolio without needing a separate cash deposit.

Here's how it works.

What Is Equity?

Equity is the difference between what your property is worth and what you still owe on it. If your home is currently valued at $850,000 and your remaining loan balance is $500,000, you have $350,000 in equity.

That equity is real wealth — but it's sitting inside your property. Accessing it means borrowing against it, using your home as security for a new or increased loan.

What Is Usable Equity?

Here's where it gets a little more nuanced. Lenders don't let you borrow against 100% of your equity. Most will lend up to 80% of your property's value without requiring Lenders Mortgage Insurance (LMI), so the starting point is working out what 80% of your home's value looks like — and then subtracting what you still owe.

Using the same example:

• Property value: $850,000

• 80% of value: $680,000

• Remaining loan balance: $500,000

• Usable equity: $180,000

  
  

That $180,000 is what you could potentially access to use as a deposit and cover purchase costs on an investment property. It's worth noting that some lenders will go above 80% with LMI, which changes the calculation — but 80% is the standard starting point.

How Do You Actually Access the Equity?

There are a couple of common ways lenders allow you to tap into equity:

Refinancing your existing loan — you refinance to a higher loan amount, drawing out the equity as cash or directing it straight to the purchase of the investment property.

Taking out a separate loan (or loan split) — rather than increasing your existing loan, you establish a new loan secured against your current property. This keeps the two loans separate, which can be useful for tracking deductible versus non-deductible debt — something worth discussing with your accountant.

The right structure depends on your circumstances, your lender, and how you plan to manage the investment from a tax perspective. A mortgage broker can help you work through the options.

What Can You Use Equity For?

When buying an investment property, the equity you access typically covers:

• The deposit on the investment property (usually 20% to avoid LMI on the new loan)

• Stamp duty and purchase costs — in Victoria, these can add 5–6% to the purchase price depending on the property value

• Minor renovation or repairs before the property is tenanted, in some cases

  
  

Ideally, the equity from your home covers the deposit and costs, and a separate investment loan covers the rest of the purchase price — meaning you're buying the investment property with little or no cash out of pocket.

What Lenders Actually Look At

Accessing equity isn't automatic. Lenders will still assess whether you can service the additional borrowing. That means they'll look at:

• Your income and existing debts

• The rental income the investment property is expected to generate (typically assessed at a conservative figure)

• Your overall loan-to-value ratio across both properties

• Your credit history and financial profile

  
  

Having equity available is the starting point — but serviceability is what determines whether a lender will actually release it.

The Risks Worth Understanding

Using equity to invest in property can be a powerful strategy, but it's not without risk. A few things worth keeping in mind:

• Your home is security — if the investment doesn't perform as expected and you struggle to meet repayments, both properties can be affected

• Property values can fall — if the value of your home drops, your equity position changes, and in some cases lenders can ask you to reduce your loan balance

• Interest rates affect both loans — rising rates increase repayments across all your borrowing, not just one property

• Tax implications matter — the structure of how you access and use equity can have tax consequences; it's worth getting advice from an accountant before proceeding

  
  

None of these are reasons to avoid the strategy — they're simply reasons to go in with a clear plan.

The Bottom Line

For homeowners who have built up equity over time, using it to fund an investment property purchase is a well-established path into the property market. The key is understanding how much usable equity you actually have, structuring the borrowing correctly, and making sure the numbers stack up before you commit.

Want to know how much equity you could access — and whether it's enough to get started? Talk to the Cultivate Financial team — we'll walk you through the numbers and the options in plain English.

This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend you consider whether it is appropriate for your circumstances. It does not constitute legal, tax or financial advice — please seek professional advice for your individual situation.