How to Use Equity to Buy Your Next Investment Property (2025 Guide)

Introduction: Turning Your Existing Home into Your Next Investment Opportunity

In Australia, property investors are increasingly turning to home equity to fund their next purchase. Rising property prices over the last decade have created significant equity for many homeowners—equity that can be unlocked and used to grow an investment portfolio.

If you already own a home or an investment property, understanding how to use equity to buy your next investment property could be the key to building long-term wealth.

This guide breaks down exactly what equity is, how to calculate how much of it you can access, what lenders look for, and how to use it strategically to purchase your next property—without overstretching your finances.

What Is Equity?

Equity is the difference between your property’s current market value and the amount you still owe on your mortgage.

For example:

• If your home is worth $800,000, and you owe $400,000, your total equity is $400,000.

That doesn’t mean you can access all of it—lenders usually allow you to borrow up to 80% of your property’s value (sometimes more, depending on your circumstances). The portion of equity that can be borrowed against is called usable equity.

How to Calculate Your Usable Equity

Here’s the general formula most Australian lenders use:

(Property Value × 80%) – Remaining Loan Balance = Usable Equity

Let’s say:

• Your property is valued at $800,000

• Your current mortgage is $400,000

Your usable equity would be:($800,000 × 80%) – $400,000 = $240,000

That means you could potentially access $240,000 to use as a deposit or security for your next investment property.

💡 Tip: If you’re happy to pay Lenders Mortgage Insurance (LMI), you may be able to access up to 90% of your property’s value—but it’s important to discuss the pros and cons with your broker first.

How Lenders Assess Your Equity and Borrowing Power

When you apply to access your equity, lenders don’t just look at the property value. They assess your overall financial position, including:

1. Property Valuation – The bank will conduct a professional valuation (not just rely on online estimates) to determine current market value.

2. Existing Loan Balance – How much debt you already owe.

3. Income and Expenses – Your ability to meet repayments on the new loan, even if interest rates rise.

4. Credit History – Lenders want to see a clean credit file and a history of managing debt responsibly.

5. Other Liabilities – Car loans, personal loans, or credit cards that may reduce your serviceability.

Each lender has slightly different policies on how much equity they’ll let you access, how they calculate income, and what debt-to-income ratio they’ll accept.

That’s where a mortgage broker experienced in investment lending—like Jack—can make all the difference.

Ways to Access Your Home Equity

There are three main ways Australians typically use equity to buy their next investment property:

1. Refinancing Your Existing Loan

This is the most common strategy. You refinance your home loan for a higher amount than you currently owe, using the extra funds as a deposit on your new investment property.

Example:

• Your home is worth $800,000

• Your mortgage is $400,000

• You refinance to an 80% LVR = $640,000

That means you can access $240,000 in cash (less any refinance fees) to use as your next deposit.

This option is ideal when your property has significantly increased in value, or you’ve paid down a good portion of your loan.

2. Drawing a Line of Credit (Equity Loan)

A line of credit loan allows you to access equity as needed, like a large credit card with lower interest rates. You only pay interest on the amount you use.

It’s flexible but requires discipline—because it’s easy to dip into funds for non-investment purposes.

This strategy can work well for investors who want to buy, renovate, and refinance multiple properties over time.

3. Cross-Collateralisation

This approach involves using the equity in one property as security for another, without physically withdrawing the cash.

While it can be effective, it ties the two loans together. That means if you sell one property, it can impact the loan on the other.

Most savvy investors and brokers avoid cross-collateralisation where possible, as it reduces flexibility.

Using Equity as a Deposit on an Investment Property

Let’s break down how this works in practice.

Say you’ve found an investment property worth $600,000.

• A 20% deposit = $120,000

• Plus stamp duty and costs (around 5%) = $30,000

• Total required funds = $150,000

If you’ve got $240,000 in usable equity, you could use that to:

• Cover your $150,000 deposit and costs, and

• Still have $90,000 buffer for renovations, emergencies, or future investments.

You would then take out an investment loan for the remaining $480,000 (80% of the property value).

Example: Building a Property Portfolio Using Equity

Let’s say you bought your home in 2016 for $600,000, and it’s now worth $900,000.

You owe $350,000, giving you $370,000 in usable equity (80% of $900,000 = $720,000 – $350,000).

You decide to use $150,000 of that equity as a deposit on a $600,000 investment property.

After buying, your total borrowings are:

• $350,000 (home loan)

• $480,000 (investment loan)= $830,000 total debt

But you now control $1.5 million worth of property.

This leverage is how many Australian investors grow their portfolios faster—but it must be done strategically.

Tax Considerations When Using Equity for Investment

One of the biggest advantages of using equity for investment is that the interest on the borrowed funds is usually tax-deductible, provided the money is used to purchase an income-producing asset.

However, if part of your equity release is used for personal purposes (like holidays or renovations to your own home), that portion of interest won’t be tax-deductible. Always keep a clear separation between personal and investment borrowings—ideally with help from a mortgage broker and accountant working together.

⚠️ Disclaimer: This information is general in nature and doesn’t constitute financial or tax advice. Always seek professional advice for your situation.

Risks and Things to Consider

Using equity to invest is powerful—but not without risks.

1. Increased Debt

While you’re using existing assets as leverage, you’re also taking on more debt. Ensure you have a solid repayment plan and buffers in place.

2. Changing Market Conditions

A property downturn could reduce your equity and impact your ability to refinance later. Choose quality assets and avoid overextending.

3. Rising Interest Rates

While rates have stabilised after 2024’s fluctuations, always plan for rate increases in your serviceability calculations.

4. Cross-Collateralisation Traps

As mentioned, linking properties can cause headaches when refinancing or selling. Most investors prefer standalone loans.

Tips for Maximising Your Equity Strategy

1. Get a Professional Valuation: Online tools are handy, but banks rely on formal valuations. A mortgage broker can help you compare lenders and find who’s most generous with valuations.

2. Review Your Loans Regularly: Your usable equity changes as markets and balances shift—review at least every 12–18 months.

3. Structure Loans Correctly: Using offset accounts, interest-only terms, and correct loan splits can make a big difference.

4. Work with Specialists: Choose a broker who understands investment finance and can align your loan structure with your tax strategy.

5. Keep a Buffer: Don’t use all your equity—keep some aside for maintenance, vacancies, or unexpected costs.

What Lenders Are Looking for in 2025

Lending policies evolve, and 2025 is no exception. Banks and non-bank lenders are currently focused on:

• Debt-to-Income Ratios (DTI): Most lenders limit total debt to 6–7x annual income.

• Serviceability Buffers: Lenders assess repayments at ~3% above current rates.

• Rental Income Shading: Only 70–80% of rental income may be counted toward serviceability.

• Credit History: Defaults or missed payments can reduce options—but specialist lenders may still help.

Working with a broker ensures your application is structured correctly from the start—improving your chances of approval and helping you access the best possible rates.

When Is the Right Time to Use Equity?

Generally, the right time is when:

• Your property value has significantly increased,

• Your current loan is well below 80% of the property’s value,

• You have stable income and cash flow, and

• You’ve identified a strong investment opportunity that fits your long-term goals.

Equity isn’t just money sitting idle—it’s a tool. But like any tool, it must be used with a plan.

The Smart Way to Get Started

Here’s how the process typically works when you partner with an experienced investment mortgage broker like Jack:

1. Equity Assessment – Determine your property’s current value and how much usable equity you have.

2. Goal Setting – Identify what you want to achieve (e.g., buy a second property, start a portfolio).

3. Loan Structuring – Choose between refinance, line of credit, or standalone investment loan.

4. Pre-Approval – Secure conditional approval before making offers.

5. Property Purchase – Use your released equity as the deposit for your new investment property.

6. Review and Optimise – Regularly review your portfolio to identify new equity or better loan deals.

Real-World Example: How One Investor Used Equity to Build Wealth

Jack recently worked with a client in Melbourne who bought their first home for $650,000 in 2018. By 2025, the property had increased in value to $950,000.

They still owed $400,000, giving them roughly $360,000 in usable equity.

Using $150,000 of that equity as a deposit and costs, Jack helped them purchase a $600,000 investment property in regional Victoria.

After settlement, their total loan was $850,000—but their combined property portfolio was worth $1.55 million.

Over time, rental income helped offset loan repayments, and the second property began generating positive cash flow.

Conclusion: Build Your Future Using the Power of Equity

Using your home equity to buy an investment property is one of the most effective ways to grow wealth in Australia. Done strategically, it allows you to leverage the value you’ve already built and turn it into a stepping stone for your next property—and the one after that.

But success depends on having the right structure, advice, and finance strategy from the beginning.

Ready to Unlock Your Equity?

Jack Brazel is an experienced mortgage broker and active property investor who helps Australians build wealth through smart property finance.

✅ Assess your equity

✅ Explore your borrowing options

✅ Structure your next investment the right way

Book your free strategy call with Jack today and take the first step towards your next investment property.