If you already own a home or investment property, you may be sitting on one of the biggest wealth-building tools you have, without even realising it.
Equity is simply the difference between what your property is worth today and what you still owe on your mortgage. As your property grows in value and your loan reduces, your equity grows too.
The good news? You may be able to use some of that equity instead of saving another cash deposit to buy your next investment property.
But equity is only one part of the equation. You also need enough borrowing power, a manageable cash flow position and a loan structure that supports your bigger plan.
Here is how to use equity to buy an investment property, without the jargon or guesswork.
How to Use Equity to Buy an Investment Property
The process is simpler than it first sounds.
You borrow against a portion of the equity in your existing property. Those borrowed funds can then cover the deposit and eligible buying costs for your next property. A separate investment loan usually covers the remaining purchase price.
In practical terms:
- Your lender values the property you already own.
- The lender calculates how much equity you may be able to access.
- You apply to release part of that equity.
- The released funds cover your deposit and buying costs.
- A new loan funds the balance of the investment property purchase.
The important word here is borrow. Releasing equity increases your debt. It is not free money or a bonus created by rising property prices.
Used strategically, that debt can help you acquire another quality asset. Used without a plan, it can place unnecessary pressure on your cash flow.
How Much Equity Can You Actually Use?
Equity is the difference between your property’s current value and the amount you still owe on it.
For example, if your property is worth $800,000 and your loan balance is $480,000, you have $320,000 in total equity.
But total equity and usable equity are not the same thing.
As a general guide, many lenders allow your total lending against a property to reach around 80 per cent of its value before Lenders Mortgage Insurance may apply.
You can estimate usable equity using this calculation:
Property value × 80% − current loan balance = estimated usable equity
Using the same example:
- Property value: $800,000
- 80 per cent of the property value: $640,000
- Current loan balance: $480,000
- Estimated usable equity: $160,000
That $160,000 could potentially help fund a 20 per cent deposit on an investment property worth $600,000, plus some of the purchasing costs.
This is an illustration, not a lending approval. Your lender may value the property differently, apply a lower lending limit or approve a smaller equity release based on your financial position.
You can learn more about how property equity works or use a home equity calculator for an initial estimate.
Borrowing above 80 per cent may still be possible, but you may need to pay Lenders Mortgage Insurance. LMI protects the lender if you cannot repay the loan. It does not protect you.
How Your Equity Becomes the Next Deposit
Equity does not become available cash until a lender approves you to borrow against it.
Depending on your lender, loan product and financial position, you may release equity through:
- A loan increase or top-up
- A new loan split
- Refinancing to another lender
- A line of credit, where available
The released amount can then be used for the investment property deposit and costs such as stamp duty, conveyancing, inspections and loan fees.
If you are aiming for an 80 per cent loan on the new investment property, the structure may look like this:
- An equity loan secured against your existing property
- A separate investment loan covering 80 per cent of the new property’s value
- The new investment property securing its own loan
This matters because the equity-funded deposit is still borrowed money. You could effectively be borrowing the full purchase price and some of the costs across two loan facilities.
Keeping the equity loan in a separate split can also make the purpose of the borrowing easier to track. The ATO looks at how borrowed money is used when determining whether interest may be deductible, not simply which property secures the loan. Mixing investment borrowing with personal spending can create tax complications, so speak with a qualified tax adviser before setting up the facility.
For a clearer explanation of deposits, LVRs and other lending language, see the key terms every first-time property investor should know.
Keeping Loans Separate Versus Cross-Collateralising
Loan structure can affect your flexibility long after settlement.
With separate securities, the equity loan is secured against your existing property, while the investment loan is secured against the new property.
For example:
- Your existing home secures the original home loan and a separate equity split.
- Your new investment property secures its own purchase loan.
Cross-collateralisation is different. It happens when a lender uses both properties as security across the lending structure.
This can appear convenient at the time of purchase, but it gives the lender greater control over both assets. Selling one property, refinancing or moving one loan to another lender may require fresh valuations and a wider review of the entire structure.
Keeping securities separate can offer more flexibility. It may make it easier to refinance or sell one property without disturbing the other and can help contain risk within each asset.
That does not mean one structure is automatically right for everyone. Your borrowing position, lender options, future purchases and long-term goals all matter.
This is a decision to make before you sign a contract. Ask your broker to show you exactly which property secures each loan and what would happen if you wanted to sell or refinance later.
Why Equity Alone Is Not Enough: Borrowing Power
You can have hundreds of thousands of dollars in equity and still be unable to borrow enough for another property.
That is because lenders assess serviceability as well as security.
Your borrowing power may be affected by:
- Employment and other income
- Existing mortgage and personal loan repayments
- Credit card limits
- Household expenses and dependants
- Expected rental income
- The lender’s assessment rate and credit policies
As at June 2026, APRA’s mortgage serviceability buffer for regulated banks remains at 3 percentage points above the loan interest rate. This means a bank tests whether you could afford repayments at a higher rate, not only the rate offered on the day you apply.
This is where many investors get caught. They are equity-rich but income-tight.
Check your borrowing power before you become emotionally attached to a property. A broker can assess your position across different lenders, while the Australian Government’s Moneysmart mortgage calculator can help you test repayments under different interest-rate scenarios.
Your plans outside property matter too. Parental leave, a career change, buying alone after a separation or reducing your working hours could change what feels comfortable, even if a lender approves more.
For more guidance on strengthening your financial position, see how to buy property solo as a woman in Australia.
Step by Step: Using Equity to Buy Your Next Property
- Get a Current Property Valuation
Start with a realistic estimate of your property’s value.
An online estimate or local agent appraisal can give you an early indication, but the lender will rely on its own valuation when assessing your application.
- Calculate Your Usable Equity
Apply the 80 per cent formula as a starting point, then subtract your current loan balance.
Do not assume you should use every dollar available. Leaving an equity buffer can give you more room if property values fall or your circumstances change.
- Check Your Borrowing Power
Ask a mortgage broker to assess your income, expenses, debts and expected rental income.
Get a clear purchase budget before searching for properties. Your maximum approval and your comfortable budget may not be the same number.
- Set Your Property Strategy
Decide what the next property needs to achieve.
Are you prioritising long-term capital growth, stronger cash flow or a balance of both? The answer should reflect your income, holding capacity, timeline and future portfolio plans.
- Research and Select the Right Asset
Look beyond a suburb’s popularity or a property that photographs well.
Focus on supply and demand, local employment, infrastructure, rental demand, property quality and the asset’s potential to support long-term growth.
- Structure the Loans Before You Buy
Confirm how much equity will be released, which property secures each facility and whether the loans will remain separate.
Also ask about interest rates, fees, repayment types and any conditions attached to the approval.
- Purchase, Settle and Arrange Management
Once the finance and property checks are complete, you can proceed to settlement.
A capable property manager can then help with tenant selection, rent collection, maintenance and the day-to-day running of the investment.
The Risks Worth Understanding First
Using equity can help you grow your portfolio sooner, but like any investment decision, it works best with the right strategy and structure.
Your total debt increases. Make sure the repayments are comfortable across both properties, not just the new investment loan.
Poorly selected properties can limit future opportunities. A property with weaker long-term growth may build equity more slowly, reducing your ability to refinance or purchase again.
Interest rates can change. Build a cash buffer so you’re prepared if repayments increase or unexpected costs arise.
Overleveraging can slow future progress. The right loan structure and strategy can help protect your borrowing power and keep future opportunities open.
Cross-collateralisation can reduce flexibility. Understanding your loan structure from the start can make refinancing or selling a property much easier later on.
The good news is that these are all risks that can be managed with the right advice, careful planning and a long-term strategy. The goal isn’t to avoid investing. It’s to invest with confidence.
Frequently Asked Questions
Can You Buy an Investment Property Using Equity With No Cash Deposit?
Potentially. If your usable equity is enough to cover the deposit and buying costs, you may not need to contribute a fresh cash deposit.
You will still need to meet the lender’s serviceability requirements. Keeping some cash available for repairs, vacancies and unexpected costs can also protect your holding position.
How Much Equity Do You Need to Buy an Investment Property?
It depends on the investment property’s price, your preferred LVR and the purchasing costs in your state or territory.
As a starting point, calculate the deposit and costs required, then compare that figure with your estimated usable equity. A broker can confirm what is accessible under a lender’s current policy.
Do You Pay Tax When You Release Equity?
Releasing equity involves borrowing money, rather than receiving income from selling an asset.
However, the tax treatment of interest depends on how the borrowed funds are used. Keep investment borrowing separate and seek advice from a registered tax professional for your circumstances.
Turn Your Equity Into a Clear Property Plan
Your existing property may already hold the deposit for your next investment. The smart move is not simply accessing it. It is knowing how much to use, what to buy and how to structure the debt without boxing yourself in.
Book a Property Wealth Strategy Session with Karen to build a clear, personalised property wealth roadmap based on your goals, borrowing position and next move.
This article contains general educational information only and does not constitute financial, lending, legal or tax advice. Consider seeking advice from appropriately qualified professionals before making property or borrowing decisions.