Guide · Investing
How to Use Your Home's Equity to Buy an Investment Property
Most people who buy a second property don't save a fresh cash deposit. They use the equity already sitting in their own home. Here's how that actually works, and how to set it up so it helps your next move instead of tangling everything together.
Equity is simply the difference between what your home is worth and what you still owe on it. If your place is worth $1,000,000 and your loan is $400,000, you have $600,000 of equity on paper. The catch is that lenders won't let you touch all of it. They lend against what's called your usable equity, and understanding that number is the whole game when you're buying an investment.
What usable equity actually is
As a rule of thumb, lenders let you borrow up to 80 percent of your home's value, then subtract what you already owe. Whatever is left is your usable equity. You can sometimes go above 80 percent, but then Lenders Mortgage Insurance comes back into play, so 80 percent is the clean line most people work to.
| Step | Amount |
|---|---|
| Your home's value | $1,000,000 |
| 80 percent of the value | $800,000 |
| Less your current loan | $400,000 |
| Usable equity | $400,000 |
That $400,000 of usable equity is what you can draw on for the deposit and costs on an investment. Since a deposit plus buying costs on an investment property is often around 20 to 25 percent of the purchase price, this kind of equity can be enough to fund the deposit on a substantial property, sometimes without spending a cent of your cash savings. To work out your own ceiling once you know the deposit, run it through the borrowing power guide as well, because equity gets you the deposit but income still has to service the loan.
Equity is not the same as borrowing power
Having equity to draw on does not mean a lender will approve the loan. They still test whether your income can service the total debt, including the new investment loan, at an assessment buffer above the actual rate. Plenty of people have the equity but not the serviceability, or the other way around. Both have to line up.
How the structure should look
This is where I see people go wrong. The tidy way to do it is to set up a separate loan or split against your home for the deposit and costs, then take a standalone loan for the rest of the investment purchase. That keeps the investment borrowing clearly identified, which matters at tax time, and it keeps the two properties untangled. Avoid cross-securitising your home and the investment under one lender if you can, because it makes selling or refinancing either one harder down the track.
- Get your home revalued so we know your real usable equity, not a guess.
- Set up a separate loan split against your home for the deposit and buying costs.
- Take a standalone loan for the balance of the investment purchase.
- Keep the investment debt clearly separate from your home loan so deductions stay clean.
Loop in your accountant early
How the loan is structured affects what interest you can claim. This is general information, not tax advice, so get your accountant involved before you draw the equity down. Getting the structure right on day one is far easier than unwinding it later. I go deeper on this in the investment loan structure guide.
The reason this is worth doing properly is that your first equity release sets up the second. Structure it cleanly and your portfolio can keep growing. Tangle it and you'll spend years unpicking it. It's exactly the kind of thing I map out with clients before they buy, and you can see how I help investors on the investment property page.
Wondering how much equity you can actually use?
Tell me your home's rough value and your current loan, and I'll work out your usable equity and what it could fund.
Frequently asked questions
How much equity do I need to buy an investment property?
There's no fixed figure, but a common guide is enough usable equity to cover a 20 to 25 percent deposit plus buying costs on the investment. Usable equity is roughly 80 percent of your home's value minus your current loan. You also need the income to service the larger total debt, so equity alone isn't enough.
Can I buy an investment property with no cash deposit?
Often, yes. If you have enough usable equity in your home, you may be able to fund the deposit and costs by borrowing against that equity rather than using cash savings. Lenders still assess whether you can service the combined loans, so it isn't automatic, but many investors buy their second property this way.
Does using equity put my home at risk?
Borrowing against your home increases the debt secured against it, so it does raise the stakes. That's why structure matters, and why I generally avoid tying your home and the investment together under one lender. Keeping them on separate loans gives you more room to move if plans change.
Important information
This information is general in nature and does not take your personal objectives, financial situation, or needs into account. It is not credit assistance or a recommendation to enter into any particular credit contract. Consider whether it is right for you and seek advice before acting. Lending is subject to a lender's eligibility and approval criteria. Terms, conditions, fees, and charges apply.
Greenwood Finance · ABN 23 671 049 693 · Credit Representative No. 551942.
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