How to Use Equity to Buy an Investment Property
Understand usable equity, how it may fund an investment property deposit and costs, and why equity alone does not determine borrowing capacity.
In short
To use equity to buy an investment property, an owner generally applies for additional lending secured against an existing property. The released funds may cover the new property’s deposit and upfront purchase costs, while a separate loan is usually taken against the investment property. Available equity does not guarantee loan approval: the lender must still assess the property value, income, expenses, existing commitments and capacity to service the total debt.
Key takeaways
- Equity is the difference between a property’s value and the amount still owing; it is not cash until additional lending is approved.
- A common usable-equity estimate is 80% of the lender-assessed property value, less the current loan balance.
- Released equity may cover the deposit and upfront costs of an investment property, but it also increases total debt and repayments.
- Usable equity and borrowing capacity are separate: having enough for a deposit does not mean a lender will approve the additional debt.
- Loan structure, valuation outcomes, cross-collateralisation and cash-flow resilience should be considered before proceeding.
What equity is
Equity is the difference between what a property is worth and what is still owed against it.
If a home is worth $850,000 and its loan balance is $430,000, the owner has $420,000 in total equity.
Equity may increase as repayments reduce the loan or as the property value rises. Property values can also fall, so equity should be assessed using a current lender valuation rather than an owner estimate or an online price guide.
Equity is not money sitting in an account. To use it, an owner generally needs to take on additional lending secured against the property, with interest, repayments and a fresh lender assessment attached.
Total equity versus usable equity
Usable equity is the portion a lender may allow an owner to borrow against while retaining its required lending margin.
A commonly used estimate is: usable equity = (property value × 80%) − current loan balance.
The 80% threshold is a common lending convention rather than a law. Policies vary, and borrowing above 80% may be possible in some circumstances but can involve lenders mortgage insurance and additional risk.
| Calculation | Amount |
|---|---|
| Current lender-assessed value | $850,000 |
| Total equity: $850,000 − $430,000 | $420,000 |
| 80% of property value | $680,000 |
| Less current loan balance | −$430,000 |
| Estimated usable equity | $250,000 |
Illustrative figures only. The lender’s valuation and policy determine the amount that may actually be available.
How equity may be accessed
Equity is generally accessed through additional lending, not withdrawn directly from the property.
The appropriate structure depends on the borrower, lender and intended use. It should be established with a qualified mortgage broker or lender before an investment property search progresses too far.
- Loan increase or top-up: the existing loan limit is increased following a new application and assessment.
- Separate loan split: the released amount sits in a separate account alongside the home loan, helping distinguish investment borrowing from owner-occupier borrowing.
- Redraw: extra repayments already made may be accessed, subject to the loan terms. Mixing personal and investment funds can create complications that should be discussed with an accountant.
How released equity may support the purchase
Released equity may provide the deposit and upfront purchase costs that would otherwise need to come from cash savings.
The investment purchase still has the usual requirements: a deposit, transfer duty, legal work, inspections and loan costs. A separate loan is generally secured against the new investment property. The main difference is the source of the upfront funds.
This can solve the deposit constraint for some owners, but it also leaves them with additional lending against the existing property and a new loan against the investment. The combined repayment and cash-flow position matters as much as the deposit.
Equity access is not borrowing capacity
Usable equity may answer whether sufficient funds exist for a deposit, but it does not answer whether the new total debt can be serviced.
Lenders assess income, living expenses, existing commitments, credit limits and other factors, then apply their own interest-rate buffers and policies to the borrower’s total proposed debt. This assessment includes both the equity release and the loan for the investment property.
A borrower can have substantial usable equity and still be unable to obtain the required lending. A borrowing-capacity assessment with a qualified broker or lender should therefore happen early, before committing to a purchase or relying on a particular budget.
A worked example
In this illustration, the estimated usable equity covers the proposed deposit and costs, but finance approval and property suitability remain unresolved.
Assume an existing property is valued by the lender at $850,000 with a $430,000 loan balance. Estimated usable equity at an 80% lending threshold is $250,000.
The intended purchase is a $600,000 investment property. A 20% deposit is $120,000, while an illustrative allowance of 5% for transfer duty, legal work, inspections and loan costs is $30,000. Estimated upfront funds are therefore $150,000.
- The lender may value the existing property below $850,000, directly reducing the usable-equity estimate.
- Income and commitments must support the existing loan, the equity release and the proposed investment-property loan.
- The proposed property and location must still fit the investor’s objectives, timeframe, risk position and strategy.
| Item | Amount |
|---|---|
| Estimated usable equity | $250,000 |
| 20% deposit on a $600,000 property | $120,000 |
| Illustrative upfront costs | $30,000 |
| Total upfront funds required | $150,000 |
| Estimated usable equity remaining | $100,000 |
This example does not state that the borrower can obtain these loans. Costs vary by state, property and transaction.
Two risks to consider
Using equity can improve access to a purchase, but it also increases leverage and can connect the risk of the new investment to the existing property.
- Cross-collateralisation: when the existing property also secures the new loan, the lender has an interest in both properties. This may reduce flexibility when selling, refinancing or releasing equity again. Ask a broker whether separate securities and loan splits are more suitable.
- Gearing works both ways: additional borrowing can magnify positive outcomes, but it also magnifies the effect of vacancies, interest-rate changes, repairs and weaker property values. The strategy should remain workable under less favourable conditions.
Where to from here
Establish lending capacity first, then use the confirmed position to shape the property strategy.
Start with a qualified mortgage broker or lender. They can assess what equity may be accessible, whether the proposed debt is serviceable and how the lending could be structured. Tax and legal consequences should be checked with the relevant professionals.
Once the finance position is understood, Kallea can help define the investment objectives, assess suitable markets and properties, and manage the search, evaluation, acquisition and negotiation process.
Frequently asked questions
- Can I use all of the equity in my home?
- Usually not. Lenders retain a margin against the property value. A common estimate uses 80% of the lender-assessed value less the existing loan, although lender policy and individual circumstances vary.
- Does usable equity mean I can afford another property?
- No. Usable equity may provide deposit funds, but a lender must separately assess whether income, expenses and commitments support the total proposed debt.
- Can equity cover stamp duty and other purchase costs?
- Released equity may be used toward the deposit and upfront costs, subject to lender approval and the loan structure. Actual costs vary by state and transaction.
- Is a separate loan split better than combining the loans?
- Separate splits are often discussed because they can make loan purposes easier to distinguish, but the right structure is a lending and tax question for a qualified broker, lender and accountant.
- Who determines the property value used in the equity calculation?
- The lender relies on its own valuation process. An online estimate, local sale or owner expectation does not determine how much equity the lender will recognise.
Sources and references
- Using your equity to buy an investment property · St.George · Accessed 15 September 2026
- Cross-Collateralisation: What Property Investors Should Know · loans.com.au · Accessed 15 September 2026