Property investment remains a popular way for Australians to build long-term wealth and create additional income. However, for many first-time investors, saving a large deposit while managing rising living costs can be challenging. That’s why more homeowners are exploring how to use equity to buy investment property instead of relying only on savings.
According to the Australian Bureau of Statistics, Australian property prices continued to rise in 2025, helping many homeowners build more equity. At the same time, CoreLogic reported strong demand for investment properties across major cities, encouraging more Australians to grow their property portfolio sooner.
If your property has increased in value or you’ve reduced your home loan over time, you may already have enough usable equity to help fund another purchase. In this guide, we’ll explain how equity works, how lenders assess it, and how it may help you buy an investment property or even a second home in Australia.
What Does Equity Mean in Property?
Equity is the difference between the current market value of your home and how much you still owe on your mortgage. This is known as home equity.
For example:
- Home value: $900,000
- Mortgage owing: $500,000
- Total equity: $400,000
This means you own $400,000 of the property outright.
However, lenders usually won’t let you access all of your equity. Most Australian lenders generally allow borrowing up to 80% of the property’s value without charging Lenders Mortgage Insurance (LMI). This is called usable equity.
Using the same example:
- 80% of $900,000 = $720,000
- Minus existing mortgage = $500,000
- Usable equity = $220,000
This means you may potentially be able to access up to $220,000 to help fund an investment property purchase.
If your property has increased in value over time, or you’ve reduced your home loan balance, you may already have enough equity in your home to support your next property goals.
Can You Use Equity to Buy an Investment Property?
Yes, many Australians use the equity in their current property to help purchase an investment property.
Before approving finance, lenders usually assess:
- Your financial situation
- Income and employment stability
- Existing debts and liabilities
- Credit history
- Living expenses
- Borrowing power
- Potential rental income
Even with strong equity, lenders still need to confirm you can manage the extra repayments.
For first-time investors, understanding your equity and future loan repayments is key when learning how to buy an investment property with equity.
How Much Equity Do You Need to Buy an Investment Property?
The amount of equity you need depends on several costs, including:
- The property price
- Deposit requirements
- Stamp duty
- Legal and conveyancing fees
- Loan setup costs
- Emergency buffer funds
Many investors aim for at least a 20% deposit to avoid Lenders Mortgage Insurance (LMI) and keep monthly repayments more manageable.
For example, if you want to buy an investment property worth $700,000:
- 20% deposit = $140,000
- Estimated upfront costs = $30,000+
- Recommended accessible equity = around $170,000 or more
This is why many Australians consider equity to buy property opportunities instead of relying solely on savings.
Step-by-Step: How to Use Equity to Buy Investment Property
Step 1 – Get Your Property Valued
The first step is understanding the current value of your home. This can include:
- Online property estimates
- Desktop bank valuations
- Formal lender valuations
A lender valuation helps determine how much equity you may be able to access. Many borrowers also use an online calculator or estimate before speaking with a lender or home loan specialist.
Step 2 – Calculate Useable Equity
The standard formula is:
Useable Equity = 80% of Property Value – Existing Loan Balance
You can use a simple borrowing power calculator or equity calculator to estimate available funds before speaking to a lender.
This step helps borrowers calculate their equity and understand whether they have enough available funds to support a deposit and associated purchase costs.
Step 3 – Review Borrowing Capacity
Lenders also assess your:
- Income
- Employment type
- Existing liabilities
- Credit score
- Living expenses
- Expected rental income
Even when buying a second home or using equity to buy a second home, lenders carefully review your ability to manage future repayments. A repayment calculator can also help estimate how mortgage costs may affect your monthly budget.
Step 4 – Choose How to Access Equity
There are several ways to access your equity, including:
Refinancing: Refinancing replaces your current home loan with a larger loan and releases equity funds.
Loan Top-Up: A top-up increases your existing loan limit with your lender.
Line of Credit: This provides flexible access to funds when required.
Split Loan Structure: Some borrowers separate owner-occupied and investment debt for easier management and potential tax benefits.
Step 5 – Secure Finance Approval
Lenders generally request:
- Payslips or tax returns
- Bank statements
- Existing loan documents
- Identification documents
- Asset and liability information
Pre-approval can help clarify your borrowing power before searching for another property.
Step 6 – Purchase the Investment Property
Once approved, borrowers can use that money toward:
- Deposit
- Stamp duty
- Legal costs
- Loan setup expenses
From there, the process works similarly to a standard property purchase.
Ways to Access Equity for Investment Property
Refinancing Your Existing Home Loan
Refinancing is one of the most common methods of using equity to purchase property.
Pros
- Potentially lower interest rates
- Access to larger equity amounts
- Opportunity to restructure debt
Cons
- Refinance costs and fees
- Possible break fees on fixed loans
- Larger total debt and increased loan repayments
Loan Top-Up
A loan top-up increases your mortgage balance.
Pros
- Simple process
- Often lower setup costs
- Convenient with the existing lender
Cons
- Higher monthly repayment obligations
- Less flexibility than separate loans
Line of Credit
A line of credit gives flexible access to approved funds.
Pros
- Flexible withdrawals
- Useful for ongoing investing in property opportunities
Cons
- Variable interest rates
- Requires strong budgeting discipline
Cross-Collateralisation (With Caution)
Cross-collateralisation uses multiple properties as security for one loan structure.
While this can increase borrowing capacity, borrowers should carefully consider using this strategy because it can reduce flexibility later if they decide to sell a property or refinance.
Benefits of Using Equity to Buy an Investment Property
Many Australians use equity to buy a second house to enter the property market sooner, preserve savings, and grow their property portfolio faster. It can also help leverage existing assets and create potential rental income opportunities.
While some borrowers use equity to invest in property, others use the equity in their home for goals like renovating or buying a second property. Always seek independent tax advice before making financial decisions.
Risks of Using Equity for Property Investment
While equity can help grow your property portfolio, it also comes with risks. These may include overleveraging, rising interest rates, cash flow pressure, reduced borrowing flexibility, and rental vacancy periods. The Reserve Bank of Australia’s rate increases between 2022 and 2024 also highlighted the importance of assessing future repayment affordability. Before using equity to invest, it’s important to seek professional advice and independent tax advice to understand the long-term financial impact and possible tax implications.
Costs to Consider Before Using Equity
Before buying a second home or investment property, remember to budget for:
- Valuation fees
- Stamp duty
- Conveyancing costs
- Loan establishment fees
- Building inspections
- LMI (if applicable)
- Ongoing maintenance and management costs
A repayment calculator can also help estimate the impact of rising interest rates over time.
Eligibility Requirements Lenders Consider
Lenders assess more than just equity.
Common requirements include:
- Sufficient usable equity
- Stable income and employment
- Acceptable debt-to-income ratio
- Strong credit history
- Existing liabilities
- Genuine repayment ability
Even if you have strong equity in your home, lenders still assess whether the loan remains affordable long-term.
Common Mistakes to Avoid
First-time investors often make mistakes like borrowing too aggressively, misunderstanding home equity, or ignoring ongoing property costs. Before using equity, make sure the investment suits your budget, lifestyle, and long-term financial goals; not just your borrowing capacity.
FAQs
Can I Use Equity as a Deposit for an Investment Property?
Yes, many lenders allow homeowners to use usable equity as a deposit.
How Much Equity Do I Need?
It depends on the property price and purchase costs, but many investors aim for enough equity to cover a 20% deposit plus fees.
Can I Buy It With No Cash Deposit?
In some cases, yes. If sufficient usable equity exists, it may cover the deposit and upfront costs.
Is Refinancing the Best Option?
Not always. Some borrowers may benefit more from a loan top-up or line of credit depending on their goals.
What Credit Score Do I Need?
There’s no universal minimum, but stronger credit profiles generally improve approval chances.
Can First-Time Investors Use Equity?
Absolutely. Many first-time investors begin by using equity to purchase investment property rather than saving a separate deposit.
Does Rental Income Help Borrowing Capacity?
Yes, lenders often include a portion of expected rental income when assessing serviceability.
When to Speak With a Mortgage Broker
Finance structures can become complex when using equity to buy investment property.
A mortgage broker or home loan specialist can help you:
- Assess available equity
- Compare lenders
- Structure debt correctly
- Understand serviceability
- Explore refinance opportunities
Different lenders assess borrowers differently, which is why personalised support can make a major difference when planning your next home or investment purchase.
Conclusion
Using equity to buy investment property can help you enter the market sooner and start building long-term wealth. For many Australians, it’s a practical alternative to waiting years to save a large deposit. However, careful planning is essential before taking on additional debt.
The best place to start is by reviewing your usable equity, borrowing capacity, and loan options.If you’re considering using equity to buy investment property or purchasing a second property, the team at Clear Path Financial Group can help you assess your options and create a strategy aligned with your financial goals.
