How to use equity to buy your next investment property
We explain how you can leverage your home equity to buy an investment property. Here’s everything you need to know.
If you’ve been paying off your mortgage or your property has grown in value, you may have equity you can use to buy an investment property.
Equity is the difference between your property’s current market value and the amount you still owe on your home loan. You can use this equity as a deposit for a second property instead of saving cash from scratch.
This guide explains how usable equity works, how to calculate it, and what to consider before accessing your equity to invest.
What does using equity to buy property mean?
Using equity means borrowing against the value you’ve built up in your current home to fund the deposit on another property.
Equity is the difference between what your property is worth and what you still owe. For example, if your home is valued at $800,000 and your loan balance is $450,000, you have $350,000 in equity.
Your lender will still assess your income, expenses, existing debts, and overall borrowing capacity before approving any additional borrowing.
What is usable equity?
Usable equity is the portion of your equity that a lender will let you borrow against. It’s not the same as your total equity.
Most lenders cap borrowing at 80% of your property’s current value. Usable equity is calculated as 80% of your property value, minus your remaining loan balance.
How to calculate usable equity
Here’s a simple formula:
Usable equity (estimate) = (Property value × 80%) – Remaining loan balance
For example, if your home is worth $800,000 and you owe $450,000:
- 80% of $800,000 = $640,000
- $640,000 – $450,000 = $190,000 in usable equity
This $190,000 could be used as a deposit on an investment property. If you borrow above 80% of the property’s value, you may need to pay Lenders Mortgage Insurance (LMI), which can increase your upfront costs.
This is a general estimate only. The amount you may be able to access depends on lender criteria and your individual circumstances.
How can equity be used to buy an investment property?
There are two common ways to access your equity: refinancing your existing loan or applying for a loan top-up (also called a loan increase).
Refinancing
Refinancing replaces your current mortgage with a new, larger loan. The difference between the old and new loan is released as cash, which you can use as a deposit on the investment property.
Refinancing also gives you the opportunity to secure a more suitable rate to your individual circumstances. With Unloan, you can apply online in minutes with no application fees and no ongoing fees.*
Home loan top-up
A home loan top-up increases the limit on your existing mortgage. Your lender releases the additional funds, which you use for the investment property deposit.
This option keeps your current loan in place, so there’s no need to switch lenders.
However, the top-up amount is subject to a new serviceability assessment.
What costs are involved when buying an investment property?
Equity covers your deposit, but you’ll also need to budget for additional upfront and ongoing costs.
Upfront costs
- Stamp duty - which varies by state and property value. Use the Unloan stamp duty calculator to estimate your amount.
- Conveyancing or legal fees - for the legal transfer of property ownership.
- Building and pest inspections - usually recommended before committing to a purchase.
- Lenders Mortgage Insurance (LMI) – which may apply if your LVR exceeds 80%.
Ongoing costs
- Loan repayments
- Property management fees - if you choose to use a property manager.
- Council rates, water charges, and strata fees (if applicable)
- Landlord insurance - which may cover damage, loss of rent, and liability depending on the policy.
- Maintenance and repairs
- Vacancy buffer – where the property may not generate rental income
This is general information only. Costs, loan structures, and requirements will vary depending on the property, location, lender, and your individual circumstances.
What are the benefits of using equity for property investment?
Using equity lets you enter the investment property market without saving a separate cash deposit. This can accelerate your timeline significantly.
Key benefits include:
- No cash deposit required - your usable equity acts as the deposit, so you don’t need years of additional savings to get started.
- Leverage existing growth - if your property has increased in value since you bought it, you can put that unrealised growth to work instead of leaving it sitting idle.
- Faster portfolio growth - accessing equity lets you purchase a second property sooner, which means potential rental income and capital growth start compounding earlier.
- Potential tax benefits - As a property investor, you might be able to take advantage of certain tax benefits that come with owning an investment property, like tax deductions for interest repayments, property management fees and maintenance costs. Note, recent changes have been made to the negative gearing tax rules – you should consult the ATO website or consider speaking to your tax adviser or accountant for more information about how these changes could impact you.
These benefits depend on your borrowing capacity, the property market, and your ability to manage repayments on both loans.
What are the risks of using equity to invest?
Borrowing against your equity can increase your total debt and financial commitments. There are several risks to consider, particularly if your circumstances or market conditions change.
Key risks to consider:
- Higher repayments - borrowing more may increase your total loan repayments, especially if interest rates rise
- Property value changes - if property values fall, your equity position may reduce, and you may have less flexibility to sell or refinance
- Interest rate changes - variable interest rates may increase over time, which can increase your repayments
- Reduced financial flexibility - using equity may limit your access to funds for other expenses or unexpected events
- Rental income variability - rental income may change over time, including periods where the property may not be tenanted
These factors may affect your cash flow and your ability to manage your loan repayments.
You may wish to consider maintaining a financial buffer to help manage unexpected costs or changes in income.
How does negative gearing work with an investment property?
An investment property is generally considered negatively geared when the deductible costs of owning your rental property exceed the rental income it generates. General information about what rental property expenses may be tax deductible are available from the ATO website.
If the property is eligible, you may be able to claim a deduction for the loss from your negatively-geared property against your other taxable income (such as salary and wages).
However, this benefit is more limited following recent changes to negative gearing for investors.
Under the new rules, if the property is:
- Newly built residential property - any net rental loss you incur during the financial year may potentially be offset against other income you earn, such as your salary.
- An established residential property purchased after 12 May 2026 - any net rental loss you incur during the financial year is unlikely to be available to offset against other income. The loss instead carries forward to future years and, if unrecouped, reduces the amount of the capital gain when you sell the property.
- An established residential property purchased before 12 May 2026 – these properties should generally continue to qualify for potential offset of net rental loss against other income (such as salary and wages).
More information about the negative gearing tax rules and requirements is available on the ATO website. You should speak to your tax adviser or accountant for more information on how the tax rules apply to your particular circumstances before making any decision to buy an investment property. You should also ensure that you have enough cash to cover the difference between your rental income and the property’s expenses.
Capital gains tax (CGT)
If you sell an investment property and you receive more for that property than what you paid for it, you’ll have made a capital gain and you may need to pay capital gains tax.
How much capital gains tax you pay will depend on your circumstances, including how long you’ve held your property, the property type and when you purchased the property.
If you’re an Australian resident individual and have held the property for at least 12 months, you may be eligible for a 50% discount on your capital gain until 30 June 2027. And, under recent changes to the CGT rules, the 50% CGT discount will be replaced with inflation-based indexation and a 30% minimum tax on capital gains made after 1 July 2027.
For investment properties purchased before 1 July 2027 but sold after 1 July 2027, capital gains accruing up until 30 June 2027 are subject to the 50% CGT discount rule, and gains accruing after 1 July 2027 will be subject to the new rules.
Further information is available on the ATO website.
Tax laws are complex and change over time. Always speak with a registered tax agent or financial adviser if you are unsure about how the tax rules will apply to you before making any investment decision
How does loan-to-value ratio affect equity borrowing?
Loan-to-value ratio (LVR) measures your loan amount as a percentage of the property’s value. It directly affects how much equity you can access.
Most lenders set an 80% LVR threshold. If you borrow more than 80% of the property’s value, you’ll likely need to pay Lenders Mortgage Insurance (LMI).
What do lenders assess before approving an equity loan?
Before approving additional borrowing, your lender will run a full serviceability assessment. They need to confirm you can afford repayments on both your existing home loan and the new investment loan.
Key factors lenders assess:
- Income and employment - lenders want stable, verifiable income. If you’re self-employed, expect to provide at least two years of tax returns and financial statements.
- Living expenses - lenders use the Household Expenditure Measure (HEM) or your actual declared expenses, whichever is higher, to calculate your disposable income.
- Existing debts - credit cards, personal loans, HECS-HELP, and car loans all reduce your borrowing capacity. Lenders assess credit card limits, not balances.
- Property valuation - lenders arrange their own valuation of your property. This may differ from market estimates on real estate websites.
- Rental income estimate - for investment loans, lenders may factor in expected rental income to allow for vacancy and costs.
Meeting these criteria doesn’t guarantee approval. Each lender has different risk policies and credit scoring models.
Should you cross-collateralise or use standalone security?
When you use equity to buy an investment property, your lender may suggest cross-collateralisation. This means both your home and the investment property are used as security for one or both loans.
The alternative is standalone security, where each loan is secured by only one property.
Some property investors prefer standalone security for the flexibility it provides. If you plan to build a portfolio over time, keeping your loans separate makes it easier to sell, refinance, or switch lenders.
Steps to access your equity for an investment property
- Get your property valued - your lender will arrange a valuation to determine your home’s current market value. This is the starting point for calculating your usable equity.
- Calculate your estimated usable equity, you can use the formula: (property value × 80%) – remaining loan balance. This can provide you an estimate on how much you may be able to borrow.
- Check your borrowing capacity - use the Unloan borrowing power calculator to estimate what you can afford based on your income, expenses, and existing debts.
- Choose how to access your equity - decide between refinancing (replacing your current loan) or a loan top-up (increasing your existing loan limit).
- Apply for the investment loan - once your equity is released, apply for a new loan for the investment property. Your lender will assess the investment property’s value and your ability to service both loans.
- Budget for all costs - factor in stamp duty, conveyancing, inspections, and ongoing holding costs before committing.
Estimating borrowing capacity before using equity
Before committing to an investment purchase, check your borrowing capacity. This tells you the maximum loan amount a lender may approve based on your income, expenses, and existing debts.
Your borrowing capacity also factors in the expected rental income from the investment property.
Use these Unloan calculators to estimate your position:
- Borrowing power calculator - estimate the maximum you could borrow based on your financial situation.
- Home loan repayment calculator - see what your monthly repayments would look like on the investment loan.
- Stamp duty calculator - estimate your upfront stamp duty costs by state.
Running the numbers before you start looking at properties helps you set a realistic purchase budget and avoid overcommitting.
Unloan is a division of Commonwealth Bank of Australia.
Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. If you currently have an Unloan home loan with an active Lender’s Mortgage Insurance (LMI) policy the maximum amount you can borrow across all Unloan loans is $3,000,000. Please note Unloan currently doesn’t offer loans with an LMI premium. In some cases, depending on the property’s location or type, we may only be able to lend you up to 70% of the property’s value.
Unloan offers a 0.01% per annum loyalty discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The loyalty discount is applied for each loan you have with Unloan.
*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.
Unloan is a division of Commonwealth Bank of Australia, and Commonwealth Bank does not provide tax (financial) advice under the Tax Agent Services Act 2009 (Cth). You should consider seeking independent tax advice from a registered tax agent, accountant or adviser before you make any decisions based on this information.
Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. If you currently have an Unloan home loan with an active Lender’s Mortgage Insurance (LMI) policy the maximum amount you can borrow across all Unloan loans is $3,000,000. Please note Unloan currently doesn’t offer loans with an LMI premium. In some cases, depending on the property’s location or type, we may only be able to lend you up to 70% of the property’s value.
Unloan offers a 0.01% per annum loyalty discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The loyalty discount is applied for each loan you have with Unloan.
*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.
Applications are subject to credit approval, satisfactory security and minimum deposit requirements. Full terms and conditions are found on our Unloan Terms and Conditions. Modified Terms and Conditions will be set out in our Notice of Variation Agreement, if you are approved. This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice.
Unloan offers a 0.01% per annum loyalty discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The loyalty discount is applied for each loan you have with Unloan.
*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.
