How to Use Equity to Buy Investment Property

So, you’ve owned your home for a few years, paid down some of the loan, and watched the value of your property rise over time. Now you’re wondering, “Can I use that equity to invest in more real estate?” Short answer: yes, you absolutely can. And many smart Aussie investors are doing just that. Using equity to buy investment property is one of the most powerful (and underrated) ways to expand your portfolio without needing to save another huge deposit.

In this guide, we’ll walk you through what home equity is, how much you can actually use, how to use equity to buy investment property, and what you need to consider before using equity to buy investment property.

Let’s begin.

How Much Equity Can You Access to Buy Investment Property?

First things first, what is equity? Equity is the difference between your property’s current market value and what you still owe on your home loan. The more your property’s value increases (or the more you pay off your loan), the more equity you build.

For example:

Let’s say

• Your home is worth $800,000
• You still owe $400,000 on your mortgage

Your total equity = $800,00 – $400,00 = $400, 000

But here’s the catch: you can’t use all of it.

Most lenders will let you borrow up to 80% of your property’s current value, minus your existing loan. That’s what we call usable equity.

Usable equity formula:

Usable Equity = (Current property value*80%) – Outstanding loan balance

In our example,

Usable Equity = ($800,000*0.8) – $400,000 = $240,000

So, you can potentially use $240,000 as a deposit or security when buying investment property with equity. That’s a pretty great starting point.

Four Methods to Tap Equity

Now that you know how much equity you have, let’s look at four practical ways to tap into it for your next investment

1. Home Loan Top-Up / Refinance

This is one of the most common methods. You simply ask your lender to “top up” your current home loan, or refinance with a new lender for a larger loan based on your home’s increased value. The extra amount gets released as cash, which you can use as a deposit or to cover costs for your next investment. 

Why it works:

• Keeps things simple with one loan.
• Gives room to negotiate a better interest rate when refinancing.
• Can be structured for interest-only repayments to reduce monthly outgoings.

2. Second Mortgage / Equity Loan

Second mortgage / Equity loan involves taking out a second loan on your home while keeping your original mortgage untouched. It’s usually used if refinancing isn’t possible, but you still want to tap into the equity.

Why it works:

• Separates your investment debt from your existing home loan.
• May provide more flexibility with repayment options.
• Can help preserve low interest rates on your primary loan.

3. Home Equity Line of Credit (HELOC)

This option gives you a credit facility secured against your home equity. You can draw on it as needed. Think of it as a giant credit card with your home as collateral. 

Why it works:

• Access funds as needed, rather than a lump sum.
• Great for staged payments or renovations.
• Only pay interest on what you use.

4. Cross-Collateralisation

Here, you use the equity in your current property as security to buy another, without needing to physically draw out any funds. In simple terms, it’s a direct link between two or more properties under one loan umbrella. 

Why it works:

• No need to dip into cash or take out extra loans. 
• Streamlines your investments if done properly.
• Perfect for long-term portfolio expansion.

Note: Cross-collateralisation can get messy if not managed well. It’s best done with expert property investment advice, so your risk is controlled.

Key Eligibility and Risk Factors

Just because you have equity doesn’t mean the bank will hand you a cheque.

Here’s what lenders usually look at before approving home equity financing:

• Your income & expenses: Can you handle the extra repayments?
• Your credit score: Clean history matters, A LOT.
• Loan-to-Value Ratio (LVR): Lenders prefer it under 80%, though some might go higher with LMI.
• Existing debts: They’ll check all liabilities.
• Property type: Some lenders are extra cautious with certain properties (for instance, off-the-plan or studio apartments).

And the risks?

• Over-leveraging – Borrowing too much can backfire if values drop.
• Cash flow strain – Especially if you lose tenants or rates rise.
• Cross-collateralisation risks – Defaulting on one loan could affect all properties linked under one lender.

So, the smartest way to buying investment property with equity is to always weigh the risks carefully and get professional advice.

What You Can Do with the Equity

Think using your equity just means buying another house?

That’s definitely one way, but it’s far from the only option.

Here are a few other ways investors are putting their equity to work:

• Buying residential or commercial investment properties.
• Renovating their current home or investment to boost value.
• Branching out into regional or interstate markets to diversify. 
• Investing in a positive geared property to improve cash flow.
• Funding a dual occupancy build or adding a granny flat for extra income.
• Tipping some into a Self-Managed Super Fund (SMSF) for long-term returns.

Bottom line? Equity gives you options, and it’s one of the best ways to grow your property portfolio without starting from scratch.

Practical Steps to Follow

Ready to use equity to buy investment property? Here’s your step-by-step roadmap:

• Calculate your current equity & LVR

Use the formula above to check how much usable equity you have and your current LVR.

• Compare equity-access methods 

Review the pros and cons of top-up loans, second mortgages, HELOCs, and cross-collateralisation. A mortgage broker or buyer’s agent can help you make the right choice.

• Estimate borrowing capacity

Take a good look at your income, debts, and spending to understand how much you can actually borrow.

• Identify target investment property

Use your budget to shortlist suburbs or locations with strong growth potential. At InvestorKit, we specialise in spotting such areas before they hit the mainstream market.

• Factor in ongoing costs

Stamp duty, legal fees, property management, maintenance, and vacancy periods all add up.

• Regularly monitor LVR

Property values and loan balances change. Keeping track helps you stay in a safe range and ready for your next move.

Conclusion

Using equity to buy investment property is hands down one of the wisest moves you can make in Australian real estate. When it’s done right, it can fast-track your financial goals, open the door to new opportunities, AND help you grow an amazing portfolio, all without having to save up for every deposit from square one.

The key? Knowing how to use your equity responsibly, weighing up your options, and making informed calls. 

Don’t worry, you won’t have to figure it out alone. 

That’s exactly where we come in. At InvestorKit, we’ll walk you through the entire process, from figuring out how much usable equity you’ve got to finding properties with actual growth potential. 

With our expert insights and personalised property investment advice, you’ll be all set to make your equity work harder and build long-term wealth through smart home equity financing. 

Have questions? Let’s talk. 

Invest in real estate property with a buyer’s agency.

References:

[1] – Searchproperty.com.au – Using home equity to buy multiple properties

[2] – Unconditionalfinance.com.au – Guide to using home equity to buy another house

[3] – Yard.com.au – Using existing equity for an investment property