Equity in Investment Property: How to Calculate and Grow Your Portfolio

Equity in Investment Property: How to Calculate and Grow Your Portfolio

Equity in your investment property is one of the most powerful tools for Australian investors. Understanding how much equity you can access and how to use it strategically makes the difference between owning one property and building a portfolio of multiple properties.

Whether you want to buy an investment property using equity in your home, or you own several properties and want to leverage your current property value, this guide explains everything.

Equity in Investment Property: The Basics

Equity is the difference between what your property is worth and what you owe. If your investment property has a property value of $750,000 and your mortgage is $500,000, you have $250,000 in equity.

But not all equity is useable equity. Understanding this difference is critical before using equity to buy your next property.

How Much Equity Do You Have?

Total Equity

Property Value - Current Loan Balance = Total Equity

Example: $750,000 - $500,000 = $250,000 total equity.

Useable Equity

Useable equity is what your lender will actually let you borrow against. Most lenders cap borrowing at 80% LVR.

Useable Equity = (Property Value x 80%) - Current Loan

So: ($750,000 x 80%) - $500,000 = $100,000 useable equity

That is significantly less than the $250,000 total — but this is the number that matters when planning to buy property.

Equity in Your Home: Multiple Properties

Your total useable equity is the sum across all properties you own. For example:

With $220,000 in useable equity, you could buy an investment property worth around $1 million — depending on your financial situation.

Using Equity to Buy an Investment Property

Many investors use equity as a deposit on their next property rather than saving cash. You refinance your existing home loan to release equity.

How Using Equity to Buy Another Property Works

1. Get a valuation to establish current market value of your existing home

2. Apply for a top-up on your current loan up to 80% LVR with your lender

3. Use those funds as the deposit plus purchase costs on the new property

4. Take out a separate home loan on the new investment property

This is how many investors build portfolios without saving a fresh deposit each time. Using equity to buy property makes sense when the numbers work for your financial situation.

Buy Property with Equity: Tax Deductions

When using equity to buy an investment property, the interest on the drawn-down amount is generally tax deductible — provided the funds are used for investment purposes. This includes tax deductions for interest, loan establishment fees, and rental income expenses.

Seek tax advice from a registered tax agent or accountant or financial planner. The tax implications depend on your personal situation and financial circumstances.

Home Equity Loans and Financing Options

Home Equity Loan (Top-Up)

Your lender increases your current loan balance, releasing the difference as cash.

Home Loan Line of Credit

A revolving facility against your home equity. Interest rates can be higher than standard home loan rates.

Cross-Collateralisation

Your lender secures the new loan against both properties. While you can borrow more money, it increases the risks involved. Home loan specialists often advise against this.

Risks of Using Equity

Interest Rates Rise

Every dollar released becomes additional debt. If interest rates rise, can you cover all loan repayments? Stress-test your cash flow.

Falling Property Values

If the current market softens, your equity shrinks. In extreme cases you could have negative equity — an increased risk at maximum borrowing.

Cash Flow and Financial Stress

More debt means higher loan repayments. Ensure your rental income and income comfortably cover all financial commitments plus living costs and living expenses.

A sensible approach: keep your portfolio LVR below 70-75% as a buffer. Consider your credit history and other debts.

Build Equity: Strategies to Grow

• Pay down your home loan faster — extra repayments increase useable equity

• Renovate strategically — increase the value of your home beyond renovation cost

• Improve rental income — higher income supports using equity to buy another property

The true benefit: equity compounds. Build equity in your first property, use it to buy a second property, which builds more equity for a third.

How Much Equity to Buy Property?

You need enough equity for a 20% deposit plus 4-5% purchase costs. For example, to buy an investment property at $500,000, you need roughly $125,000 in useable equity. For a second property at $700,000, approximately $175,000.

Your lender also assesses borrowing capacity based on income, existing loans, and financial situation. Having enough equity does not guarantee approval — your financial circumstances and credit history matter.

Equity to Buy Another: Getting a Valuation

Your useable equity depends on an accurate valuation. A bank valuation determines how much your lender will release. Online estimates from CoreLogic are useful for planning but banks will not rely on them. An independent valuation ($300-$600) helps if you believe your investment property is worth more.

Valuations can come in lower than expected in a softening current market. Be conservative.

Negatively Geared vs Positively Geared

When using equity to buy an investment property, consider whether the new property will be negatively geared or positively geared. A negatively geared investment property costs more to hold than it earns in rental income — but the shortfall is tax deductible.

Positively geared properties generate a surplus from day one, improving your cash flow. Your financial adviser can help assess which approach suits your financial situation and investment strategy.

Many investors target a second home or second property that is positively geared to offset the holding costs of existing negatively geared investments.

Managed Funds vs Property Equity

Some investors consider managed funds as an alternative to using equity. While managed funds offer diversification, property equity gives you direct control over a tangible asset with potential for capital growth and rental income.

The right choice depends on your financial circumstances, risk tolerance, and whether a new property or new loan fits your overall investment strategy.

Professional Advice Before Using Equity

Before using equity to buy property, seek professional advice. A financial planner or registered tax agent can review your financial commitments, living costs, and other debts to ensure the decision is sound.

Your lender or home loan specialists can confirm how much equity you can access based on current market value and existing loan balances.

Current Property Equity Calculator

Use our free equity calculator to see your useable equity across your entire investment property portfolio.

Understanding your home equity is the first step — whether that means using equity to buy an investment property, paying down debt, or consulting a financial planner about the best investment strategy for your personal situation. It makes sense to know exactly where you stand before making your next move.

Accessing equity can increase total debt and monthly repayments, and if property values drop, equity may diminish leading to negative equity.

A principal and interest loan is preferable for building equity as it reduces debt over time compared to an interest-only loan.

Building equity involves two primary drivers: reducing debt and increasing property value.

Equity is the difference between the market value of your home and the amount you owe on your mortgage, and it can grow over time as you pay down your loan and as property values increase.

To build equity in your home, you can either reduce the amount you owe on your mortgage or increase the value of your property through renovations or improvements.

Making extra or more frequent repayments on your mortgage can help you build equity faster by reducing the principal amount owed and the overall interest paid over time.

Higher equity provides more collateral for borrowers, potentially leading to better interest rates and access to higher-value properties.

Capital growth refers to the increase in a property's market value over time.

Loan-to-Value Ratio (LVR) refers to the ratio of a loan to the value of an asset purchased, with an LVR below 80% recommended to avoid LMI.

Equity is calculated as the difference between your home's market value and the amount you still owe on your mortgage.