One of the most common conversations I have with people who already own a home goes something like this. They want to buy an investment property. They have been watching the market, done some research, and they are ready to move. But then they say: “The problem is I do not have a deposit saved.”

And I have to stop them right there.

Because in most cases, they do have a deposit. They just cannot see it yet.

It is sitting in their home. It is called equity, and for a lot of Australian homeowners it is the single most powerful tool available to build a property portfolio without saving another cent in cash.

Here is how it actually works, and more importantly, how to use it properly.

What Is Equity and Why Does It Matter for Property Investors?

Equity is the difference between what your property is worth and what you still owe on it. That is it. Simple concept, significant implications.

If your home is worth $800,000 and you owe $450,000 on your mortgage, you have $350,000 in equity. But you cannot access all of it. Lenders will generally let you borrow up to 80% of your property’s value before you start triggering Lenders Mortgage Insurance, so the usable figure is lower.

The formula is straightforward:

(Property value x 80%) minus outstanding loan = usable equity

In that example: ($800,000 x 0.80) minus $450,000 = $190,000 usable.

That $190,000 can act as your deposit for an investment property, without you needing to liquidate savings, sell assets, or wait years to scrape together cash.

And that is where it starts to get interesting for investors who want to build a portfolio over time.

How to Use Equity to Buy an Investment Property in Australia

Once you know your usable figure, the next step is working out how to access it. There are a few ways lenders allow you to do this.

Refinancing your existing loan

The most common approach. You refinance your home loan to a higher amount, pulling the extra funds out as cash. That cash then becomes the deposit on your next property. You end up with two loans: the refinanced home loan and a new investment loan.

Top-up on your existing loan

Some lenders will let you increase your existing loan limit without a full refinance. It is faster and simpler but not always available depending on your lender and your current loan structure.

Setting up a separate loan (line of credit or equity loan)

Instead of touching your primary mortgage, you open a separate loan facility secured against your property. You draw down from it when you need it. This keeps your investment borrowing separate from your home loan, which can make accounting and tax reporting cleaner.

Each option has trade-offs depending on your lender, your tax position, and your long-term strategy. This is exactly the kind of thing worth working through with a mortgage broker who understands investment lending, not just residential home loans.

How Much Equity Do You Actually Need?

This depends on the price of the investment property you are targeting and the lender’s requirements.

As a rough guide, most investors using equity need enough usable equity to cover:

• The deposit on the investment property (typically 10% to 20% of purchase price)
• Stamp duty (varies by state but usually 4% to 5% of purchase price)
• Acquisition costs: building inspections, conveyancing, loan establishment fees (allow 1% to 2%)

So to buy a $600,000 investment property with a 20% deposit, you would need around $120,000 in usable equity just for the deposit, plus another $30,000 to $40,000 for stamp duty and costs. That is roughly $150,000 to $160,000 in total.

If you are buying below market value, which is something we focus on heavily at Property Principles, the equity requirement can look quite different. A well-negotiated purchase at a genuine discount means you are building equity from day one, even before the market moves.

The Risks Worth Understanding

Equity is not free money. It is borrowed money, secured against an asset you already own. That comes with real obligations.

If property values fall, your equity position shrinks. If you have borrowed heavily against your home to fund an investment purchase and both properties drop in value at the same time, the financial pressure compounds quickly.

This is why we always talk about buying investment-grade properties in markets with strong supply and demand fundamentals, not just chasing yield or following hype. The data has to support the purchase. A cheap property in a weak market is not a good use of equity. A well-selected property in a growth corridor is.

You also need to be comfortable with higher overall debt and higher repayments. The investment rental income should offset a portion of your investment loan costs, but the picture needs to stack up with or without rental income for a period. Vacancy happens.

None of this is a reason not to use equity. It is a reason to use it strategically.

Cross-Collateralisation: The Trap to Avoid

When you use equity to buy an investment property, some lenders will want to cross-collateralise your loans, which means using your home as security for the investment loan as well as your own.

This sounds convenient. And it is, for the bank.

For you, it creates a situation where the lender holds security over multiple properties at once. If you want to sell one, refinance, or access equity again down the track, the bank has significant control over the process. It can complicate your ability to grow the portfolio on your own terms.

The cleaner approach is to keep loans separated by property. Each property secures its own loan. It takes slightly more structuring upfront but gives you far more flexibility as you scale.

This is one of the things most people never find out until it is already a problem. I have seen it slow down otherwise straightforward portfolio growth more times than I can count.

Using Equity as Part of a Portfolio Strategy

Equity is not just a one-time trick to get into the investment market. Used correctly, it is the engine of a compounding portfolio strategy.

You buy a property. It grows in value over time. That growth creates new equity. You access those gains to fund the next purchase. Rinse and repeat.

The key is choosing properties that actually grow, in markets where the fundamentals support sustained demand. This is the logic behind building a data-led property portfolio: each purchase needs to carry its weight and ideally accelerate the next one.

It is also worth understanding how your borrowing capacity interacts with equity. Having equity available does not automatically mean a lender will approve the loan. You still need to demonstrate serviceability. If you are unsure how your current financial position stacks up, understanding your borrowing capacity is a sensible place to start before you approach a lender.

And if you are currently renting and wondering whether equity even applies to you, the rentvesting strategy is worth understanding. Some investors build equity in investment properties first, then use it to eventually purchase their own home.

When to Use Equity and When to Wait

The most common question I get at this point is: “Is now the right time to use my equity?”

Here is my honest answer. The timing question is usually less important than the selection question. The right property in the right market, purchased with a well-structured loan, tends to perform across most market conditions. The wrong property in the wrong market is a problem whether you bought it at the top or the bottom.

What matters more than timing is whether you have a clear strategy, whether the numbers stack up, and whether you have the right people helping you execute.

If you have funds sitting in your home and you are not sure whether to act, the first step is getting a clear picture of what you are actually working with: your usable position, your borrowing capacity, and what a realistic investment purchase looks like within those constraints. Our discovery call is exactly that conversation. No commitment, no pressure, just clarity on where you actually stand and what your options look like.

The Bottom Line

Equity is one of the most underused tools in the Australian property investor’s toolkit. Most homeowners who have been in the market for a few years are sitting on a meaningful amount of usable funds and have no clear plan for what to do with them.

It is not complicated. But it does need to be structured correctly, and the investment it funds needs to be selected carefully.

I have seen clients use $150,000 in equity to buy a property that has added $200,000 in value within three years. I have also seen investors rush the process, choose poorly, and spend years managing an underperforming asset.

The difference is almost never luck. It is preparation, data, and having the right advice before you commit.

If you want to understand exactly how much equity you have available and what you could realistically do with it, book a discovery call with Property Principles. We will map it out for you.