Negative gearing on established residential property ends on 1 July 2027. That is law, not proposal. The mechanics of using equity to buy investment property in Australia have not changed. The tax framework sitting underneath them has.
For years, the standard play was: draw equity from your home, put it down as a deposit on a rental property, then lean on negative gearing deductions to manage holding costs while you waited for capital growth. The maths was predictable. It no longer is.
Properties held at 7:30pm AEST on 12 May 2026 are exempt from the negative gearing changes. Investors who settle on an established property before 1 July 2027 are grandfathered. Those who wait will only be able to negatively gear new builds.
That timeline shapes everything below. The equity access process is unchanged, but the return profile on the other side of it looks different depending on when you move.
What Equity Actually Means (and Why Total Equity Is Misleading)
Equity is your home's current value minus the balance left on your loan. A home worth $600,000 with a $400,000 mortgage gives you $200,000 in equity.
That number is real, but it is not what your lender will let you borrow against.
Lenders usually let you borrow up to 80% of your home's value, less your current loan. This is your usable equity. If you borrow more than 80%, you may need lenders mortgage insurance (LMI), which adds thousands in upfront costs.
The gap between total equity and usable equity can be large. Take that $600,000 home with a $400,000 loan. Total equity: $200,000. But 80% of $600,000 is $480,000, and subtracting the $400,000 loan balance leaves just $80,000 of usable equity.
That is $200,000 versus $80,000. Most guides skip this distinction. Do not.
How to Calculate Your Usable Equity
The formula is straightforward:
Usable equity = (property value × 0.80) – outstanding loan balance
Three worked examples from different starting positions:
| Home value | Loan balance | Total equity | Usable equity (80% LVR) |
|---|---|---|---|
| $750,000 | $400,000 | $350,000 | $200,000 |
| $600,000 | $400,000 | $200,000 | $80,000 |
| $400,000 | $220,000 | $180,000 | $100,000 |
Notice the middle row. A homeowner with $200,000 in total equity can only access $80,000. That constrains the investment property price range significantly.
Equity builds two ways: through loan repayments reducing the outstanding balance, and through capital growth in the property's market value (though market values can also fall). If you have been in your home for several years and made consistent repayments, your usable equity may be higher than you think. If you bought recently with a small deposit, it may be close to zero.
Before doing anything else, ask your lender for a new valuation on your property. Your own estimate of your home's value is not what they will use. The bank's valuation is what counts.
How Much Can You Borrow? The Rule of Four Versus the Rule of Five
Usable equity tells you what you can put down as a deposit. But how far does that deposit stretch?
Two rules of thumb circulate among lenders:
The Rule of Four. Multiply your usable equity by four to estimate the maximum investment property purchase price. If your usable equity is $100,000, your target property price is roughly $400,000. This accounts for a 20% deposit plus purchase costs.
The Rule of Five. ING states investors may be able to borrow up to five times their usable equity, pushing that same $100,000 to a $500,000 property.
| Usable equity | Rule of Four (max price) | Rule of Five (max price) |
|---|---|---|
| $80,000 | $320,000 | $400,000 |
| $100,000 | $400,000 | $500,000 |
| $200,000 | $800,000 | $1,000,000 |
Neither rule is a guarantee. Your real borrowing power depends on income, expenses, debts, rates and credit history, not equity alone. You might have $200,000 in usable equity and still be declined if your serviceability does not stack up.
Even if you have plenty of equity, it is not always a given that you can borrow against it. Your lender will consider your income, your age, and any additional debts. The Rule of Four is the more conservative estimate and the safer one to plan around.
Three Ways to Access Your Equity
Once you know your usable equity figure and your lender confirms serviceability, you need to choose how to access the funds. There are three common methods.
Home loan top-up. The most common approach. You refinance your existing home loan or top it up, taking the additional funds as a lump sum for the investment property deposit. Simple, but it increases your home loan balance.
Separate supplementary loan. Westpac describes this as setting up a new, separate loan account, which may allow you to choose different features from those on your current home loan. This keeps your home loan and investment borrowing distinct, which matters for tax purposes (the interest on each loan is deductible against different income).
Line of credit. A line of credit works similarly to a credit card: you only pay interest on the amount you draw, not the entire credit limit. Flexible if you do not need the full amount upfront, but requires discipline. Drawing against it for non-investment purposes muddies the tax deductibility of the interest.
One method to approach with caution: cross-collateralisation. This involves using your existing property as collateral on the new investment loan. It ties both properties together. Having both securities tied up in one loan means more work to separate them later, and a default on any of your loans could mean the loss of multiple assets. Most brokers advise against it.
The Full Cost Picture Beyond the Deposit
Your usable equity covers the deposit. It does not cover everything else. Beyond the deposit, plan for stamp duty, conveyancing, building and pest inspections, lender fees, and settlement adjustments. For investors, add property management fees, insurance, maintenance and vacancy buffers.
On a $500,000 investment property, stamp duty alone can run into tens of thousands depending on the state. Our investment property deposit guide breaks down the full upfront cost stack, and our guide to buying investment property in Australia covers the end-to-end process.
Many investors choose an interest-only loan on the investment property, because the principal component of repayments is not tax-deductible. This keeps repayments lower during the holding period and maximises deductions. Whether that structure makes sense for you depends on how long you plan to hold and how the new tax rules (below) affect your position.
Tax: What Changed and What It Means for Equity Investors
This is where the old playbook breaks.
Interest on a loan used to buy an investment property is generally tax-deductible. You may also be able to claim depreciation on the property, reducing taxable income further. If you are negatively geared and making a loss on the property, you may be able to offset that loss against other income.
None of that changes for properties you already hold or settle before 1 July 2027.
What changes after that date: the 2026–27 Federal Budget reforms are now law. From 1 July 2027, they:
- Limit negative gearing for residential property investments to new builds. Established property purchased after that date cannot be negatively geared.
- Replace the 50% CGT discount for individuals, trusts, and partnerships with cost base indexation and a 30% minimum tax rate on capital gains.
The grandfathering provisions matter. Properties held at the time of the budget announcement (7:30pm AEST, 12 May 2026) are exempt from the negative gearing changes. The CGT reforms only apply to gains that accrue after 1 July 2027.
In practical terms: if you use equity to buy an established investment property and settle before 1 July 2027, you retain full negative gearing deductions on that property. If you wait, established property is off the table for negative gearing entirely. New builds remain eligible.
This does not mean you should rush. It means the tax component of your feasibility analysis now has a hard deadline attached to it. Our negative gearing changes 2026 guide covers the reform details in full.
Key Risks and the One Guardrail Every Investor Needs
Using equity to invest means your family home is exposed to the performance of a second asset. That carries real consequences.
Default risk across multiple assets. If you cross-collateralise or even simply overextend, a default on any loan could mean the loss of multiple assets. Your home is on the line.
Capital gains tax on sale. If you eventually sell the investment property at a profit, you may be liable for capital gains tax, which reduces the net return. Under the new rules, the old 50% discount is gone for gains accruing after 1 July 2027.
The buffer rule. If you do not have any funds outside your home equity, it is risky to use every cent of your usable equity to invest in property. You should consider having backup funds in case things do not go to plan. Rate rises, vacancies, and unexpected maintenance all hit harder when there is no buffer. A common approach is to retain at least three to six months of repayment costs in cash or offset, separate from deployed equity.
Step by Step: Using Equity to Buy Investment Property in Australia
- Calculate your usable equity. Property value × 0.80, minus outstanding loan. Use the table above as a reference.
- Get a bank valuation. Ask your lender for a formal valuation. Your own estimate will not match theirs.
- Assess serviceability. Borrowing power depends on income, expenses, debts, rates, and credit history. Speak to your lender or broker before identifying properties.
- Choose your access method. Top-up, separate loan, or line of credit. Avoid cross-collateralisation unless you fully understand the implications. Our refinancing guide covers the refinance path.
- Factor in all costs. Stamp duty, conveyancing, inspections, lender fees, property management, insurance, maintenance, and vacancy buffers. These come on top of the deposit.
- Model the tax position. Interest deductions, depreciation, and negative gearing all remain available for properties settled before 1 July 2027. After that, only new builds qualify for negative gearing. Speak to your accountant before committing.
- Retain a buffer. Never deploy all usable equity. Keep cash reserves for rate movements, vacancies, and unexpected repairs.
- Secure pre-approval and start searching. With equity confirmed, serviceability assessed, and costs mapped, you are in a position to move. Our investment property loan guide covers loan structuring from here.
FAQ
How much usable equity do I need to buy an investment property?
Most lenders work on an 80% LVR basis. Your usable equity is 80% of your home's value minus your outstanding loan. As a guide, multiply your usable equity by four to estimate your maximum purchase price. So $100,000 in usable equity could support a property around $400,000.
Can I use equity if I still have a large mortgage?
Yes, but the larger your mortgage, the less usable equity you have. A $600,000 home with a $400,000 loan gives you only $80,000 in usable equity. Your lender will also assess your income, age, and debts before approving access.
Is the interest on an equity loan for investment tax-deductible?
Interest on a loan used to purchase an investment property is generally tax-deductible in Australia. Keep the investment loan separate from personal borrowing to maintain clear deductibility. Speak to your accountant about structuring.
What happens to negative gearing after 1 July 2027?
From 1 July 2027, negative gearing for residential property investments is limited to new builds. Established properties purchased after that date cannot be negatively geared. Properties held at the time of the budget announcement (12 May 2026) are grandfathered.