Using Equity to Buy an Investment Property in Australia

Your home is worth more than you owe on it. The bank will let you borrow against that gap. On paper, you now have a deposit for an investment property without saving another dollar.

That is the pitch. It is accurate, as far as it goes.

What it skips: using equity to buy investment property means converting your family home into collateral for a second, leveraged position. If either property falls in value, or if a tenant stops paying rent for eight weeks, you are servicing two loans from one income. The equity was never free money. It was dormant risk you chose to activate.

This guide walks through how useable equity works, what lenders actually assess beyond the number, and the specific traps (cross-collateralisation, vacancy gaps, the 2026-27 negative gearing changes) that determine whether this strategy builds wealth or creates stress.

What Equity Is, and What ‘Useable Equity’ Means

Equity is the difference between your home's current market value and what you still owe on your loan. If your home is worth $750,000 and your loan balance is $400,000, you have $350,000 in equity.

That number matters, but the number you can actually use is smaller.

Lenders usually let you borrow up to 80% of your home's value, less your current loan. This is called useable equity. In the example above: 80% of $750,000 is $600,000. Subtract the $400,000 loan balance and your useable equity is $200,000.

The gap between total equity ($350,000) and useable equity ($200,000) exists because lenders want a buffer. If you borrow more than 80%, you may need Lenders Mortgage Insurance (LMI), which adds thousands to your costs and reduces the advantage of using equity in the first place.

Equity rises through a combination of principal repayments and growth in the market value of the property. You can build it deliberately (more on that below) or wait for the market to do the work. Most investors use a combination of both.

How to Calculate What You Can Borrow

Once you know your useable equity, the next question is: what price range does that open up?

Two major lenders publish different rules of thumb, and the gap between them is significant.

NAB uses a ‘rule of four’: multiply your useable equity by four to estimate the maximum purchase price. $100,000 in useable equity targets a property around $400,000.

ING uses a rule of five: the same $100,000 in useable equity could support a purchase up to $500,000.

That is a $100,000 difference in target property price from the same starting equity, depending on your lender. Bank Australia also uses the four-times multiplier, and notes that the amount must include stamp duty, legal fees, and other buying costs.

This is a critical detail that trips up first-time investors. A 20% deposit is $80,000 on a $400,000 property, plus about 5% for costs (roughly $20,000), bringing the total to $100,000. Your useable equity needs to cover both the deposit and the buying costs, not just the purchase price. For more detail on what that deposit looks like, see our guide to investment property deposits in Australia.

These are starting estimates. Every lender runs its own serviceability model, which can push the actual approved amount well below the multiplier.

The Three Ways to Access Your Equity

Not all equity access methods work the same way. There are three common approaches: a home loan top-up, a supplementary loan account, or cross-collateralisation.

Home loan top-up. You increase your existing loan and take the additional funds as cash. Simple, but it blends your owner-occupier debt with your investment debt, which complicates tax time (investment loan interest is deductible; owner-occupier interest is not).

Supplementary loan account. A separate loan facility secured against your existing property. This keeps the investment borrowing distinct from your home loan, making it easier to track deductible interest. For most investors, this is the cleaner structure.

Cross-collateralisation. This is the option that sounds convenient but creates problems. It involves using your existing property as collateral for the new investment property loan, creating two loans secured across both properties. This approach may give you less flexibility, as having both securities tied up in one loan could mean more work to separate them if you need to sell one property later.

The flexibility issue is practical, not theoretical. If you want to sell the investment property in five years, a cross-collateralised structure means the lender reassesses both loans. If your home has dropped in value, selling the investment property becomes harder even if it has performed well.

Your lender may also require a formal bank valuation of your existing property before approving any equity access. Online estimates are not enough. The valuation the bank orders determines your useable equity, and it may come in lower than you expect.

What Lenders Actually Assess (Equity Is Not Enough)

Having $200,000 in useable equity does not mean you will be approved.

Your lender will take into account your income, job status, current savings, financial commitments, living expenses, and credit history. Equity determines how much collateral you can offer. Serviceability determines whether you can handle the repayments.

Even with 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. An investor with $300,000 in useable equity but high personal debt and a single income source may be approved for less than someone with $150,000 in equity, dual incomes, and no other liabilities.

This is why the “rule of four” or “rule of five” multipliers are rough guides, not guarantees. The actual number comes out of the lender's serviceability calculator, which stress-tests your repayments at a rate higher than the current one.

The Full Cost Stack: What to Budget Before You Commit

The deposit is only part of the upfront cost. Stamp duty is the most significant buying cost, and it varies by state and purchase price. On a $500,000 investment property, stamp duty alone can range from roughly $13,000 to $22,000 depending on the state. Conveyancing, building inspections, and loan application fees add to that.

Then there are the ongoing costs that erode yield if you have not budgeted for them. Council and water rates, home insurance, property management fees, body corporate or strata fees, and general maintenance and repairs all come out of your rental income before you see a return.

The cost investors most often underestimate is vacancy. A few weeks with no rent each year or two is a realistic assumption. If your cash flow modelling assumes 52 weeks of rent per year, every vacancy week is a direct hit to your holding costs. For a broader view of what buying an investment property involves, our guide to buying investment property in Australia covers the full process.

Tax Considerations: Interest Deductions, Depreciation, Negative Gearing, and CGT

The tax treatment of investment property debt is one of the main reasons investors use equity rather than saving cash.

Interest on a loan used to buy an investment property can potentially be claimed as a tax deduction. This is why loan structure matters so much. If you top up your existing home loan and use the funds for an investment, you need to clearly separate the investment portion to claim the deduction. A supplementary loan account makes this straightforward.

Many investors choose interest-only loans because the principal repayment portion is not tax-deductible. By paying interest only, you maximise the deductible expense each year while keeping repayments lower. The trade-off: you build no equity in the investment property during the interest-only period.

You might also be able to claim depreciation on the investment property, further reducing your taxable income. Depreciation covers the decline in value of the building structure and its fixtures over time.

Two things to be aware of on the exit side. Selling an investment property at a profit may incur capital gains tax, which can reduce the net return on your investment. And the 2026-27 Federal Budget includes reforms to negative gearing arrangements for investors. Before making decisions about using equity to invest, speak with a tax agent who can give you advice based on your personal circumstances and the current rules.

The Risks: What Can Go Wrong

Using equity to buy investment property amplifies both the upside and the downside. Three risks deserve specific attention.

Negative equity. If the value of your rental property drops, it could affect the equity in your existing property, potentially leaving you in a negative equity situation where your debt outweighs the value of your properties. This does not mean you lose money immediately, but it restricts your ability to sell, refinance, or borrow further.

Cash flow strain. You should only invest if you are comfortable you can afford the repayments on both loans for a short period if you are between tenancies or your tenant stops paying rent. A reserve fund is not optional. It is the difference between riding out a vacancy and being forced to sell.

Multi-asset default risk. A default on any of your loans could mean the loss of multiple assets. This risk is highest with cross-collateralisation, where both properties secure the same loan. But even with separate loan structures, falling behind on either mortgage puts both properties at risk if the lender takes action.

Using every cent of your useable equity with no cash buffer is risky. You should consider having backup funds in case things do not go to plan. If you are already stretched on your home loan, adding a second loan secured against the same asset is a decision that deserves serious stress-testing, not just optimism about rental yields.

How to Build Equity Faster Before You Invest

If your useable equity is not quite enough, there are practical ways to grow it without waiting for the market.

NAB suggests four approaches:

• Use a 100% offset facility. Money sitting in an offset account reduces the interest charged on your loan, which means more of each repayment goes toward principal. Over time, this accelerates equity growth.
• Make extra or more frequent repayments if your loan allows it. Switching from monthly to fortnightly repayments adds the equivalent of one extra monthly payment per year.
• Consider focused renovations that add value without overcapitalising. A kitchen or bathroom update can lift a property's valuation, but spending $60,000 on renovations to add $40,000 in value defeats the purpose.
• Review your rate and structure and compare options. A lower rate means less interest and faster principal reduction. If you have not reviewed your home loan in the past two years, this is the simplest lever to pull.

For investors who are still building toward their first purchase, rentvesting is another path: rent where you want to live and buy an investment property where the numbers work, building equity in the investment while keeping your living costs flexible.

FAQ

How much equity do I need to buy an investment property?

Most lenders require a 20% deposit plus approximately 5% for buying costs. A rule of thumb is that you can borrow up to four times your useable equity (some lenders allow up to five times). So $100,000 in useable equity could target a property between $400,000 and $500,000, depending on the lender and your serviceability.

Can I use equity if I still have a mortgage?

Yes. Useable equity is calculated as 80% of your property's value minus your outstanding loan balance. You do not need to have paid off your mortgage. You need enough gap between what you owe and what the property is worth.

What is the difference between a top-up and cross-collateralisation?

A top-up increases your existing loan and gives you extra funds. Cross-collateralisation uses your existing property as security for the new investment loan, tying both properties together. Cross-collateralisation reduces flexibility and increases the risk of losing both properties if you default on either loan.

Is using equity to buy investment property risky?

It carries specific risks. If the investment property drops in value, your total debt could exceed the combined value of both properties. You also need to service two loans, which means having a cash buffer for vacancies, rate rises, and unexpected repairs. The risk is manageable with proper planning, but using all your available equity with no reserve is not advisable.