If you already own property in Australia, you may be sitting on a valuable asset.
Many Australians are unaware that the equity in their current home or investment property could be the key to funding their next purchase. Whether you’re buying your first investment property or expanding a portfolio, equity is one of the most strategic tools for building wealth through property.
At Property Alchemy, we guide our clients through tailored investment strategies using proven methods and decades of experience to achieve smart, sustainable growth. This article will show you how to use equity to fund your next property investment and avoid common pitfalls along the way.
What Is Equity in Property?
Equity is the difference between your property’s current market value and the amount you still owe on your mortgage. For example, if your property is worth $900,000 and you owe $400,000 on the mortgage, your equity is $500,000.
There are two types of equity to understand:
Type of Equity | Definition |
Total Equity | The full value difference between your property’s value and what you owe. |
Usable Equity | The portion of your equity that a lender will allow you to borrow against. |
Lenders typically allow you to borrow up to 80% of your home’s value without needing to pay Lenders Mortgage Insurance (LMI).
How to Calculate Your Usable Equity
To determine how much equity you can use, you’ll need to know your property’s current market value. This can be assessed by a professional valuation, often organised by your lender or broker.
Example
- Property Value: $900,000
- Mortgage Balance: $400,000
- Maximum Loan (80% of property value): $720,000
- Usable Equity = $720,000 – $400,000 = $320,000
This $320,000 could go towards purchasing your next property, covering the deposit and other upfront costs.
Using Equity to Buy Your Next Investment Property
Once your usable equity is confirmed, there are two main ways to access it:
1. Equity Loan (Top-Up or Additional Loan)
You keep your existing mortgage and take out an additional loan using your equity as collateral. This is common if your original mortgage is at a competitive rate or has a fixed term.
2. Refinancing Your Loan
This involves replacing your current mortgage with a new one, either with your current lender or a different one. You can do this to access equity and secure a better rate or more flexible terms.
Tip
Refinancing also provides an opportunity to restructure your loan for investment purposes, which could include interest-only repayments or an offset account.
Why Use Equity for Property Investment?
There are several advantages to using equity as opposed to saving a new deposit:
Leverage Without Liquidating Assets
Equity allows you to borrow against existing value without needing to sell or save significant sums.
Speed Up Your Investment Journey
You don’t have to wait years to save a deposit, making it easier to act when the right opportunity arises.
Potential Tax Benefits
Interest on investment loans may be tax-deductible. Always speak to a qualified tax professional to confirm what applies to your situation.
Things to Consider Before Using Equity
Accessing equity isn’t just about numbers, it’s about strategy, timing, and understanding your risk profile. Here are a few considerations before you proceed:
1. Your Investment Goals
Are you buying for capital growth, rental yield, or long-term security? Your goal determines the best property type and location.
2. Loan Servicing Capacity
Lenders assess whether you can comfortably afford additional loan repayments based on your income, expenses, and existing debts.
3. Market Conditions in Greater Sydney
Localised knowledge of property cycles, suburbs poised for growth, and rental demand is critical. This is where experienced property management advice can make all the difference.
Risks of Using Equity—and How to Manage Them
All investment involves risk, but strategic planning can help you avoid major missteps.
Risk | How to Mitigate It |
Over-borrowing | Work with a financial advisor to determine realistic borrowing capacity. |
Interest rate increases | Choose fixed rates or build buffers into your budget. |
Vacancy or low rental income | Engage expert property managers to select and retain good tenants. |
Market downturn | Diversify locations and hold long-term to ride out cycles. |
Case Study: How a Sydney Investor Used Equity to Buy Their Second Property
Client Profile
- Owner of a 3-bedroom home in Ryde, Sydney
- Property value: $1.2M
- Mortgage balance: $500,000
- Usable equity: ~$460,000
Strategy
Property Alchemy helped the client refinance their home loan, accessing $300,000 in usable equity. They used this to fund the deposit and upfront costs of a 2-bedroom apartment in Newcastle with strong rental yield potential.
Result
- New investment property generating $570/week.
- Offset account in place for flexibility
- Both properties are managed under our property management services
Frequently Asked Questions
Can I use equity if I’m buying my first investment property?
Yes. Many first-time investors use equity from their home to fund their first rental property. It’s a common stepping stone toward building a portfolio.
Is it better to refinance or get an equity loan?
This depends on your existing mortgage terms, your goals, and current market interest rates. A mortgage broker can help you evaluate both options.
Will I need to pay Lenders Mortgage Insurance (LMI)?
Not if your total loan remains under 80% of the property’s value. However, some lenders allow borrowing above 80% with LMI. It’s best to factor this into your cost projections.
Can I access all my equity?
No. Lenders only allow you to access a portion of your total equity to reduce risk. This is called usable equity, and usually caps at an 80% loan-to-value ratio (LVR).
How Property Alchemy Can Help
At Property Alchemy, we understand that successful property investment is never a one-size-fits-all solution. We offer tailored strategies for buyers across Greater Sydney, whether you’re:
- Buying your first investment property
- Expanding your portfolio
- Refinancing for equity release
- Looking for innovative property management solutions
Our experienced team offers strategic guidance, access to trusted brokers, and ongoing support to help you maximise returns and minimise risk.
Ready to Turn Equity Into Opportunity?
If you’re considering using equity to fund your next investment, the smartest first step is getting professional advice. With the right strategy and support, you can grow your wealth without overextending yourself financially.
Property Alchemy brings together deep market knowledge, financial insight, and years of experience to help clients across Greater Sydney achieve real property investment outcomes one well-planned step at a time.
Take the Next Step with Property Alchemy
Want to know how much equity you can use or how to structure your investment strategy the right way?
Start your journey with confidence. Speak to the experts at Property Alchemy today.
