For many Australians, one of the biggest obstacles to purchasing another investment property isn’t finding the right opportunity. It’s coming up with another deposit.

After buying your first property, saving tens of thousands of dollars again can take years. But if your existing property has increased in value and you’ve reduced the mortgage, you may already have access to another potential source of funds: equity.

Equity can potentially be used towards the deposit and purchasing costs of another investment property, allowing investors to grow their portfolios without relying entirely on cash savings.

Used strategically, this can significantly accelerate a property investment journey.

However, accessing equity also means taking on additional debt. Understanding how equity works, how lenders calculate usable equity and how it affects your overall financial position is essential before making another purchase.

Let’s break it down.

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What Is Property Equity?

Property equity is essentially the difference between the current market value of your property and the amount you still owe on the loan.

The basic calculation is:

Property Value – Outstanding Loan Balance = Equity

For example:

• Current property value: $800,000
• Remaining mortgage: $500,000
• Total equity: $300,000

On paper, the owner has $300,000 in equity.

However, that doesn’t necessarily mean they can withdraw the entire $300,000.

This is where usable equity becomes important.

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What Is Usable Equity?

Lenders generally won’t allow a property owner to borrow against 100% of their property’s value.

A commonly used benchmark when discussing usable equity is borrowing up to 80% of the property’s value, although the actual amount available will depend on the lender, the borrower’s financial circumstances and lending criteria.

Using the example above:

Property value: $800,000
80% of property value: $640,000
Current mortgage: $500,000

Potential usable equity:

$640,000 – $500,000 = $140,000

So although the owner has $300,000 in total equity, the amount potentially accessible without borrowing beyond an 80% loan-to-value ratio would be approximately $140,000.

This is an important distinction for property investors.

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How Does Property Equity Grow?

There are two primary ways equity can increase.

1. Your Property Increases in Value

If you purchase a property for $600,000 and several years later it’s valued at $750,000, you’ve potentially created $150,000 in additional equity through capital growth, before considering changes to your loan balance.

This is one reason why property selection matters so much.

Buying in a market with strong underlying fundamentals can potentially help investors build equity over time.

Factors that may contribute to long-term demand include:

• Population growth
• Employment opportunities
• Infrastructure investment
• Limited housing supply
• Rental demand
• Owner-occupier demand
• Affordability
• Local economic growth

Capital growth isn’t guaranteed, but selecting the right market and property can play an important role in an investor’s ability to build equity.

2. You Reduce Your Loan Balance

Equity can also increase as you repay the principal component of your mortgage.

For example, if your property remains worth $700,000 but your mortgage falls from $550,000 to $500,000, your equity has increased by $50,000.

For many property owners, equity builds through a combination of capital growth and debt reduction.

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How Can You Use Equity to Buy an Investment Property?

Once sufficient usable equity exists, an investor may be able to refinance or establish an additional loan facility secured against their existing property.

The released funds could potentially be used towards:

• Investment property deposit
• Stamp duty
• Conveyancing costs
• Building and pest inspections
• Other eligible purchasing costs

The remaining portion of the new property’s purchase price would generally be funded through a separate investment loan.

This can reduce the amount of cash the investor needs to contribute upfront.

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Example: Using Equity to Purchase Your Next Investment Property

Imagine you purchased your home several years ago.

Today:

Current property value: $900,000
Current mortgage: $550,000

Your total equity is:

$900,000 – $550,000 = $350,000

Using an 80% loan-to-value example:

$900,000 × 80% = $720,000

Subtract the existing mortgage:

$720,000 – $550,000 = $170,000

That means you may have approximately $170,000 in usable equity, subject to lender approval and your borrowing capacity.

Now imagine you want to purchase an investment property for $550,000.

A 20% deposit would be:

$110,000

Some of the remaining accessible funds could potentially assist with purchasing costs.

Rather than spending several years saving another $110,000 in cash, the investor may potentially use equity already created in their existing property.

This is where equity can accelerate portfolio growth.

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Why Equity Can Be So Powerful for Property Investors

One of the biggest challenges when building a property portfolio is repeatedly accumulating deposits.

Imagine an investor saves $25,000 per year.

Saving a $100,000 deposit could take approximately four years, before considering purchasing costs or changes in property prices during that period.

If the investor’s existing property has appreciated and created sufficient usable equity, they may potentially be able to access their next deposit sooner.

This can allow them to move from:

Property 1 → Equity Growth → Property 2 → Further Equity Growth → Property 3

rather than:

Property 1 → Save for years → Property 2 → Save for years → Property 3

The ability to recycle equity is one of the strategies investors may use when building larger property portfolios.

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Equity Isn’t the Same as Borrowing Capacity

This is one of the most important concepts for investors to understand.

Having $150,000 in usable equity does not automatically mean a lender will allow you to borrow it.

There are effectively two separate questions:

1. Do you have sufficient equity?

2. Can you service the additional debt?

A lender will generally assess factors such as:

• Income
• Existing mortgages
• Rental income
• Living expenses
• Credit card limits
• Personal loans
• Dependants
• Other liabilities
• Proposed investment property debt
• Applicable serviceability assessment rates

You could have substantial equity but insufficient borrowing capacity to access all of it.

Likewise, someone may have a strong income and borrowing capacity but insufficient equity for their required deposit.

A successful portfolio strategy needs to consider both equity and serviceability.

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Loan-to-Value Ratio and Why It Matters

Loan-to-value ratio, or LVR, compares the amount borrowed against the property’s value.

For example:

Property value: $800,000
Loan: $600,000

LVR:

$600,000 ÷ $800,000 × 100 = 75%

LVR can affect:

• Lending options
• Interest rates
• Mortgage insurance requirements
• How much equity can potentially be accessed

Borrowing above 80% LVR may be possible in certain circumstances, but it can potentially involve Lenders Mortgage Insurance (LMI) or different lending requirements.

This is why the 80% level is often used when illustrating usable equity.

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Do You Need to Sell Your Property to Access Equity?

No.

This is one of the major differences between equity and realised profit.

If your property has increased in value, you don’t necessarily need to sell it to potentially access part of that increased value.

Subject to finance approval, a lender may allow you to borrow against the property’s equity while you continue owning it.

This can allow an investor to retain an existing asset while potentially using its equity to help acquire another.

However, releasing equity increases debt, so the additional repayments and financial risk need to be carefully considered.

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How Do Banks Determine Your Property’s Value?

The price you think your property is worth isn’t necessarily the value the lender will use.

When assessing an equity release, the lender may arrange a valuation.

Depending on the lender and circumstances, this might involve:

• Automated valuation
• Desktop valuation
• Kerbside valuation
• Full physical valuation

Different lenders can sometimes arrive at different property valuations.

For example:

Bank A valuation: $750,000
Bank B valuation: $800,000

If you’re trying to access equity, that $50,000 difference could materially affect the amount potentially available.

This is one reason investors may benefit from understanding different lender policies rather than assuming every bank will assess their position identically.

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Should You Use All Your Available Equity?

Not necessarily.

Just because a lender is willing to provide access to a certain amount doesn’t mean using every dollar is appropriate.

Investors should consider maintaining financial flexibility.

Using all available equity could leave less room if:

• Property values decline
• Interest rates increase
• Rental income falls
• The property becomes vacant
• Major repairs are required
• Personal income changes
• Another investment opportunity appears

Keeping a financial buffer can be an important part of risk management.

The objective isn’t necessarily to maximise debt.

It’s to use debt strategically while maintaining the ability to comfortably hold the portfolio.

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The Importance of Cash Flow When Releasing Equity

Equity release isn’t free money.

You’re borrowing additional funds, which means there will generally be additional interest costs.

Suppose an investor releases $100,000 in equity to fund their next property purchase.

Their total debt has increased by $100,000 before even considering the loan attached to the new investment property.

Investors therefore need to calculate the combined effect of:

• Equity loan repayments
• New investment loan repayments
• Rental income
• Property expenses
• Existing mortgage commitments

A portfolio can look impressive on paper while still putting significant pressure on monthly cash flow.

That is why equity and cash flow should be considered together.

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Using Equity to Build a Property Portfolio

For investors looking to own multiple properties, equity can become part of a longer-term portfolio strategy.

A simplified example might look like this:

Stage 1: Purchase Property One

The investor purchases a property with strong fundamentals and holds it over time.

Stage 2: Build Equity

The property’s value potentially increases while the mortgage balance is gradually reduced.

Stage 3: Review the Property Value

The investor obtains an updated valuation to determine whether usable equity exists.

Stage 4: Review Borrowing Capacity

A mortgage broker or lender assesses whether the investor can service additional debt.

Stage 5: Release Equity

If appropriate and approved, part of the available equity may be accessed.

Stage 6: Purchase Property Two

The equity helps fund the deposit and eligible purchasing costs.

Stage 7: Repeat Strategically

Over time, capital growth and debt reduction may create additional equity across the portfolio.

This doesn’t mean investors should purchase properties as quickly as possible.

Each acquisition should strengthen the overall portfolio rather than simply increase the number of properties owned.

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Why Buying the Right Property Matters When Using an Equity Strategy

An equity-based strategy depends partly on assets increasing in value over time.

This makes property selection especially important.

If an investor purchases an underperforming property, they may find that little additional equity is created.

For example:

Investor A purchases a property for $500,000 that later increases to $650,000.

Investor B purchases another property for $500,000 that remains around $520,000.

Even though both investors started with the same purchase price, their ability to use equity for another investment could become very different.

This is why investors shouldn’t simply ask:

“Can I afford this property?”

They should also consider:

“Does this property have the fundamentals to support my longer-term portfolio strategy?”

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Capital Growth vs Rental Yield

When using equity to build a portfolio, investors often focus heavily on capital growth.

But cash flow shouldn’t be ignored.

A property may deliver strong growth but require a significant weekly contribution from the investor.

If several properties create large cash-flow shortfalls, it may eventually restrict the investor’s ability to continue borrowing or comfortably hold the portfolio.

Conversely, focusing exclusively on high rental yield can lead investors towards markets with weaker long-term growth fundamentals.

The appropriate balance depends on the investor’s:

• Income
• Borrowing capacity
• Risk tolerance
• Existing portfolio
• Investment timeframe
• Long-term goals

A strong portfolio strategy often considers both growth potential and holding costs.

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Can You Use Equity From Your Home to Buy an Investment Property?

Potentially, yes.

Many investors begin by accessing equity from their principal place of residence.

For example, someone may have purchased their home for $600,000 several years ago.

If it’s now valued at $850,000 and the mortgage has fallen, substantial equity may have accumulated.

Subject to borrowing capacity and lender approval, some of this equity may potentially be used towards an investment property.

However, using your home as security for additional borrowing increases your financial exposure.

The loan structure should therefore be carefully considered before proceeding.

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Avoid Mixing Personal and Investment Borrowing

When releasing equity, the way the lending is structured can matter.

Rather than combining everything into one large loan, investors may consider separate loan splits for different purposes.

For example:

Loan 1: Existing home mortgage
Loan 2: Equity release used for investment purposes
Loan 3: Loan secured against the new investment property

Clear loan separation can make it easier to understand which debt relates to which purpose.

It can also be important from an accounting and taxation perspective.

Investors should obtain professional tax and lending advice before restructuring debt.

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Be Careful With Cross-Collateralisation

Cross-collateralisation occurs when a lender uses multiple properties as security for one or more loans.

For example, the bank may use both your home and investment property as security for your lending.

While this structure can sometimes be used by lenders, it may reduce flexibility.

Potential considerations include:

• Greater lender control over multiple properties
• More complicated refinancing
• Valuation issues when selling one property
• Reduced flexibility when changing lenders

Investors building larger portfolios may want to discuss loan structuring with an experienced mortgage broker before acquiring additional properties.

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What Happens if Property Values Fall?

Equity can move in both directions.

If property prices increase, equity can grow.

If property values fall, available equity can decrease.

For example:

Property value: $800,000
Mortgage: $600,000

Equity = $200,000

If the property’s value falls to $700,000 while the mortgage remains $600,000:

Equity = $100,000

This is why relying on aggressive short-term price growth can create risk.

Property investing should generally be approached with a longer-term strategy and sufficient financial buffers.

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Common Mistakes Investors Make When Using Equity

1. Treating Equity Like Cash

Equity isn’t free money. Accessing it means borrowing more.

2. Using Every Dollar Available

Maximum borrowing isn’t necessarily the same as sensible borrowing.

3. Ignoring Cash Flow

Additional properties mean additional financial commitments.

4. Assuming Property Prices Will Always Rise

Property markets move through cycles, and individual properties can perform differently.

5. Buying Without a Portfolio Strategy

The next property should complement your existing financial position and goals.

6. Focusing Only on the Deposit

Having enough equity for a deposit doesn’t guarantee sufficient borrowing capacity for the purchase.

7. Poor Loan Structuring

How equity is accessed and loans are structured can affect flexibility, taxation and future borrowing.

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How to Know Whether You Have Enough Equity to Invest Again

A simple starting calculation is:

Property Value × 80% – Current Mortgage = Approximate Usable Equity

For example:

Property value: $750,000
80% value: $600,000
Mortgage balance: $470,000

Approximate usable equity:

$130,000

But this is only an initial calculation.

Before purchasing again, you should also assess:

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When Should You Review Your Property Equity?

You don’t necessarily need to wait until you’re ready to purchase another property.

Investors may choose to review their equity position periodically, particularly when:

• Their property has experienced significant capital growth
• They have substantially reduced their mortgage
• Their income has increased
• They are considering another investment
• They are reviewing their finance
• Their existing fixed-rate period is ending
• They want to understand their portfolio position

Knowing your equity position can help you understand what options may be available before an investment opportunity appears.

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Equity Can Accelerate Growth, But Strategy Comes First

Equity can be one of the most useful tools available to property investors.

It can potentially reduce the time required to accumulate another deposit and allow investors to leverage growth from an existing property to acquire another asset.

But faster portfolio growth isn’t automatically better portfolio growth.

Every additional purchase should be supported by:

• Suitable borrowing capacity
• Sustainable cash flow
• Financial buffers
• Appropriate finance structure
• Quality property selection
• Long-term market fundamentals
• A clear investment strategy

The goal shouldn’t simply be to own as many properties as possible.

The goal should be to build a portfolio that supports your longer-term financial objectives.

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Why Work With DDP Property?

At DDP Property, we help investors look beyond the next individual purchase and consider how each property fits into their wider portfolio strategy.

Our team works with clients across Australia to identify investment opportunities aligned with their budget, borrowing position, cash-flow requirements and long-term goals.

Rather than restricting investors to their local suburb or state, we research opportunities nationally and assess factors including:

• Population growth
• Housing supply
• Rental demand
• Infrastructure
• Employment
• Affordability
• Capital growth potential
• Rental returns

For investors who already own property, understanding available equity can be an important first step in determining what may be achievable next.

If you’ve built equity in your home or investment property and are considering your next purchase, speak with the DDP Property team about developing a strategy for the next stage of your portfolio.

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Frequently Asked Questions

What is equity in property?

Property equity is the difference between the current value of your property and the amount you owe against it. If a property is worth $800,000 and the mortgage is $500,000, the owner has $300,000 in total equity.

How much equity can I use to buy an investment property?

The amount available depends on your property value, loan balance, lender and borrowing capacity. An 80% LVR is commonly used as a starting point when estimating usable equity, although individual lending circumstances vary.

Can I use equity instead of cash for an investment property deposit?

Potentially. Subject to lender approval, equity released from an existing property may be used towards the deposit and eligible purchasing costs of another property.

Do I need to refinance to access equity?

Not always. Equity may potentially be accessed through your existing lender or by refinancing to another lender. The appropriate option depends on your loan structure and circumstances.

Does accessing equity increase my mortgage?

Yes. Accessing equity involves additional borrowing, meaning your overall debt and interest costs generally increase.

Can I use equity from my home to buy an investment property?

Potentially, subject to sufficient equity, borrowing capacity and lender approval. The risks and loan structure should be carefully assessed because your home may be used as security for additional debt.

What happens if my property valuation is lower than expected?

A lower valuation may reduce the amount of usable equity available. Different lenders may use different valuation methods, so the result can sometimes vary.

Is using equity risky?

Like any form of leverage, using equity involves risk because it increases debt. Investors should consider interest rates, cash flow, property values, financial buffers and their ability to service the additional borrowing.

Can equity help me build a property portfolio faster?

Potentially. Instead of saving an entirely new deposit for each purchase, investors may be able to use equity created through capital growth and debt reduction to help fund subsequent purchases. Whether this is suitable depends on the investor’s financial circumstances.