One of the most powerful tools in a property investor’s toolkit is equity. If you already own property in Australia, you may be sitting on untapped potential that could help you grow your portfolio—without needing a massive cash deposit.
In this article, we’ll break down what equity is, how to access it, and how to use it to invest in more properties.
What is Equity?
Equity is the difference between the current market value of your property and the amount you still owe on your mortgage.
Example:
If your property is worth $800,000 and your mortgage balance is $500,000, your equity is $300,000.
However, not all of that equity is usable. Lenders typically allow you to access up to 80% of your property’s value, minus your loan balance. This is known as usable equity.
How to Calculate Usable Equity
Here’s a simple formula:
Usable Equity = (Property Value × 80%) – Loan BalanceUsing the example above:
- Property Value: $800,000
- 80% of Value: $640,000
- Loan Balance: $500,000
Usable Equity = $640,000 – $500,000 = $140,000
This $140,000 could be used as a deposit for your next investment property.
How to Use Equity to Buy Another Property
There are two main ways to access equity:
1. Refinancing
You refinance your existing loan to access the usable equity as cash or increase your loan limit. This is the most common method.
2. Line of Credit
You set up a line of credit secured against your property. This gives you flexible access to funds, but often comes with higher interest rates.
Once you’ve accessed the equity, you can use it as a deposit for your next property, while taking out a new loan to cover the remaining purchase price.
Benefits of Using Equity
- No need for cash savings: You leverage existing assets to grow your portfolio.
- Faster portfolio growth: You can buy more properties sooner.
- Tax advantages: Interest on investment loans may be tax-deductible.
- Compounding returns: More properties mean more potential for capital growth and rental income.
Risks and Considerations
- Increased debt: You’re borrowing more, which means higher repayments.
- Market fluctuations: If property values decline, your equity may decrease.
- Loan serviceability: Lenders will assess your ability to repay the increased debt.
- Interest rates: Rising rates can impact cash flow and affordability.
Is It Right for You?
Using equity is a smart strategy for investors who:
- Have strong capital growth in existing properties
- Understand the risks of leveraging
- Have a stable income and good borrowing capacity
- Are committed to long-term wealth building
Final Thoughts
Equity is more than just a number—it’s a gateway to expanding your property portfolio. By understanding how to access and use it wisely, Australian investors can accelerate their journey toward financial freedom. As always, consult with a mortgage broker or financial advisor to ensure the strategy aligns with your goals and risk profile.