Using equity to buy additional investment properties is one of the most common wealth-building strategies for Australian property investors. It allows investors to grow their portfolio without saving large cash deposits for each subsequent purchase.
How usable equity is calculated. A lender will typically lend up to 80% of the value of an existing property without requiring lenders mortgage insurance (LMI). Usable equity is 80% of the property’s current value minus the outstanding loan balance.
For example: a property worth $800,000 with a $400,000 loan has $240,000 in usable equity (80% × $800,000 = $640,000 − $400,000 = $240,000).
Accessing the equity. The investor refinances the existing loan or establishes a new loan (line of credit, supplementary loan, or new investment loan facility) against the equity. The released funds are then used as the deposit for the next property purchase.
Serviceability still applies. Even if the equity is available, the investor must demonstrate sufficient income to service both the existing loans and the new investment loan. Borrowing capacity, not equity position, is often the binding constraint for portfolio investors.
Tax consideration. The new loan must be used entirely for investment purposes to maintain full deductibility of the interest. Mixing investment loan funds with personal spending can taint the tax deductibility of the entire facility.
The portfolio effect. As properties appreciate and equity grows across the portfolio, the compounding equity acceleration enables acquisitions of subsequent properties faster than the initial purchase required.
