How to Use Equity to Buy an Investment Property

Equity is the part of your home you own outright: its value, less what you owe on it. You can’t spend it directly, but a lender will let you borrow against some of it and use that as the deposit and costs on an investment property. CommBank puts the usual limit plainly: banks are generally comfortable lending up to 80% of the value of your home, minus the amount you owe. What’s left under that line is usable equity, and it’s usually less than people expect.

The arithmetic is the easy part. The value it starts from, the way the loans are set up and the tax treatment of the interest are where it goes right or wrong, and all three are much easier to get right before settlement than to fix after it.

How usable equity is worked out

Take the home’s value, multiply by 80%, and subtract the loan. A home worth $1,500,000 with $600,000 owing has $600,000 of usable equity. The 80% isn’t arbitrary: above it, lenders generally charge lenders mortgage insurance. You can go further with LMI, but you pay for it and you leave yourself less room if values fall, which is exactly when you’d want some.

That equity then has to cover more than the deposit. An investment purchase gets no first home concessions, so NSW transfer duty is paid in full, plus conveyancing, building and pest inspections and the rates adjustments at settlement. Our usable equity calculator works out the highest price your equity could fund once all of that is taken out, with duty from the current Revenue NSW brackets.

The bank’s value isn’t yours

Every number above starts from the home’s value, and the value that counts is the lender’s, not yours or your agent’s; as Macquarie puts it, the lender’s valuation may differ from a real estate agent’s appraisal. At an 80% cap, every $100,000 the valuation comes in lower takes $80,000 off your usable equity.

Most people value their own home on the highest recent sale in the street. A valuer won’t. They’ll use the sales they think are genuinely comparable, and a house with a steep driveway or a tired kitchen gets marked accordingly. In a softer market they lean on the weakest of those comparable sales, not the strongest.

A hypothetical, run through the calculator

Here’s a hypothetical with invented numbers, run through our usable equity calculator. An owner thinks their home is worth $1,250,000 and owes $700,000, which gives $300,000 of usable equity, enough on equity alone to fund a purchase of about $1,228,000 once duty and $5,000 of other costs are covered.

Now the bank values the home at $1,200,000. Usable equity drops to $260,000, and the price it could fund falls to about $1,065,000. For context, the median strata sale price in Ku-ring-gai was $1,170,000 in the March 2026 quarter, so a $50,000 difference in one valuation decides whether a median unit is in reach. That’s why we’d get a lender’s view of the value before anyone starts inspecting.

The calculator stops at equity on purpose. Whether the income supports another $300,000 of borrowing plus a new loan on top is a separate test, and it’s usually the one that sets the price, as the limits below show.

Standalone loans, not cross-collateral

There are two ways to set this up. The simple-looking way is one lender taking both properties as security for the combined debt, which is called cross-collateralisation. The other is standalone: an equity release secured on your home, and a separate loan secured only on the investment property.

The trouble with cross-collateral shows up later. St.George notes that if you want to sell one of the properties, your lender might need to rework the loan for the one you’re keeping, and Westpac says having both securities in one loan could mean more work to separate them down the track. In practice the lender can revalue the property you’re keeping and decide how much of the sale proceeds it wants. It also makes refinancing either property on its own much harder.

Our view, which some lenders’ own staff will disagree with: standalone is worth a little extra paperwork almost every time, even when a lender offers a sharper deal to take both properties. The convenience is at settlement. The cost comes years later, when you want to sell, refinance or move one loan elsewhere.

If your loans are already cross-collateralised, the arrangement can usually be unwound, but it takes new valuations and often a refinance of one property, so it’s far easier done well before you’re selling. We’d look at it a year ahead of any planned sale, not a month.

Keep the investment debt separate for tax

The ATO decides whether interest is deductible by what the borrowed money was used for. Security doesn’t decide it. Its example is blunt: you can’t claim interest on a loan used to buy a new home even if you use your rental property as security. The same logic runs the other way, so money borrowed against your home and used for the investment is generally deductible.

Interest-only on the equity split is common, because it keeps the deductible debt at its full size while you pay down the home loan, which isn’t deductible. That’s a choice about cash flow as much as tax. Your accountant, not your broker, should make the tax half of that call.

Mixing is where it goes wrong. If one loan funds both the investment and something private, the ATO requires the interest to be apportioned, and in its example the borrower must continue to apportion for the life of the loan. So the equity release should be its own loan split, used only for the investment deposit and costs, never topped up later for a car, a holiday or a renovation. Our debt recycling guide works on the same principle. Check the detail with your accountant.

The limits that bite first

Equity is rarely the tightest limit. The lender tests your income against the old loan and the new ones combined at the rate plus APRA’s 3 percentage point buffer, and banks can only write 20% of new investor loans at six or more times income. On a household income of $200,000, that line sits at $1.2 million of total debt, and many North Shore owners are past it before they start. The tax picture changed in 2026 as well, since an established property bought now can’t be negatively geared against salary from 1 July 2027, which our negative gearing calculator takes into account.

When it’s the wrong move

Using equity puts your home behind the investment. Moneysmart is direct about the risk of borrowing against your home to invest: you could lose your home if the investment turns bad. With the cash rate raised to 4.60% on 30 September 2026, a buffer that looked comfortable at application can look thin a year later, and the rent won’t necessarily rise to meet it on the same timetable.

Ansa starts every equity conversation with the valuation and the income test, in that order, before anyone talks about which suburb. If either one doesn’t work, we’ll tell you, and no loan structure fixes it. That’s often the whole meeting. What we can’t do is promise the valuer’s number, or tell you the investment will grow faster than the interest it costs. The borrowing side is on our investment loans page.