Can I Use My Equity to Buy an Investment Property? Here’s How Equity Works
Let’s demystify a term that gets thrown around a lot: equity.
If you own a home (or even part of one), chances are you’ve heard someone say, “Just use your equity!” Like it’s some magic money sitting in your couch cushions.
But what does that actually mean?
Let’s break it down — the real story of equity, how you can access it, and why it’s not as simple as just taking what’s “yours”.
(I’ll also break down how people use equity to purchase investment properties)
What is Equity?
In property terms, equity is the portion of the property that you own, the part that’s yours once you subtract the loan.
Simple example:
Home value: $750,000
Loan owing: $500,000
Your equity: $250,000
Seems straightforward, right?
But here’s where the confusion kicks in: some people assume that if they’ve got $250k in equity, they can just take that money and still have $250k in equity.
Unfortunately, it doesn’t work that way.
You Can’t Keep Your Cake and Eat It Too
Here’s a comparison I use with clients:
Imagine you’ve got $100 in your wallet. You can’t pull out another $100 and still have the original hundred. If you take it, it's gone.
Accessing equity is similar. You can use it but in doing so, you reduce the amount you own, and increase what you owe.
Let’s go back to the example above. If you want to access $100,000 from your equity, the bank will essentially:
Increase your loan from $500,000 to $600,000
Give you $100,000 to use
Now your equity is only $150,000, you have $100,000 in cash and you owe more than when you started. Still with me?
So, Why Would the Bank Let You Do That?
Great question.
The bank isn’t handing out money for the fun of it. You’ll need to give a valid reason. It could be:
Purchasing an investment property
Renovating your home
Buying a car
Consolidating debts
Paying for a wedding
You’ll also need to prove that you can afford the increased repayments. That’s where your borrowing capacity comes in it’s not just about the equity, but your income, expenses, debts, and overall financial position.
A Quick Note on Lender Limits
Most lenders cap how much equity you can access at 80% of the property’s value, without needing to pay Lenders Mortgage Insurance (LMI). So if your property is worth $750k, the most you could borrow is $600k — meaning you could potentially access up to $100k in equity (assuming a $500k loan).
Also, if you’re doing structural renovations (i.e., changing the house itself), the lender may want more control, possibly even managing the funds directly on your behalf.
Accessing Equity to Buy an Investment Property
This is by far the most common reason I see clients tap into their equity.
Here’s how it typically works:
You access equity from your existing home — say $100,000
That forms your deposit for a new investment property, and often covers your upfront purchase costs
You then take out a new loan for the remaining balance of the new property
From a lender’s point of view, this is a clean approach. The new property is assessed as a standard lend, and the equity release is treated separately.
Cross-Collateralisation: Another Way
There’s a second, less common strategy called cross-collateralisation.
In this setup, the bank uses the combined value of your existing home and the new one as security. This can allow you to finance up to 100% of the new property — without needing to cash out a deposit.
For example, if you have:
$300k equity in your current home
And you’re buying a $600k investment property
The lender might use both properties to lend you the full $600k purchase price, assuming the total loan stays under 80% of the combined value.
This can be a great strategy for simplicity but it can sometimes limit your flexibility in the event that you wish to sell an asset, well at a minimum, they will want to ensure that you still have enough equity and the loan to value ratios aren’t too high.
So… Should You Access Your Equity?
The short answer: maybe.
Equity can be an incredibly powerful tool when used strategically. But just because it’s there doesn’t mean it’s always a good idea to use it, especially if it’s for lifestyle expenses rather than building wealth or improving your financial position.
My role as a broker is to help you:
Understand your position
See what’s possible
Map out the pros and cons
And connect you to a lender that suits your real goals
Because every equity release comes with a loan attached, and that loan needs to make sense for your bigger picture.
Final Thought
Equity isn't just free money. It's tied to your home's value, your loan structure, your borrowing power, and your future goals.
Used wisely, it can open doors to investing, improving your home, or reducing bad debt. Used poorly, it can stretch you financially and undo years of progress.
The key is understanding the why behind the how — and that’s something a good broker will help you figure out.
You can reach out via the contact form, or book a meeting. Let’s chat about how to use your equity the smart way.
