Can I use equity to buy an investment property?
Yes — if you have sufficient equity in your home or another property, you can use it as a deposit for an investment purchase without needing to save separate cash. Lenders typically allow you to access the equity above 80% of your property's value, which becomes the deposit on the new loan. How much you can actually use depends on your property's current value, your outstanding loan balance, and your overall serviceability.
The Fuller Picture
Equity is the difference between what your property is worth and what you owe on it. If your home is worth $900,000 and you owe $500,000, you have $400,000 in equity — but lenders won't let you access all of it. They typically lend up to 80% of the property's value without requiring lenders mortgage insurance, so your usable equity is calculated as (current value × 0.80) minus your outstanding loan balance. In this example, that's $720,000 minus $500,000, leaving $220,000 you could potentially draw on as a deposit.
You access that equity in one of two ways: by refinancing your existing loan to increase its limit, or by taking out a separate equity loan secured against the property. Either way, the drawn funds act as the deposit on the investment property, and you then take out a separate investment loan for the remainder of the purchase price. Some lenders also offer cross-collateralisation, where your existing property secures both loans directly — but this is generally worth avoiding unless there is a clear reason for it, as it ties your properties together in ways that can be difficult to unwind.
Whether a lender approves the equity release depends on more than just the equity figure. They will assess your serviceability — your capacity to repay both the equity draw and the new investment loan at the same time. Even borrowers with strong equity sometimes find access is limited because their income doesn't comfortably service the combined debt at the lender's assessment rate, which is typically higher than the actual rate.
What This Means for Your Purchase
Using equity removes the need to save a separate cash deposit, which can significantly accelerate your timeline to buying an investment property. But it does increase your total debt and your combined monthly repayments. Before approaching a lender, it's worth modelling both loans together — including at interest rates higher than today's — so you understand what you're committing to over the long term.
How you structure the debt matters for tax purposes. The interest on the equity draw is generally deductible if the funds were used for an income-producing investment — but only if the structure is set up cleanly. Mixing investment and personal borrowing in the same loan account can complicate your deductions significantly. An accountant should review the proposed structure before you finalise any lending arrangement.
Timing risk is also worth planning for. There can be a gap between when you estimate your equity and when the lender orders their own valuation — and if the bank's figure comes in lower than expected, your usable equity shrinks. Committing to a purchase timeline based on an online property estimate rather than a formal bank valuation is a common mistake. Getting pre-approval that covers both the equity release and the investment loan, before you start searching seriously, protects you from this problem.
How This Shows Up in the Illawarra
Strong price growth in the Illawarra over recent years has left many existing homeowners with substantial equity — particularly those who bought in Wollongong, Thirroul, Corrimal, or Shellharbour before 2021. For some of these owners, equity access has become a practical path into investment without additional years of saving. Entry-level investment properties in suburbs like Fairy Meadow, Dapto, Warilla, and Berkeley have attracted equity-funded buyers looking for yield at accessible price points.
What's worth knowing locally is how much property values vary across the region. The same equity release amount might comfortably cover a 20% deposit on a Dapto investment but leave you short on a beachside property closer to the city. Bank valuations in tightly held coastal suburbs can also be more conservative than private online estimates, so getting an upfront lender valuation of your existing property — before you build a purchase plan around an equity figure — is especially important in this market.
Frequently Asked Questions
How much equity do I need to buy an investment property?
You generally need enough usable equity to cover at least 10–20% of the purchase price, plus buying costs such as stamp duty and conveyancing. If your equity only covers 10%, you may face lenders mortgage insurance on the investment loan unless you supplement it with savings.
Can I access equity without refinancing my home loan?
Yes — some lenders set up a separate equity loan or line of credit secured against your existing property, leaving your original loan untouched. This can be preferable for tax reasons or if your current loan has terms you don't want to change.
Will the investment lender treat equity the same as a cash deposit?
Once the equity is drawn and sitting in your account, most lenders treat it the same as cash. Some lenders also allow cross-collateralisation, where both properties secure the loans directly — though this creates ties between your assets that can be difficult to undo later.
What happens if the bank's valuation comes in lower than I expected?
Your usable equity shrinks, and you may not be able to access as much as you planned. This is why getting a formal bank valuation — rather than relying on an online estimate — before committing to a purchase timeline is important.
Is the interest on the equity draw tax-deductible?
Generally yes, if the equity was used to fund an investment purchase — but the loan structure matters. An accountant should confirm this for your specific setup, as mixing personal and investment debt in the same account can make deductions difficult to substantiate.
Can a buyers agent help with an equity-funded investment purchase?
Yes. A buyers agent helps you identify suitable investment properties within your realistic budget, run thorough due diligence on each option, and avoid overpaying — which directly protects the equity you've worked to build.
If you're ready to explore investment options and want to know what your equity can realistically get you in the Illawarra, we're happy to talk it through. Reach out to The Shoreline Agency and we'll help you work out a sensible next step.
