Using Equity To Fund Your Investment Property

Thinking about building your property portfolio but not sure where the funds will come from? You might already have what you need. If you own a home or another property, tapping into your equity can be a smart way to unlock investment property funding without needing a large cash deposit.

Here is how equity works, how to access it and why it can be a powerful strategy for building wealth through investment properties.

What is equity?

Equity is defined as the difference between the market value of your property and the balance remaining on your home loan. For instance, if your home is worth $900,000, and you owe $500,000 on your mortgage, your equity is $400,000.

Lenders typically let you borrow against a portion of this equity, usually up to 80 percent of the property’s value, minus your existing loan. This available equity can then be used for investment property funding.

How to use equity to buy an investment property

Using equity as a deposit means you do not need to save up a large amount of cash to get into the market. Here is how the process works:

1. Get a property valuation — A lender or mortgage broker will help determine the current market value of your existing property.

2. Calculate usable equity — This is the portion of your total equity that a lender will allow you to borrow against.

3. Apply for a loan — You may take out a line of credit loan or increase your current home loan to access funds for your deposit or to cover the full purchase cost of an investment property.

4. Consider cross-collateralisation carefully — While convenient, using multiple properties as security for a single loan can add complexity and risk if not managed properly.

A qualified mortgage broker can guide you through this process and help you avoid the common traps associated with investment property funding through equity.

Benefits of using equity for investment

Using your home equity to fund investment properties can give you a head start in building long-term wealth and offers the following benefits: 

• Faster entry into the market — You can invest without waiting years to save a deposit.
• No need to sell existing assets — You are building wealth while retaining your current property.
• Potential tax advantages — Depending on your structure and situation, some of the interest on the borrowed funds may be tax-deductible.
• Boost your borrowing power — Strong equity positions can support future purchases and help grow your portfolio over time.

Risks to keep in mind

Like any financial strategy, using equity to buy investment properties does carry risks. 

Some things to consider:

• If property values fall, your equity position may shrink, potentially affecting your ability to refinance or grow your portfolio.
• You may end up with a larger loan and higher repayments, especially if interest rates rise.
• If your investment property sits vacant or underperforms, you will need to cover the shortfall from other income.

Understanding your financial limits, setting a realistic budget and having a buffer in place are essential to managing these risks.

Speak to the right professionals

It is always a good idea to speak to a reputable mortgage broker and financial adviser before making any moves. They can help you structure your loan correctly, gauge your risk tolerance and choose the right funding option for your goals.

Start your investment journey with Shore Financial

At Shore Financial, we help Australians turn equity into opportunity. Whether you’re buying your first investment property or expanding your portfolio, we provide independent mortgage solutions and tailored investment property tips for your situation. Contact us today to find out how we can help you take the next step.