Few people could buy five properties at once. Over time, equity is usually how the next one starts. So how do you use equity to buy an investment property? The homeowners I meet often hold more equity than they have worked out, in the home they live in or a property they already hold.
What equity is
Equity is what a property is worth, less what is owed on it. For example, a home worth $900,000 with $400,000 owing holds $500,000 of equity. Not all of it can be used.
Usable equity
A lender will commonly lend up to 80 per cent of a residential property’s value before it charges you to insure the loan. The usable equity is the gap between that limit and what you owe. In the example, 80 per cent of $900,000 is $720,000. Take away the $400,000 owing and $320,000 is left, which a lender may let you borrow against if your income supports the repayments.
How it is released
You apply to your lender, or a new one, for a fresh valuation and an extra loan secured against the property. The money released usually becomes the deposit and costs for the next property, with a separate loan for the rest. Borrowed equity is not income, so it is not taxed as income. It is a loan, with interest, and the lender tests whether you can carry it. A broker can look at a release for you. Home Buyers Club is run by my son, James.
If the deposit was borrowed too, the whole property is held on borrowed money. Its growth belongs to you, less tax when you sell. So does any fall. Every borrowed dollar carries interest. That is why the weekly figure deserves as much attention as the deposit.
A couple in their forties own their home, worth $900,000, with $400,000 owing. They have been saving for a deposit for three years and are still short. Their usable equity was the deposit all along. What they had not checked was whether their income would carry the extra loan, and that was the real question.
Keep the loans apart
How the loans are set up is as important as how much you release. When one loan is secured against two properties, the lender holds both, and selling or refinancing one becomes harder. Keeping each property’s loan separate lets each stand on its own.
Who this does not suit
Using equity adds debt to what you already hold. It does not suit someone who could not comfortably carry the extra repayments, or who would be exposed if values fell. Using the equity in the family home puts the home behind the new loan, and that is a decision to make with your eyes open.
Equity is the result of what you have already built. Used with care, it is how one property becomes two. Used carelessly, it puts the first at risk.
Know how much to release, how to set up the loans and what the next property costs each week before you start. To work it out, book a first conversation. It costs nothing.
Nicholas Lockhart
Lending practice as at 10 October 2026. A broker can confirm what a lender would allow for you.