In short: Usable equity is usually 80% of your home’s value minus what you still owe. On a $600,000 home with $350,000 owing, that’s about $130,000 you may be able to borrow against for an investment deposit. The lender still has to be sure you can afford both loans, tested at a rate at least 3% above the actual rate.

If you’re planning to buy a second property, the chances are you will need to use the equity on your current home to finance your new purchase.

Home equity loans can be a handy tool for property investors, allowing them to build a property portfolio using the growing value of their assets. But, as is always the case when increasing your debt, many investors can get themselves into trouble if they haven’t properly planned their repayment strategy.

Let’s look at what home equity loans are and how they can be used to build a property portfolio.

What is home equity?

The equity on your home is essentially the current value of your property minus the debt you owe on it.

For example, if you own a home valued at $600,000 and you still owed $350,000 on your home loan, then your equity would be worth $250,000.

Your equity will typically build as the value of your property grows and you continually make payments on your mortgage. As this happens, you have the potential to borrow against your equity to fund renovations, investment properties and other purchases.

Equity is also a crucial asset for later in life as it can reduce dependence on superannuation and the pension.

It’s important to differentiate between your total equity and your usable equity because this will determine how much of it you can tap into.

What is usable equity?

Usable equity refers to the amount of equity in your home that the banks will let you borrow against.

As a general rule, this number works out to be 80% of the current value of your home, minus what you owe on it. Some lenders will go above 80%, but then lenders mortgage insurance usually comes into play.

This means if your home is valued at $600,000 and you are owing $350,000, then the equation would be:

$600,000 x 0.8 = $480,000

$480,000 - $350,000 = $130,000

In this example your usable equity would be $130,000 which you can borrow against for a deposit when purchasing another property.

Here’s what most people miss: equity is only half the story. The lender also has to be satisfied you can repay both loans, and under APRA’s rules it tests your repayments at a rate at least 3 percentage points above the actual rate. Plenty of people have the equity but not the borrowing power. Our borrowing power calculator gives you a quick first read.

How do I use home equity to buy an investment property?

A home equity loan can be a handy tool to kickstart your property portfolio but it is not without its risks.

Using equity means you don’t have to save a fresh cash deposit, so you can get into the next property sooner.

For long-term investors, this is a great way of setting up multiple avenues of passive income that can support you through retirement.

But rates matter. The RBA lifted the cash rate to 4.85% on 3 November 2026, so check the numbers still work if rates rise again, not just at today’s rate.

The tax rules have changed too. For established residential properties bought after 7.30pm on 12 May 2026, from 1 July 2027 any net rental loss can only be offset against residential property income or gains, not your salary. Newly built homes keep the old treatment. Ask your accountant what the after-tax cost really is before you buy.

Investors do have the choice to sell one or more of their properties later in life in order to service the debt owing on their other loans.

Despite this, it’s crucial you don’t overstretch yourself or let debt impact your quality of life. Money is a great servant but a terrible master, so always leave a buffer to protect yourself from life’s uncertainties.

Your first and most important step should be making sure you are able to keep up with the additional costs and repayments that come with an investment property. Defaulting on a loan could mean you end up losing one or more of your properties. To help avoid being caught out by higher repayments, check out our budget planning calculator to organise your weekly or monthly budget.

Overall, using equity to buy an investment property can be an effective strategy, depending on your individual circumstances. As always, we recommend you weigh up all your options and seek trusted professional advice when deciding what strategy is best for you.

Want to know how much of your equity you can actually use? Book a chat with Gav.

Frequently asked questions

How much equity can I use to buy an investment property?

Usually up to 80% of your home’s value, minus your current loan. Going higher is sometimes possible but normally means lenders mortgage insurance.

Do I still need cash if I use equity?

Often, yes, or you borrow a little more equity to cover them. Stamp duty, legal fees and other buying costs still have to be paid.

Will the bank value my home?

Yes. The lender orders its own valuation, and that figure, not the online estimate, decides how much equity you can use.

Last updated: 4 November 2026.

General information only. This article does not take into account your objectives, financial situation or needs, so consider whether it is appropriate for you and seek personal advice before acting. Elephant Financial Pty Ltd trading as Elephant Advisory is an authorised credit representative (ACR 487962) of Yellow Brick Road Aggregation Pty Ltd (formerly Vow Financial Pty Ltd) (ABN 66 138 789 161), Australian Credit Licence 390261.