How to use Equity to invest in property
By: Niro Thambipillay
April 2, 2024
You can potentially use equity in an existing property to help fund an investment purchase, but released equity is borrowed money. The amount available depends on the lender’s valuation, its loan limits and your ability to repay, not simply on how much your home has risen in value.
In this video, Niro Thambipillay explains the difference between total equity and usable equity, shows how an offset can work alongside a separate loan split, and highlights the extra debt that buyers sometimes forget to include. His central message is to understand the whole structure before treating equity as a deposit.
TL;DR
Total equity is a property’s value minus its outstanding loan. Usable equity is the additional amount a lender may let you borrow against it, subject to its limits and serviceability assessment. In Niro’s example, a $1.5 million valuation and $700,000 debt produce $800,000 total equity and an illustrative $500,000 borrowing limit at 80% LVR. That is not an automatic approval. Count both the equity loan and the investment loan when assessing affordability.
Key Takeaways
- Equity is not cash: accessing it usually means taking on additional debt.
- The lender’s valuation matters: neighbouring sale prices do not determine your approved limit.
- Serviceability can be the constraint: theoretical usable equity may exceed what you can borrow.
- Count every loan: a borrowed deposit and purchase costs sit alongside the new investment mortgage.
- Protect the structure: understand security, offset terms, records and the risk to your home.
1. Total Equity and Usable Equity Are Different
Total equity is the value you own after subtracting the outstanding debt. Niro’s example starts with a home bought for $1 million using an $800,000 loan. Over time the loan is reduced to $700,000 and the property increases in value.
Nearby homes might sell for $1.6 million or $1.7 million, but the lender values this home at $1.5 million. For this lending calculation, it is the lender’s accepted valuation that matters.
- Accepted property value: $1,500,000.
- Existing loan balance: $700,000.
- Total equity: $1,500,000 minus $700,000 = $800,000.
You do not automatically receive that $800,000 in cash. Niro then assumes the lender is willing to lend up to 80% of its valuation. That produces a $1.2 million total lending limit against the home. Subtracting the existing $700,000 loan leaves an illustrative $500,000 of additional borrowing.
The Usable-Equity Formula
Illustrative usable equity = lender valuation × permitted LVR − existing secured debt. The 80% figure in the video is an assumption for the example, not a universal entitlement or a rule that every lender must apply. Fees, policy and the actual loan structure can affect the amount.
The important distinction is simple: equity is the difference between value and debt; an equity-release loan creates new debt. Confusing those two ideas can make the next purchase look much cheaper than it really is.
2. Having Equity Does Not Guarantee Borrowing Capacity
The lender must also be satisfied that you can repay. Niro points out that somebody can have $500,000 of theoretical usable equity but only receive approval for $200,000 of additional lending.
The lender assesses income, other commitments and the proposed loans. Property value alone does not meet the repayments. Employment changes, self-employed income evidence and existing debt can all affect the assessment, but the outcome depends on the lender and your circumstances.
Before shopping for an investment, establish what finance is realistically available and what repayments remain comfortable for you. The maximum a lender offers is not necessarily the amount you should use.
This is part of Niro’s broader roadmap for building a property portfolio: expand when the finances support it, rather than buying again solely because your home has appreciated.
3. How a Separate Loan Split and Offset Can Work
A separate loan split can make the additional borrowing easier to identify. In Niro’s example, the existing $700,000 home loan remains distinct from a new equity split. He then discusses placing released funds in a linked offset account until they are needed.
If a loan has a genuine 100% offset and the entire borrowed amount remains in that linked account, the offset can reduce the balance used to calculate interest to zero. As money is spent, that interest-calculation balance increases. Fees and the product’s actual terms still matter.
An offset account and redraw are not the same feature. Ask the broker to explain where the funds will sit, which loan they offset and what happens when money is transferred for the purchase. Do not assume that every lender or account works exactly like the example.
Keep the Money Trail Clear
Keep personal spending and investment transactions clearly documented. A loan secured by your home is not automatically an investment loan for tax purposes. Ask a registered tax adviser to assess the use of the borrowed funds and any deductibility before relying on a tax benefit. Clean records support that assessment; they do not replace it.
4. Count the Borrowed Deposit as Part of the Investment Debt
The investment mortgage is only part of the borrowing if the deposit also comes from a loan. Niro uses a $700,000 investment property to demonstrate the point.
- An 80% investment loan is $560,000.
- The remaining 20% deposit is $140,000.
- Adding the illustrated $40,000 purchase costs requires $180,000 from the equity split.
- Combined additional borrowing is $560,000 + $180,000 = $740,000.
That is about 105.7% of the purchase price across the two loans, including the assumed purchase costs. It does not mean the investment lender has provided a 105.7% mortgage. The debt is spread across different facilities and potentially different security.
For cash-flow planning, include interest and required repayments on both loans, not just the $560,000 mortgage. Then add rates, insurance, maintenance, property management and vacancy allowances. The rent must be compared with the whole cost of the strategy.
Even if an approved equity facility could cover two deposits on paper, the second purchase still needs a fresh affordability and lending assessment. The first property’s repayments reduce the room available for the next one.
5. Understand Which Properties Secure Which Loans
Loan security determines what is at risk. Niro prefers keeping the home-related borrowing and investment mortgage clearly separated, potentially with different lenders, rather than unnecessarily tying properties together.
However, using one lender does not automatically mean cross-collateralisation. It depends on which properties secure each facility. Equally, using two lenders does not remove the risk to your home when an equity loan is secured against it. Get the security structure explained in writing.
ASIC’s borrowing-to-invest guidance identifies leveraged investing as high risk. If your home is used as security and repayments cannot be met, you could lose it. Test the budget against higher interest costs, less rental income and unexpected expenses before proceeding.
Finance is only half the decision. The asset still needs careful research. Avoiding unsuitable investment property types matters because a poor purchase does not become a good one simply because you can fund the deposit.
6. Use Equity With a Long-Term Goal and an Exit Plan
Equity can be a stepping stone, not an instruction to borrow indefinitely. Niro describes a long-term portfolio in which capital growth and rental growth may create more options. Neither is guaranteed, and the rate discussion belongs to the video’s March 2024 context.
He also challenges the idea that you must never sell. A planned sale can help reduce debt or support retirement income. But calculate the net proceeds after the loan payout, selling costs and any tax before deciding how much debt a sale could clear.
There is a separate framework for property held inside an SMSF. Do not apply personal equity-release techniques to superannuation property without specialist advice.
Niro’s Verdict: Understand the Whole Loan, Not Just the Deposit
Start with the lender’s valuation, calculate the illustrative equity position, confirm serviceability and identify the actual security. Then assess the property’s prospects and the combined repayments against your budget.
If the plan only works with uninterrupted rent, falling rates or rapid price growth, it needs more room for uncertainty. A qualified mortgage broker can explain the lending options and a registered tax adviser can assess the tax treatment. The right purchase is one you understand and can afford to hold, not merely one you can technically fund.
Summary
- Total equity is property value less debt; accessing it creates additional borrowing.
- Use the lender’s accepted valuation and actual LVR limits.
- Serviceability may restrict borrowing well below the theoretical usable-equity figure.
- A separate split and linked offset must be assessed against the product’s terms.
- Count the equity-funded deposit, purchase costs and investment loan together.
- Understand security, preserve cash reserves and plan any sale after costs and tax.
Frequently Asked Questions
No. A home used as security for an equity loan remains exposed if repayments cannot be met. Separate lenders may help organise facilities, but the actual security documents determine which assets support each loan. Ask the broker to explain the structure and stress-test the combined repayments.
Count both the equity loan and the investment mortgage. In the video’s $700,000 purchase example, the $560,000 mortgage plus a borrowed $140,000 deposit and $40,000 in assumed costs totals $740,000 of additional borrowing across the two facilities.
Potentially, if the lender offers a suitable linked offset. In the video’s 100% offset example, money held in the account reduces the balance used to calculate interest. Spending the funds increases that balance. Check the actual product terms, fees and distinction between offset and redraw.
No. Equity itself is the difference between property value and debt. Releasing it for a purchase usually means taking a new loan or increasing borrowing. You must repay that amount and include its interest and required repayments in the investment budget.
Multiply the lender’s accepted property valuation by the LVR it permits, then subtract the existing secured debt. In Niro’s example, $1.5 million at an assumed 80% LVR gives $1.2 million, less $700,000 debt, leaving $500,000 of theoretical additional borrowing. Lender approval and serviceability still apply.
About the Author
Niro Thambipillay
Niro is the founder of Investment Rise, one of Australia’s most trusted property buyers agencies. He has helped hundreds of first-time investors build property portfolios and was voted one of the most trusted Real Estate entrepreneurs in the Asia Pacific region (APAC 2022). Niro is also the author of “How to Build a Property Portfolio That Pays You an Income Every Month.”
