If you already own one investment property in Australia, using equity can be an effective way to expand your portfolio without needing to save up a whole new deposit. In this guide you’ll learn what equity is exactly so there’s no confusion, how to use it for a second investment property, we’ll show you a real‑life case study, discuss the risks, and what steps to take to be able to purchase your second investment property in no time.
What is Equity & How It Works
Equity is the difference between the current market value of a property and how much is still owed on the mortgage.
Formula:
Market Value of Property − Outstanding Mortgage(s) = Equity
Example
- Market value of your first investment property: A$800,000
- Outstanding mortgage remaining: A$400,000
- Equity = A$800,000 − A$400,000 = A$400,000
Lenders won’t allow you to access all of the equity available because they need to maintain a Loan to Value Ratio (LVR).
For example, if we use our example above, a lender allowing up to 80% LVR (80% of A$800,000 = A$640,000) as the maximum secured debt then again follow the formula outlined above $640,000 – A$400,000 mortgage, there’s potential to unlock about A$240,000 in equity which you could use (minus fees, costs, etc.) to purchase a second investment property.
Why Use Equity to Buy a Second Investment Property
Using equity rather than saving a full deposit from scratch has advantages:
- Faster scale: you can move more quickly rather than waiting years to build up savings.
- Benefit from capital growth: when property values rise, your equity grows, increasing leverage.
- Tax‑effectiveness: interest expenses, depreciation etc may provide tax deductions (depending on how structure is arranged and your personal tax situation).
- Portfolio diversification: adding another property can diversify location, property type, rental yields.
Key Data & Market Trends
To inform your decision, here’s where the market is at right now:
- According to ABS, there are about 2,245,539 people in Australia owning investment properties in 2020‑21, together owning 3.25 million investment properties. Of those investors, 71.48% own just one investment property; 18.86% own two. Centra Wealth Group+1
- Cotality’s “What is Going On With Property Investors?” report stipulates that new investor loan commitments in Australia are up 18.8% in the 2025 year through September (latest available data), driven mainly by NSW, Queensland and Western Australia. Cotality
These trends suggest growing confidence among property investors, rising values (which helps equity), and stronger markets in certain states.
Step‑by‑Step Strategy: How to Use Equity to Buy Your Second Investment Property
Here are the strategic steps, with practical and financial checkpoints.
- Assess your equity
- Get a recent market valuation (or use property valuer / valuation services).
- Check how much you owe (loan balance, including any redraw).
- Determine what portion is accessible (based on lender’s permitted LVR, buffer for costs/interest etc.).
- Check your serviceability
- Even if equity is available, being able to service an additional loan (interest + repayments) is critical.
- Lenders will also look at your income, expenses, current debt, rental income (if positive), and credit history.
- Choose the right financing structure
- Refinance the first property to pull out equity.
- Use “equity loan” or “line of credit” / redraw facilities.
- Possibly split the loan structure to separate interest rates or tax treatment, depending on personal circumstances.
- Calculate all costs
- Stamp duty, legal fees, lender fees, valuation fees for the second property.
- Ongoing costs: interest, maintenance, insurance, management, council rates etc.
- Tax implications: negative gearing, depreciation, capital gains tax (CGT) etc.
- Research location & property type
- Which markets are growing / likely to grow (values, rents, yield). Use data like Cotality’s suburb‐level reports.
- Balance between cash flow vs capital growth.
- Check lending policies & restrictions
- Different lenders have different policies for using equity from investment property vs owner‑occupied.
- Some lenders may cap LVR lower when equity is being used.
- Be alert to changes in the regulatory environment (e.g. tax policies, investor loan restrictions).
Client Case Study
On of our Pinpoint Finance client’s Sarah* lives in Melbourne and works as a lawyer.
- Sarah owns one investment property: current market value $650,000 with a mortgage of $350,000.
- Sarah has $170,000 in available equity.
She wanted to buy a second investment property priced at A$550,000 and not touch any of her existing savings.
We refinanced Sarah’s existing mortgage and released the $170,000 equity which she used towards the deposit for the new investment property.
After a little over three months, Sarah now owns two investment properties without using any of her savings.
*name changed for privacy reasons.
Risks and Things to Watch Out For
- Interest rate risk: If rates increase, servicing costs go up. Being over‑leveraged can be dangerous.
- Property value decline: If market dips, equity may reduce, possibly triggering LVR breaches or putting pressure on cash flow.
- Cash flow issues: Vacancy, unexpected repairs, lower rental yields can strain cash reserves.
- Regulatory / tax policy changes: Changes to negative gearing, land tax, CGT, investor‐loan policies could affect profitability.
- Costs of refinancing / accessing equity: Fees can eat into gains; careful modelling is needed with the assistance of a professional.
Market Timing & Where the Opportunities Are
Given current trends:
- In many states like Queensland and Western Australia, and some regional markets, a higher proportion of suburbs are at record value peaks.
For example, as of end of June 2025, 78.8% of suburbs in Brisbane were at record high values; similarly strong percentages in Regional QLD and Perth. This means equity in many places is likely rising. Cotality - National dwelling value growth is about 3.4% over the 2024‑25 financial year. pages.corelogic.com
That said, higher values also tend to mean higher purchase prices, which can squeeze yields or increase costs, so location selection matters.
Conclusion
Using equity to buy a second investment property in Australia is a powerful strategy for growing your property portfolio more quickly. But it only works well when you fully understand:
- how much equity you really have
- whether you can service additional debt
- all the fees, risks, taxes
- and whether the market you’re buying into has strong fundamentals.
If you plan carefully, borrow smartly, and choose wisely, you can unlock opportunities without overextending yourself. Speak to an investment property mortgage professional and get the advice and guidance you need.
FAQs
How much equity do I need to buy a second property?
It depends on the property value, lender requirements, LVR, and upfront costs. Roughly speaking, many lenders require enough equity to cover the deposit (often 5‑20%), stamp duty and other costs. In our example, with $300,000 equity you may access about A$170,000 (if allowed a 80% LVR), which might cover needed deposit plus purchasing costs.
But every case is different so get in touch.
Can I use equity from my investment property?
Yes, each lender treats equity from investment properties differently (sometimes more conservatively) than from owner‑occupied homes. Approval will depend on the property’s value, outstanding debt, LVR limits, income, cash flow from existing investment(s), risk profile, and your overall credit.
What are the risks of using equity to invest?
Some of the risks include: interest rates rising, value of properties falling (eroding equity), cash flow shortfalls (due to vacancies, repairs etc.), regulatory/tax changes, and refinancing costs or fees. It’s important to model worst‑case scenarios, maintain reserves, and not over‑leverage.