If you are paying off an owner-occupier home and want to buy an investment property, but can’t

come up with a deposit, you might find the solution right there in your own backyard.
You don’t always need cash for a deposit, but can rather use a portion of the value of an existing property, as long as it has accumulated enough usable equity to satisfy a lender.

And it doesn’t have to be your owner occupier. If you already have an investment property or two, you may have accumulated some equity in that too.
Whatever the property, if you’ve been paying it off for a few years, you might have access to more equity than you thought, especially after the strong growth between 2020 and 2022, offset by a smaller correction in 2023.

Now, a number of markets are poised for their next growth cycle, which means you can leverage your position to get further ahead by expanding your portfolio.

Leveraging equity for wealth building

Equity is the amount your property is worth, minus what you still owe on it. Basically, it’s

the portion of the property that you own outright. If you owe $200,000 on a

property that’s worth $300,000, your equity is $100,000. If that property rose by

another $50,000 in value the next year and you paid off another $10,000 of it, your equity would go up by $60,000. Revaluing it can unlock that extra equity, so that you can use a portion of it as a deposit for an investment.

But you can’t use it all. Banks won’t let you access the full amount to invest because it would

be exposed to too much risk if there was a dip in values for your existing property, or the new one that you purchase.

Instead, they will allow you to access a portion of it. Usually around 80% of your existing property’s current value, minus the debt still owing.

So, in the case of the above example property; if it’s now worth $350,000 and you owe $190,000, your overall equity is $160,000. But your usable equity might be $280,000 (80% of $350,000) minus $190,000. That leaves you $90,000 to invest with.

There are plenty of good investment markets in Australia where that $90,000 will give you a more than 20% deposit, plus cover upfront costs like stamp duty, on a property that will immediately return enough rental income to be positively geared…especially in the current environment of super low vacancy rates and soaring rents. 

You’ve then used a portion of your existing property to gain access to a greater level of wealth and returns.

Using equity to seize investment opportunities

It’s important to regularly assess your financial situation and if you discover you have equity, to access it while you can.

Say your property rose in value to a point where you had usable equity of $300,000 by the time

the market peaked in 2022… you could have undertaken a cash out refinance at that point and been able to access as much as possible while you pondered your next move.

If you didn’t, however, and the market fell by 10%, you might find the bank deems your usable

equity to now sit at $270,000. You have lost $30,000 before even realising you had it. That equals a deposit on an affordable investment property, or at least a pretty big chunk of one.

Once you have your useable equity safely cashed out, you can act with confidence if a great value investment opportunity arises.