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Using Home Equity to Buy Investment Property

by Coin Capital

If you’ve paid down your home loan somewhat or your property has appreciated in value, you may be able to use your home’s equity to fund an investment property purchase.

Knowing how to use your home equity can help you achieve financial goals, but it’s important to weigh the risks, like increased debt and changing interest rates. Let’s look at what equity is, why use your equity to buy an investment property, and how to do so.

What is Equity?

Equity is the difference between the market value of your property and the balance remaining on your home loan.

Say your property is worth $1,000,000 and you owe the lender $200,000. Your total equity is $800,000. However, not all of that equity is accessible. This is where usable equity comes in.

Calculating Usable Equity

Banks will typically lend you 80% of the value of your home, minus your existing loan balance. In this example:

  • 80% of the property’s value = $800,000
  • Subtract the loan balance = $800,000 − $200,000
  • Usable equity = $600,000

In some instances, you may be able to borrow more if you take out Lenders’ Mortgage Insurance (LMI).

Why Use Your Equity to Invest?

Using the equity in your home to purchase an investment property can be a powerful strategy, but it’s important to weigh both the benefits and potential risks.

Benefits of Using Home Equity

  • Leverage existing assets to build a property portfolio
  • Access to capital without selling your current home
  • Potential for capital growth across multiple properties
  • Tax advantages through negative gearing and depreciation

Risks to Consider

  • Increased debt across multiple properties
  • Interest rate exposure on larger loan amounts
  • Market volatility affecting both properties
  • Cash flow challenges if rental income falls short

Getting Professional Advice

That’s why it’s essential to seek professional advice – whether financial, legal, or tax-related – to ensure this approach aligns with your goals and circumstances.

At Coin Capital, we can help you understand your borrowing capacity, structure your loans effectively, and connect you with the right lenders for your investment strategy.

The information provided is general information only and should not be considered as financial advice. Please consult with a qualified mortgage broker or financial advisor before making any property investment decisions.