Building a successful property portfolio doesn’t require endless savings or sacrificing lifestyle for decades. One of the most effective strategies savvy investors use is tapping into home equity—leveraging the value of one property to help fund the next. When done wisely, it can supercharge your portfolio’s growth while maintaining strong cash flow and manageable debt levels.
Let’s walk through what equity is, how it works, and how to use it strategically to grow your property portfolio.
What Is Equity?
Equity is the difference between your property’s current market value and the remaining mortgage. In simple terms, it’s how much of the property you truly “own.”
For example, if your property is worth $800,000 and your mortgage is $400,000, your equity is $400,000.
However, lenders won’t let you borrow against all your equity. Generally, you can access up to 80% of the property’s value, minus the existing loan. This is known as useable equity.
Formula:
Useable Equity = (80% of Property Value) – Loan Balance
Example:
- Property Market Value: $650,000
- Remaining Mortgage: $275,000
- 80% of Market Value: $520,000
- Useable Equity: $520,000 – $275,000 = $245,000
That $245,000 can potentially be used as a deposit for your next investment property—without dipping into your savings.
Why Your First Property Matters
Your first property is the foundation of your portfolio. Ideally, it grows in value over time—either through market appreciation or value-adding improvements. This growth creates equity, which can then be leveraged to purchase your next investment property sooner.
If your first property underperforms or has minimal growth, it can slow down your entire portfolio-building journey. That’s why choosing a high-performing suburb, buying below market value, and improving the property can make a big difference early on.
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How to Increase Equity in Your Property
To expand your portfolio, focus on growing equity in your current property through these strategies:
1. Make a Larger Deposit Upfront
A bigger deposit reduces your loan size, meaning you own more of the property right from the start.
2. Pay Down the Mortgage
Additional repayments or using an offset account can help reduce your loan balance faster.
3. Choose Shorter Loan Terms
Shorter loan terms often come with lower interest rates, meaning more of your payment goes toward the principal.
4. Add Value with Renovations
Upgrades such as kitchen and bathroom remodels, adding a bedroom, or improving landscaping can all push up property value.
5. Wait for Market Appreciation
Sometimes, simply holding a property in a high-growth area for a few years is all it takes for equity to build.
Risks and Rewards of Using Equity
Like any investment strategy, using equity has its benefits and drawbacks.
| Benefits | Risks | Risk Management Tips |
|---|---|---|
| Accelerates portfolio growth | Property values may fall | Maintain a financial buffer |
| Less need for out-of-pocket savings | Over-leveraging debt | Diversify and monitor your LVR |
| Can buy without selling other assets | Renovation costs may blow out | Do due diligence before buying |
| Tax-effective loan structuring | Rental income may fluctuate | Ensure properties suit local demand |
Check out “Crunching the Numbers: Positive Cash Flow vs. Negative Gearing“
Using Equity to Buy Your Next Investment Property
Once you’ve calculated your useable equity, you can use it as a deposit for your next investment property. Some investors even use it to cover purchase costs like stamp duty and legal fees.
Lenders will still assess your borrowing capacity based on income, liabilities, and other factors—but having equity gives you a major head start.
Keep in mind, banks typically only include 80% of your rental income when calculating your borrowing power, to account for potential vacancies or costs.
Who You Should Speak To
Before making your next move, speak to professionals who can guide you through the process:
- Mortgage Broker – helps you understand how much equity you can access and which lenders offer the best products for investors.
- Accountant – assists in tax planning and ensures your investment structure is efficient.
- Buyer’s Agent (optional) – can help you identify high-growth suburbs that match your equity and cash flow profile.
“Get your Access to our Fully Customisable Investment Property Research and Analytics Tool Now!”
Using equity is one of the smartest ways to grow your property portfolio—without needing to start from scratch each time. The key is to ensure your first (and future) properties are growth-focused, cash flow-supportive, and located in areas with strong fundamentals.
Equity can be a powerful wealth-building tool—but only if used wisely. Stay focused on the long-term, keep your financial buffers intact, and always buy with a clear strategy in mind.
