The equity in a property you already own can fund the deposit on your next one, often without you saving a dollar of fresh cash. It is how most people build a portfolio. But the number that matters is not your total equity; it is your usable equity, and the two are very different. Here is how the maths actually works.
Equity versus usable equity
Your equity is simply your property's value minus what you still owe on it. If your home is worth $900,000 and you owe $400,000, you have $500,000 in equity. But you cannot borrow against all of it. Lenders will generally lend up to 80% of a property's value without requiring Lenders Mortgage Insurance, and that 80% line is what sets your usable equity. Usable equity is 80% of the property's value, minus your current loan. On that same home, 80% of $900,000 is $720,000, and subtracting the $400,000 loan leaves $320,000 of usable equity. That $320,000, not the headline $500,000, is what you have to work with.
How the usable equity becomes a deposit
You access usable equity by borrowing against your existing property, typically by increasing your loan or setting up a separate equity loan, and using those funds as the deposit and costs on the next purchase. In practice, if deposit and costs come to around 25% of a purchase price, $320,000 could support a next purchase of roughly $1.28 million, before any other limits apply.
Serviceability is the real ceiling
Having the deposit does not mean you can borrow the rest. The amount you can actually buy is capped by serviceability, whether your income can support the combined repayments on both your existing increased loan and the new loan. You can have ample usable equity and still be limited by what your income will service. Both tests have to pass.
JSC Property Investments helps you put your equity to work the right way, on established, blue-chip property that performs. Book a Kickoff Call with our team and let's run your numbers.