For many people in Perth looking to buy an investment property, the biggest challenge is not income — it’s the deposit.
This is because many property owners are not aware of the equity sitting in their home. Home equity is one of the most common ways investors fund their next purchase without starting from zero.
Discover how home equity can benefit you, how it works, how you access it, and why the current market in Perth has created more opportunities for investors here.
A Powerful Wealth-Building Tool: Home Equity
Home equity is simply the difference between the worth of your home and what you still need to pay. Most homeowners are not aware of it until the bank orders a valuation, a refinance or when they tell you how much you could potentially borrow.
Typically, home equity grows as your loan balance decreases and your property value increases. You might notice this when your lender informs you that you no longer need Lenders Mortgage Insurance (LMI). Home equity doesn’t appear all at once — it builds over time and usually becomes apparent when you start having conversations with your lender or broker.
With an equity access home loan, you may be able to:
- Fund deposits and purchase costs
- Avoid saving large sums of cash
- Accelerate portfolio growth using existing assets
Many investors in Perth have used home equity to move from one property to two, or more. However, this approach depends on individual circumstances and only works effectively when it is structured properly.
What Is “Usable Equity”?
However, not all equity is accessible. Typically, lenders allow borrowing up to 80% of a property’s value. This is to avoid the Lenders Mortgage Insurance (LMI).
Below is a simple example of how usable equity is calculated:
- Your property value: $800,000
- 80% lending limit: $640,000
- Current loan balance: $450,000
Therefore, your usable equity will be $190,000.
That amount doesn’t land in your offset by default. Typically, it is released as a separate loan, set aside for investment use, and usually used as the deposit (and sometimes costs) for your purchase.
Why Equity Levels in Perth Are Higher Than Many Think
Many homeowners in Perth underestimate their position because they did not see or feel the growth month to month. They typically are aware of it when a bank orders a valuation or a broker runs the numbers.
Homeowners who bought properties before the recent upswing, especially those located in established suburbs and growth corridors, often discover that:
- Values have moved more than they realised
- Their loan balance has quietly reduced
- The combination creates meaningful borrowing power
As mentioned in the David Cress podcast, timing can be important. Equity is generally easier to access when lending conditions are favourable, so it’s worth understanding your position sooner rather than later.
How Equity Release Really Plays Out
Equity release is not complicated, but requires a few steps, such as:
- Property valuation: The lender assesses your current market value
- Equity assessment: Borrowing limits and usable equity are calculated
- Loan approval: New equity loan is approved (often interest-only)
- Settlement: Funds are made available for investment use
Usually, the process takes up to 2–4 weeks, depending on valuation speed, lender requirements, and your overall financial position.
Structuring the Loan Correctly
Poor loan structure — particularly mixing loan purposes into a single loan — is one of the most common mistakes investors make.
Best practice is to keep your loans clearly separated. For example:
- Loan 1: Your original home loan
- Loan 2: A standalone equity loan used only for investment
This is important because:
- Keeps interest deductibility clear
- Preserves refinancing flexibility later
- Avoids cross-collateralisation, which limits exit options
The interest on an equity loan may be tax-deductible when the funds are used for income-producing purposes. However, tax deductibility depends on individual circumstances — we recommend consulting a qualified tax professional for advice specific to your situation.
Risks to Consider Before You Leverage Equity
Before leveraging your equity, it is important to be aware of the risks. Possible risks are:
Over-Leveraging
If property values soften or there are changes in your income, over-leveraging can leave you exposed
Interest Rate Rises
When you have multiple loans, this can impact your cash flow, especially when interest rates rise
Vacancy Risk
Having financial buffers is important, as investment properties may not always be tenanted
Therefore, taking a mindful approach such as using cash reserves, realistic forecast and long-term planning can help you manage these risks effectively.
Case Study: A Perth Investor Using Equity to Buy Again
Situation:
- Owner-occupied home value: $900,000
- Existing mortgage: $520,000
- Usable equity: ~$200,000
Strategy:
- Released $160,000 as a standalone equity loan
- Used funds as a deposit and costs for a $650,000 investment property
- Maintained separate loans for tax clarity and flexibility
Outcome:
The investor entered the market without using their savings, preserved their cash buffers, and positioned the portfolio for growth while rents covered most holding costs.
Note: This is a hypothetical example for illustrative purposes only. Individual outcomes will vary based on personal circumstances, market conditions, and loan terms.
How to Know if Equity is Right for You?
Using equity depends on your situation, and it isn’t a one-size-fits-all strategy. Key factors to consider include:
- Your income stability and borrowing capacity
- How comfortable you are with leverage
- Your timeline, not just your end goal
- Whether your existing loans are structured properly
When used correctly, equity may help you build momentum. However, when used poorly, it can create unnecessary financial pressure.
Find Out Your Usable Equity – Free Assessment
If you are a homeowner or buying an investment property in Perth, there’s a high chance that you are not aware of the borrowing power that you have.
Book a free, no-obligation equity assessment today with Strategic Mortgages Perth to find out how much usable equity you may have, whether an investment purchase could be suitable for you, and how to structure your loans correctly.
Discover how your current home or property could help fund your next investment now.
Disclaimer: The information provided in this article is general in nature and does not constitute financial, tax, or legal advice. Individual circumstances vary. We recommend consulting with qualified professionals before making financial decisions.
