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    Equity Recycling

    Use the equity in your home to buy investment properties

    What is Equity Recycling?

    Equity recycling (also called "equity leveraging") means using the growth in your existing property's value as a deposit for additional investment properties, without using cash savings. As each property grows in value, you draw equity to fund the next purchase.

    How it works

    1. 1Your home grows in value, equity is the difference between market value and outstanding loan
    2. 2Usable equity = 80% of property value minus outstanding loan (to avoid LMI on the equity loan)
    3. 3You refinance or draw a line of credit against the usable equity
    4. 4The equity release becomes the deposit (+ costs) for the next investment property
    5. 5Rental income from the investment helps service the additional debt
    6. 6Repeat as each property grows, building a portfolio over time

    Worked example

    Home purchased for $700,000, now worth $950,000. Loan balance: $500,000.
Usable equity (80% LVR): $950,000 × 80% – $500,000 = $260,000.
Use $160,000 equity as deposit on a $700,000 investment property (23% deposit, no LMI).
Remaining $100,000 covers stamp duty, costs and buffer.
Net result: controlled a $700,000 investment asset with no cash savings.

    Pros

    • Accelerate portfolio building without waiting to save cash deposits
    • Leverage compounding capital growth across multiple properties
    • Interest on investment property debt is tax-deductible (rental income offsets)
    • Each property bought with equity grows independently

    Cons

    • Increases total debt significantly, interest costs rise with each property
    • Requires strong rental income and/or salary to service growing debt load
    • A fall in property values across the portfolio can rapidly erode equity
    • Lenders assess serviceability on total debt, harder to get approved as portfolio grows

    Risks

    • Concentrated risk: if all properties are in the same market, a downturn hits the whole portfolio
    • Interest rate rises compress rental yields and reduce equity recycling speed
    • Forced sales in a downturn if cashflow deteriorates and buffer runs dry
    • Cross-collateralisation risk if lender uses all properties as security (use separate lenders where possible)

    Tax treatment

    Interest on the equity drawn for investment purposes is tax-deductible (purpose test applies, the funds must be used to produce assessable income). Keep a clear paper trail of fund use. Interest on non-investment purposes (living expenses, holiday) is NOT deductible. ATO ruling: TR 2000/2 (mixed purpose borrowings).

    Official references

    Keep exploring

    Equity & Property Estimator Read property guides on the blog All strategies

    General Advice Warning

    The information on this site is general in nature and does not consider your personal circumstances, financial situation, or needs. Before acting on any information, you should consider its appropriateness having regard to your own situation and seek professional advice from a licensed financial adviser, mortgage broker, accountant, or solicitor.