How a Perth Investor Used Home Equity to Buy a Second Property
Pavan owned a $720,000 Joondalup investment property with $280,000 owing. Here's how equity release funded a second investment property with no cash out of pocket.
Pavan had been an investor for several years. His Joondalup investment property had grown well — valued at $720,000 with only $280,000 remaining on the mortgage. That meant he had roughly $440,000 in equity sitting in the property.
He wanted to use that equity to buy a second investment property. The challenge: he didn’t want to use cash out of pocket, he wanted clean tax treatment on both loans, and he was wary of over-complicating his financial structure.
Understanding Usable Equity
Most lenders will lend up to 80% of a property’s value without requiring Lender’s Mortgage Insurance (LMI). On Pavan’s Joondalup property:
- Property value: $720,000
- 80% of value: $576,000
- Existing loan: $280,000
- Usable equity: ~$296,000
That $296,000 is available to be accessed as a separate loan — essentially borrowing against the existing property to fund a new purchase.
In Pavan’s case, he needed around $110,000 as a deposit on a $550,000 Baldivis property (20% deposit to avoid LMI on the new purchase).
The Structure
The key decision was how to structure the equity release. This matters enormously for tax purposes.
If you’re an investor, the interest on your investment loans is generally tax-deductible. But if you mix investment and personal borrowing, things get complicated — and the ATO expects a clear paper trail.
We structured the equity release as a separate loan split on the Joondalup property — completely distinct from the existing investment loan. This meant:
- Existing Joondalup loan: unchanged, interest fully deductible against Joondalup rental income
- New equity release loan: interest deductible as it was used to fund a new investment purchase
- New Baldivis purchase loan: interest fully deductible against Baldivis rental income
Pavan’s accountant was involved throughout to confirm the deductibility position. This kind of collaboration between broker and accountant is exactly how investment property finance should work.
The Result
| Equity released from Joondalup | $110,000 (as separate split) |
| New Baldivis property purchased | $550,000 |
| Cash out of pocket | $0 |
| LMI on new purchase | $0 (20% deposit used) |
| Loan splits | 3 (clean separation for tax) |
The Baldivis property settled within 6 weeks. Pavan now owns two investment properties, with both loans structured cleanly for tax treatment and reviewed annually as part of our ongoing relationship.
Key Lessons for Property Investors
Equity is not just net worth — it’s a tool. Many investors sit on significant equity without realising they can use it to grow their portfolio without needing to save fresh deposits.
Structure before you borrow. The order and structure of loans matters for tax deductibility. A broker who coordinates with your accountant before settlement prevents headaches at tax time.
Avoid cross-collateralisation where possible. We structured this as separate loan splits, not by cross-collateralising both properties under one lender. Cross-collateralisation reduces your flexibility and can complicate future sales or refinances.
LMI on the new purchase is avoidable. By using equity to reach 20% on the new purchase, Pavan avoided LMI — a saving of roughly $10,000–$15,000 at that purchase price.
Outcomes reflect this client’s specific situation. Investment property finance depends on your overall financial position, tax circumstances and property market conditions. Always seek independent tax advice.