Your first property has grown in value. That equity becomes the deposit for your next purchase.
Victorian investors with substantial equity in their principal place of residence or existing investment property are in a position to acquire a second or third property without liquidating their current asset. The mechanism is an investment loan structured against the equity in the existing property. The loan product, serviceability assessment and lending structure differ from a standard owner-occupier loan, and the lender's approach to security, rental income and debt-to-income calculations will determine how much borrowing capacity you can access. Investors who understand how lenders calculate usable equity and how recent legislative changes affect tax treatment can position themselves to act when the right opportunity appears.
How lenders calculate usable equity for investment purchases
Usable equity is not the same as total equity. A lender will typically allow you to borrow against up to 80 per cent of your property's current value, minus any outstanding loan balance. If your principal place of residence is worth $900,000 and you owe $400,000, the lender permits borrowing up to $720,000 (80 per cent of value). Subtract the existing $400,000 debt and you have $320,000 in accessible equity. That figure becomes the deposit and transaction cost funding for your next purchase.
Borrowing above 80 per cent of the existing property's value triggers Lenders Mortgage Insurance, which adds cost but can be justified when the investment opportunity is time-sensitive or the rental yield is strong enough to cover the additional premium. Some lenders will go to 90 or even 95 per cent LVR on your existing property to fund the next deposit, provided your serviceability can support both loans. Most Victorian investors aiming for portfolio growth will keep LVR at or below 80 per cent to avoid LMI and preserve borrowing capacity for the third or fourth acquisition.
Consider an investor who owns a home in Reservoir valued at the current median and owes $350,000. At 80 per cent LVR, the lender allows total borrowing of around 80 per cent of value. After repaying the existing loan from that ceiling, the investor has sufficient equity to fund a deposit and settlement costs on a unit in a neighbouring suburb. The transaction proceeds without selling the Reservoir property, and the investor now holds two properties with rental income from the new asset offsetting a portion of both loan repayments.
Structuring the loan to preserve serviceability and tax efficiency
An investment loan secured against your home equity should be structured as a separate loan facility, not as a top-up or redraw on your existing home loan. Lenders and the ATO both require clear separation between borrowings for investment purposes and borrowings for private purposes. Interest on the investment loan is deductible against rental income, but only if the funds are used exclusively to acquire or hold the investment property. Mixing purposes in a single loan facility creates an administrative burden at tax time and can trigger partial denial of interest deductions.
Interest-only repayments remain a common structure for property investor loans because they maximise cash flow in the early years and allow the investor to direct surplus income toward the next deposit or offset account. An interest-only period typically runs for five years, after which the loan converts to principal and interest unless you negotiate an extension or refinance. Lenders assess your capacity to service principal and interest repayments even if you choose an interest-only structure, so the cash flow benefit does not reduce the serviceability hurdle.
Variable rate investment loans allow early repayment and offset account functionality, which suits investors who want flexibility to manage cash flow or pay down debt when rental income exceeds expectations. Fixed rate products lock in repayment certainty but carry break costs if you repay early or refinance before the fixed term ends. Splitting the loan between fixed and variable gives you partial rate protection without sacrificing all flexibility.
Rental income treatment and the debt-to-income limit
Lenders will include a portion of the expected rental income from the new investment property when assessing your borrowing capacity. Most lenders apply a shading factor, typically 80 per cent of the gross rent, to account for vacancy periods and maintenance costs. If the new property generates $2,400 per month in rent, the lender credits you with $1,920 per month in income for serviceability purposes. That figure is added to your salary and any other rental income, then tested against your total proposed debt at the assessment rate, which sits at least 3.0 percentage points above the actual loan rate.
From 1 February 2026, authorised deposit-taking institutions (ADIs) have been subject to a debt-to-income lending limit set by APRA. Each ADI may lend up to 20 per cent of new investor loans to borrowers with a total DTI ratio of six times or greater. If your total household income, including shaded rental income, is $150,000 and your proposed total debt across all loans exceeds $900,000, you fall into the high-DTI cohort. Some lenders will still approve the loan within their 20 per cent allocation, but others may decline or require a larger deposit to bring the ratio below six. Non-ADI lenders are not currently subject to the DTI limit, which makes them a viable alternative for Victorian investors whose serviceability is constrained by the new rule.
Tax treatment of investment loans from the 2027-28 income year
Investment properties purchased after 7:30pm AEST on 12 May 2026 are subject to restricted negative gearing from the 2027-28 income year. Interest and other holding costs remain deductible, but losses from the investment property can only offset income from other residential properties, not your salary or business income. Excess losses carry forward to future years and can offset rental profits or capital gains on residential property when those arise.
If you purchased your first investment property before 12 May 2026 or you acquire an eligible new build, you retain full negative gearing. An eligible new build is a dwelling constructed on previously vacant land or a development that increases the number of dwellings on the site. A knock-down rebuild that replaces one dwelling with one dwelling does not qualify. Investors targeting maximum portfolio growth in Victoria are weighing the restricted negative gearing rule against suburb selection, rental yield and capital growth prospects to determine whether the reduced tax benefit on an established property is offset by stronger long-term returns.
For properties held before 1 July 2027 and sold after that date, capital gains are taxed under a split regime. Gains accruing before 1 July 2027 receive the existing 50 per cent CGT discount for assets held longer than 12 months. Gains accruing after 1 July 2027 are indexed to inflation and taxed at a minimum 30 per cent rate on the real gain. Investors in eligible new builds can choose between the 50 per cent discount and the indexed approach when they sell, which provides flexibility depending on the holding period and inflation outcome.
Richmond and Footscray: two approaches to equity-funded investment
Richmond and Footscray illustrate how suburb selection and property type affect the viability of an equity-funded investment. Richmond sits close to the CBD with high demand from young professionals and established transport links. Units in Richmond deliver lower gross rental yields compared to outer suburbs, but capital growth has historically been consistent and vacancy rates remain low. An investor using equity from a principal place of residence in Hawthorn to acquire a Richmond apartment is prioritising long-term capital growth over immediate cash flow. The rental income covers part of the interest-only repayment, and the investor absorbs the shortfall from salary, carrying the loss forward under the new negative gearing rules if the property was purchased after 12 May 2026.
Footscray offers higher rental yields and a buyer profile that includes both owner-occupiers and investors. The suburb benefits from proximity to the CBD, ongoing infrastructure investment and a strong rental market driven by affordability and access to employment hubs. An investor using equity to purchase a unit in Footscray may achieve closer to neutral or positive cash flow, particularly if the property is acquired at a price point where the rental yield exceeds 4.5 per cent. The reduced reliance on negative gearing makes the restricted tax treatment less material, and the investor retains more borrowing capacity for the next acquisition because the existing investment is not drawing heavily on surplus income.
Both strategies rely on accurate property valuation, realistic rental income assumptions and a clear understanding of how the lender will assess serviceability once the new loan is added to the existing debt. Refinancing the existing home loan at the same time as drawing equity can consolidate both loans with a single lender, which may unlock a better rate and higher total borrowing capacity than splitting the loans across two institutions.
Foreign investment restrictions and the established dwelling ban
Foreign investors, including temporary residents and foreign-owned companies, are generally prohibited from purchasing established dwellings in Australia from 1 April 2025 to 30 June 2029. The restriction was extended in the 2026-27 Budget and applies to most established properties. Temporary residents can still apply for Foreign Investment Review Board approval to purchase new dwellings or vacant land, and permanent residents are exempt. The established dwelling ban does not affect Australian citizens or permanent residents using home equity to acquire investment property, but it has reduced competition in some segments of the Victorian market, particularly in suburbs with high concentrations of international buyers. Investors aware of the restricted buyer pool may find opportunities in areas where foreign demand previously supported price growth.
Vacant land acquired by foreign investors is subject to a condition that construction be completed within four years and that the land not be sold until construction is finished. Enforcement activity has increased following additional funding to the ATO in recent budgets, and investors should confirm the ownership status and any conditions attached to off-the-plan or land purchases from developers.
You can explore how your equity translates into borrowing capacity using our borrowing capacity tools, which account for rental income, existing debt and the current serviceability buffer. The assessment will show you the loan amount you can support and the deposit size required for your next purchase, adjusted for LMI if you plan to exceed 80 per cent LVR on the security property.
Call one of our team or book an appointment at a time that works for you. We structure investment loans for Victorian property investors who are ready to act and want the lending sorted without delay.
Frequently Asked Questions
How much equity can I access from my home to buy an investment property?
Most lenders allow you to borrow up to 80 per cent of your property's current value, minus any outstanding loan balance. The difference is your accessible equity. Borrowing above 80 per cent triggers Lenders Mortgage Insurance but can be approved if your serviceability supports both loans.
Do I need to sell my home to buy an investment property?
No. You can use the equity in your existing property as security for an investment loan without selling. The investment loan is structured as a separate facility, and rental income from the new property is included in the serviceability assessment.
How does the new negative gearing rule affect investment properties purchased after May 2026?
Investment properties purchased after 7:30pm AEST on 12 May 2026 have restricted negative gearing from the 2027-28 income year. Losses can only offset income from other residential properties, not salary or wages. Eligible new builds retain full negative gearing.
Can I still claim interest as a tax deduction on an investment loan?
Yes. Interest on borrowings used to acquire or hold an investment property remains deductible. The restriction applies to how losses are offset against other income, not to the deductibility of interest itself.
What is the debt-to-income limit and how does it affect investment borrowing?
From 1 February 2026, banks can lend up to 20 per cent of new investor loans to borrowers with a total debt-to-income ratio of six times or greater. If your proposed total debt exceeds six times your income, some lenders may decline or require a larger deposit to reduce the ratio.
