How to invest in property using equity and the right ownership structure

Using the equity in your existing home may help you buy an investment property without having to save the entire deposit in cash. Depending on your financial position and lender requirements, you may be able to borrow against part of your home’s value to fund the deposit and other purchase costs.

However, available equity and borrowing capacity are not the same. A lender will still assess your income, expenses, existing debts and ability to manage higher repayments. Borrowing to invest can increase potential returns, but it can also magnify losses and place your home at risk if repayments become difficult.

What is home equity?

Home equity is the difference between the current value of your property and the amount you still owe on your mortgage.

The basic calculation is:

Current property value − current home loan balance = equity

For instance, a property worth $750,000 with a mortgage balance of $350,000 has $400,000 in equity.

This does not mean you can automatically borrow the full $500,000. Lenders generally require you to retain a portion of the property’s value as a buffer and will assess whether you can afford the increased debt.

Your equity can change over time as:

• you make principal repayments
• the value of your property rises or falls
• you redraw money from your mortgage
• you refinance or increase the loan balance

How to calculate your usable equity and buying power

Usable equity is the amount of equity a lender may allow you to access after retaining a lending buffer. One commonly used estimate is:

Property value × 80% − existing mortgage = usable equity

A property worth $800,000 with $350,000 owing may have an estimated usable equity of:

$800,000 × 80% − $350,000 = $290,000

This does not mean you can automatically borrow $290,000. Approval will depend on the lender’s valuation, loan-to-value requirements and assessment of your ability to repay the additional debt.

Your buying power is then determined by combining your available deposit or equity with the amount a lender is prepared to advance.

Servicing your new loan

Loan serviceability measures whether your income can support both your current commitments and the proposed investment loan. A lender may look at your earnings, expenses, debts, credit limits, expected rental income and the higher repayments that could apply if interest rates rise.

Do not base affordability on rent alone. Vacancies, repairs and ongoing property costs can create a cash-flow shortfall that you will need to fund from your own income or savings.

How to access your equity

You generally access equity by applying to increase or restructure the lending secured against your existing home. The lender will usually arrange a valuation, review your financial position and confirm how much additional borrowing it is prepared to approve.

Common approaches include:

• Loan top-up: Your lender increases the balance of your existing home loan and releases additional funds for the investment purchase.
• Separate loan split: A new loan account is created alongside your existing mortgage. This can help keep investment borrowing separate from private home debt.
• Refinancing: You move your home loan to another lender and apply for additional borrowing as part of the refinance.
• Line of credit: An approved credit limit is secured against your property, allowing funds to be drawn when required. This option requires careful management because repayments and interest costs can increase as more credit is used.

The funds may then contribute towards the investment property deposit, stamp duty and other acquisition costs. Approval will still depend on the lender’s valuation, loan-to-value requirements and your ability to service the increased debt.

Risks to consider before using your home equity

Accessing equity can reduce the required cash deposit, but it does not eliminate the financial risk of the purchase. It increases your total debt and may place your home at risk if it is used as security.

Key risks include:

• higher repayments if interest rates rise
• vacancies or lower-than-expected rental income
• repairs and ongoing costs exceeding the budget
• falling property values
• reduced equity and refinancing capacity
• pressure on household or business cash flow
• larger losses due to leverage

Rental income may not cover the mortgage and other property expenses, particularly during vacancies or periods of unexpected maintenance.

The way you hold an investment property can influence tax, borrowing flexibility, asset protection, estate planning and access to rental income. Common options include purchasing in your personal name, jointly with another investor, through a trust or company, or through an SMSF where the rules allow.

The right structure depends on the type of property, your financial position, business risks and long-term investment plan. It should be confirmed before signing the contract, as transferring the property later may create stamp duty, capital gains tax, refinancing and legal costs.

Using your personal name for your property investment

Buying an investment property in your personal name is generally the simplest form of ownership. You are listed on the title. Take out the property loan and report the rental income and eligible expenses in your individual tax return.

This option may suit a first-time property investor who wants direct control, lower administration costs and straightforward access to rental income and sale proceeds. Eligible rental losses may be applied against other assessable income through negative gearing, where the property qualifies under current tax rules.

However, personal ownership provides limited separation between the property and your other financial risks. The income, deductions and any capital gain remain with the legal owner and cannot simply be redirected to another person.

Before purchasing in your own name, consider:

• your current and expected taxable income
• whether the property may generate a cash-flow shortfall
• your exposure to business or professional claims
• plans to buy a second house or another property
• how the investment will pass through your estate
• the likely capital gains tax outcome when you sell

Personal ownership can be practical, but it may not provide the same flexibility or asset protection as a trust, company or other structure.

Investing jointly: joint tenants vs tenants in common

Buying an investment property with another person may increase your combined deposit and borrowing capacity. However, the ownership type affects each investor’s legal interest, tax reporting, estate planning and ability to transfer their share.

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Regardless of the ownership type, co-investors should agree on how they will manage the deposit, property loan payments, repairs, rental shortfalls and any future sale. A written co-ownership agreement can also set out what happens if one investor wants to exit or can no longer meet their obligations.

Seek independent legal and professional tax advice before selecting the ownership arrangement, as a private agreement about who pays what may not change how income, deductions or capital gains are treated.

Investing within a discretionary family trust

A discretionary family trust holds the investment property through a trustee for a group of beneficiaries. The trustee controls the asset and decides how eligible trust income is distributed, subject to the trust deed and tax law.

This structure may offer:

• flexibility in distributing positive income among eligible beneficiaries
• separation between the property and the personal ownership of beneficiaries
• support for family wealth and succession planning
• continuity of ownership when individual family circumstances change

However, a trust is not automatically the most tax-effective option. Rental losses are generally retained within the trust and cannot usually be distributed to beneficiaries to reduce their salary or other personal income. This means a negatively geared property may provide no immediate personal tax benefit.

Other considerations include:

• trust establishment and annual administration costs
• state-based land tax treatment
• lender requirements and personal guarantees
• the need for a suitable trustee
• restrictions in the trust deed
• additional accounting and legal work
• tax consequences when income or capital gains are distributed

A corporate trustee may provide clearer separation and succession than using an individual trustee, but it also adds another entity and further compliance obligations.

A discretionary trust can work well where asset protection, income flexibility and long-term family planning are priorities. Its suitability should be assessed against the property’s expected cash flow, the beneficiaries’ circumstances and the investor’s borrowing needs.

Investing within a unit trust

A unit trust divides ownership into units. Each unit holder has a defined interest in the trust, and income and capital are generally allocated according to the number and class of units held.

Unlike in a discretionary family trust, the trustee usually does not have broad discretion over which unit holder receives the income. This makes ownership more measurable and may suit unrelated investors, business partners or family groups contributing different amounts.

Potential benefits include:

• clearly defined ownership interests
• the ability to admit or remove investors by transferring units
• income and capital allocations linked to unit holdings
• a formal structure for pooling funds
• more certainty than a discretionary trust

Points to consider include:

• establishment and ongoing administration costs
• financing complexity and lender guarantees
• potential tax and duty consequences when units are transferred
• land tax treatment
• disputes over valuations, distributions or management decisions
• the need for a detailed trust deed and unit holder agreement

A unit trust may be useful where several investors want to purchase real estate together without owning it directly as tenants in common. Clear agreements are important because property management, additional funding and exit decisions affect all unit holders.

Using a company structure for property investment

A company is a separate legal entity that can own property, receive rent, pay expenses and borrow in its own name. Shareholders own the company rather than holding the real estate directly.

A company structure may offer:

• separation between the asset and individual shareholders
• a fixed framework for ownership and control
• continuity if shareholders or directors change
• the ability to retain profits for future investment
• potential asset-protection benefits, depending on guarantees and circumstances

However, companies can be less attractive to some long-term capital growth strategies because different CGT rules and concessions apply than for individuals, trusts and partnerships.

Profits withdrawn by shareholders can also create additional tax considerations.

Other limitations may include:

• higher establishment and annual compliance costs
• personal guarantees required by lenders
• state land tax implications
• restrictions on using company funds for private purposes
• less flexible access to rental income and sale proceeds
• complexity when transferring shares or assets

A company may be more suitable for certain development, trading or reinvestment strategies than for a passive residential property intended to be held for capital growth. The intended use of the property is therefore critical.

Investing in property through an SMSF

A self-managed super fund may be able to purchase an investment property where the acquisition supports the fund’s retirement purpose and complies with superannuation law.

The property must be acquired and managed for the benefit of fund members in retirement. Members and related parties generally cannot use a residential property owned by the SMSF, and transactions must occur on commercial terms.

Potential advantages include:

• investing through concessionally taxed superannuation
• using property as part of a diversified retirement strategy
• pooling member super balances
• potential tax concessions on eligible income and capital gains
• greater control over the fund’s investment decisions

Significant restrictions also apply:

• the property must comply with the fund’s investment strategy
• related-party acquisition rules limit what the fund can buy
• residential property generally cannot be occupied or rented by members or relatives
• borrowing must use a limited recourse borrowing arrangement
• improvements and replacement assets may be restricted while debt remains
• the fund must maintain sufficient liquidity for expenses and member obligations
• setup, audit, accounting, legal and lending costs can be substantial

An SMSF property loan is generally more complex and may require a larger deposit than a standard investment loan. The ownership and borrowing documents must also be established correctly before the contract is signed.

Property should not be added to an SMSF simply because an investor attended investment seminars or wants direct control over their super. The fund must still be diversified, sufficiently liquid to meet its obligations, and managed solely for retirement purposes.

The best structure is not necessarily the simplest or the one that produces the lowest tax outcome today. Before you start your investment property journey, consider how the structure will affect taxes, borrowing, asset protection, access to income, and your ability to buy another property later.

Many property investors focus first on finding the right property or using equity to help buy it. However, the ownership decision should be made before signing the contract. Moving the property into a different structure later may involve stamp duty, capital gains tax, refinancing and legal costs.

The structure should also reflect the type of property, the expected rental return, the cost of owning it and your long-term plans. Seek professional tax, legal and lending advice before making a final decision.

Tax, negative gearing and capital gains

Each ownership structure treats rental income, expenses, losses and capital gains differently. This can influence how much tax you pay while owning an investment property and when you eventually sell it.

Key factors include:

• who must declare the rental income
• who can claim eligible expenses
• whether a rental loss can offset other income
• whether losses must remain within a trust or company
• whether a capital gains tax discount may be available
• how land tax and other state-based charges apply
• how profits can be accessed after the property is sold

Negative gearing treatment now depends on when the property was acquired and whether it is a new build. Properties held before 7:30pm AEST on 12 May 2026, as well as eligible new builds purchased at any time, retain full negative gearing treatment. For established residential properties bought after that Budget-night cut-off, rental losses will instead be quarantined and generally only offset against residential rental income or capital gains from residential property, rather than salary or other income.

Capital gains tax treatment is also changing from 1 July 2027. The existing 50% CGT discount will be replaced by cost base indexation, together with a 30% minimum tax on net capital gains. This change applies more broadly to CGT assets held by individuals, trusts and partnerships, not just investment property.

These reforms make purchase timing, property type and ownership structure even more important. A strategy that worked for one investor under the previous rules may produce a different outcome for another investor buying later or through a different structure.

Tax should not be considered in isolation. A negatively geared property still creates a cash-flow shortfall, and property prices or rental income may not rise as expected. The idea should be to select a structure that supports the full investment strategy rather than relying on one projected tax benefit.

Asset protection and estate planning

The legal owner of the property can affect how exposed the asset is to personal, professional or business risks. This may be particularly important for business owners, directors and investors who have provided personal guarantees.

Personal ownership gives you direct control but generally provides limited separation between the property and your other financial affairs. A trust or company may offer a degree of structural separation, although personal guarantees and the circumstances of a claim can still affect the outcome.

Estate planning should also be considered from the start. Ask:

• Will the property pass through your will?
• Should another joint owner receive it automatically?
• Who will control a trust after your death or incapacity?
• Should income or capital benefit particular family members?
• Could the structure create disputes or administrative burdens?
• Does the plan still work if family circumstances change?

For example, joint tenants and tenants in common can lead to different succession outcomes. Trust and company structures may continue beyond an individual owner’s lifetime, but control must be carefully addressed through the trust deed, company documents, and estate plan.

Choosing the structure before purchase can help avoid the need to transfer the property later, which may create significant tax and transaction costs.

Borrowing, income access and long-term goals

A structure that appears attractive for tax or asset protection may be less practical for lending. Banks assess different investment structures differently and may require personal guarantees, additional documentation, or larger deposits.

You may be able to use equity in your existing home as part of the deposit or apply for a loan to buy the investment. Some lenders may allow you to borrow up to 80% of the property’s value without lenders mortgage insurance, subject to valuation, serviceability and lending policy. However, access to equity does not automatically make a particular ownership structure suitable.

Consider:

• whether the lender will finance the proposed owner
• who will be responsible for loan payments
• whether rental income can be accessed directly
• whether profits must remain in a trust or corporation
• how the structure affects future borrowing capacity
• whether you want to buy a second investment property
• how easily you can introduce or remove another investor
• what happens if you want to refinance or sell

Your investment strategy should also allow for the ongoing cost of owning the property. These costs may include interest, rates, insurance, repairs, land tax and property manager fees. A structure that is expensive to establish and manage may not be worthwhile for a single property, even if it could suit a larger portfolio.

The right structure should support both today’s purchase and the direction you want the investment to take over time. A useful guide to buying an investment property should therefore consider finance, tax and ownership together rather than treating them as separate decisions.