The equity recycling strategy
Equity recycling is how many Australian investors build a property portfolio without saving a new deposit for each purchase. The cycle works like this: buy a property → it grows in value → extract the equity that has built up → use it as the deposit on the next property → repeat.
The 80% LVR threshold is the standard lending limit above which Lenders Mortgage Insurance (LMI) is required. By limiting borrowing to 80% of value, you avoid LMI and maintain a position where modest falls in property value won't put you into negative equity. Most professional investors target keeping all properties at or below 80% LVR before extracting equity.
Buying power explained: If your usable equity is $320,000 and you use it as a 20% deposit, you can borrow an additional 80% ($1,280,000) to purchase a property worth $1,600,000 in total — while only contributing $320,000 of your own capital.
Frequently asked questions
What is usable equity?
Usable equity (also called accessible equity or borrowable equity) is the amount of equity in your property you can actually borrow against — typically up to 80% of the property's current value minus your existing mortgage balance. Total equity is the full difference between value and debt, but banks won't lend against the full amount because they maintain a safety buffer (loan-to-value ratio or LVR limit).
How do I calculate my usable equity?
The formula is: Usable equity = (property value × 80%) − outstanding mortgage balance. For example: a $900,000 property with a $400,000 mortgage has $500,000 in total equity, but only $320,000 in usable equity ($900,000 × 0.80 = $720,000 minus $400,000). This $320,000 can be drawn as an equity loan or line of credit to use as a deposit on the next investment property.
How does usable equity become a deposit for the next property?
Once you release your usable equity, it becomes available cash (via a top-up loan or line of credit). This cash acts as the deposit — typically 20% — on your next investment property. If you have $320,000 in usable equity, you could use it as a 20% deposit on a property worth up to $1.6 million, without needing to save additional funds. This is the equity recycling strategy that many Australian investors use to grow a portfolio.
What is cross-collateralisation and should I avoid it?
Cross-collateralisation (or cross-securing) means using Property A as security for the loan on Property B, instead of using released equity as a separate deposit. Most property strategists recommend against it: it gives the bank security over multiple properties simultaneously, making it harder to sell one without the bank's approval, limits your ability to refinance individual properties, and can complicate your portfolio as it grows. The preferred approach is to release equity from Property A as a separate top-up loan, then use those funds as a standalone deposit for Property B.
Can I access equity without selling my property?
Yes — this is the whole point of equity access. You refinance or get a valuation from your lender, release the usable equity as a separate loan facility (often structured as a line of credit or offset account top-up), and use those funds for a deposit on the next property. Your original property stays in your ownership and continues to appreciate. You pay interest on the equity amount you draw down, but the additional borrowing is offset by the rental income and capital growth on the new property.
Usable equity is calculated at 80% LVR as a guide only. Actual borrowing capacity depends on your income, existing debts, APRA serviceability buffers (currently +3% above the loan rate), and individual lender policies. Confirm your position with your mortgage broker or lender before making decisions. Not financial advice.