Equity is the portion of your property that you actually own outright. It is calculated by subtracting what you owe on the mortgage from the property's current market value. If your property is worth $700,000 and you owe $450,000 on the mortgage, your equity is $250,000.
Equity grows in two ways: as you pay down the mortgage principal, and as the property increases in value. In a rising market, property value growth is often the larger contributor. Conversely, if values fall below your loan balance, you may end up in negative equity.
Usable Equity vs Total Equity
Not all of your equity is accessible. Lenders typically require you to maintain an LVR of 80% or less to avoid Lenders Mortgage Insurance, which means you can only access a portion of your total equity.
Usable equity = (property value x 80%) - mortgage balance
Using the example above: ($700,000 x 80%) - $450,000 = $110,000. That $110,000 is the equity you could potentially access for another investment, while the remaining $140,000 remains locked up to maintain the 80% LVR threshold.
How Investors Use Equity
Many property investors use the equity in one property to fund the deposit on the next. This is one of the most common ways to grow a property portfolio without saving a full deposit each time. Our first investment property checklist covers the steps involved. You can access equity by:
- Refinancing: increasing your loan on the existing property and using the extra funds as a deposit. Some investors opt for an interest-only loan to maximise cash flow on the new purchase
- Line of credit: setting up a separate loan facility secured against the existing property
- Cross-collateralisation: using one property as security for another loan (though this approach has downsides)
Why It Matters for Landlords
Equity is the engine of portfolio growth. Understanding how much equity you have across your properties, and how much of it is usable, helps you plan your next investment and manage your overall financial position. Regularly tracking property values and loan balances keeps your equity calculation current.
propkt tracks property values and loan balances across your portfolio so you can monitor your equity position over time and spot opportunities for growth.