Avoid These 5 Mistakes Using Equity to Buy Second Home

You can use the equity in your current property as a deposit to buy a second home without selling or saving another full deposit from scratch.

If you've been paying down your loan for a few years and property values have held or climbed, you've probably built up usable equity. That equity can fund the deposit and buying costs for a second property without you needing to liquidate other assets or wait years to save again. But lenders won't hand over the full amount you've built up, and the structure you choose affects your borrowing capacity and tax position down the line.

How Much Equity You Can Actually Use

Lenders let you borrow against up to 80% of your property's current value, minus what you still owe. If your home is now worth $650,000 and you owe $400,000, 80% of the property value is $520,000. Subtract the $400,000 debt and you have $120,000 in accessible equity. That's enough to cover a deposit and purchase costs on a second property without dipping into cash savings.

That calculation assumes you can service the additional debt. Lenders assess your income, existing loan repayments, and living expenses to work out how much more you can borrow. If you're self-employed as a bricklayer, they'll want recent financials showing consistent income. A strong tax return and profit-and-loss statement make a difference when the assessment is tight.

Structuring the Loan as Investment or Owner-Occupied

You need to decide whether the second property will be your new home or an investment. If you're moving into the new place and renting out or selling the first, the new loan should be structured as owner-occupied. If you're keeping your current home as your primary residence and buying the second property to rent out, the new loan is an investment loan.

Interest on an investment loan is tax-deductible against rental income, but the interest rate is typically higher than an owner-occupied loan. If you move into the new property and rent out the old one, the loan secured against your original home can sometimes be restructured to reflect its new purpose, but this depends on the lender and how the loan was drawn down. Speak to a broker who understands investment loans for tradies before you commit to a structure.

Using a Line of Credit or Cash-Out Refinance

You can access equity in two main ways. A line of credit sits alongside your existing loan and lets you draw down equity as needed, paying interest only on what you use. A cash-out refinance replaces your existing loan with a larger one, releasing the equity as a lump sum.

Consider a bricklayer who owes $320,000 on a property now worth $580,000. A line of credit could give access to $144,000 in equity without changing the existing loan structure. If he draws $100,000 to fund a second purchase, he pays interest on that $100,000 plus the original $320,000 debt. A cash-out refinance would replace the $320,000 loan with a $420,000 loan, releasing $100,000 in cash and locking in a new rate and term. The refinance option works if you want to review your rate or consolidate debt at the same time. The line of credit gives you flexibility if you're not sure exactly how much you'll need upfront.

Mistakes That Kill Your Borrowing Capacity

Piling new debt onto your existing loan without checking your serviceability first is the fastest way to get knocked back. Lenders add a buffer of around 3% to your interest rate when they test whether you can afford the repayments. If your income fluctuates or you've recently taken on a car loan or business debt, that buffer can shrink your capacity quickly.

Another mistake is treating all equity as available cash. Lenders won't let you borrow the full 80% if it pushes your total debt-to-income ratio too high. If your taxable income has dropped in the last financial year to reduce your tax bill, expect the lender to use that lower figure in their assessment. That's where lodging a strong profit-and-loss statement and having your accountant involved early makes a difference, especially if you're applying as a self-employed bricklayer under a low doc loan or alternative doc structure.

Not separating your loans correctly is the third mistake. If you use equity from your home to buy an investment property, keep the debt tied to the investment separate from your owner-occupied debt. That way, the interest on the investment portion stays deductible. If you mix the two, you lose the ability to claim the deduction cleanly, and your accountant will hate you at tax time.

The fourth mistake is underestimating buying costs. Stamp duty, conveyancing, building and pest inspections, and lender fees add up quickly. In most states, stamp duty alone on a second property can run into tens of thousands of dollars, and you don't get the first-home buyer concessions this time around. Budget for total buying costs to sit around 5% to 7% of the purchase price, and make sure your equity drawdown covers the lot.

The fifth mistake is skipping pre-approval. If you start shopping for a second property without knowing exactly how much you can borrow, you waste time and risk losing a property you want because you can't move quickly. Pre-approval also locks in your borrowing capacity for a set period, so you're not guessing whether you can afford a property when you find it.

When Selling the First Property Makes More Sense

Using equity works when you want to keep both properties. If the rental income from your first home doesn't cover the mortgage, rates, insurance, and maintenance, you'll be funding the shortfall from your wage. That's fine if your income can handle it and you're holding the property for long-term growth. But if the shortfall is too large or your borrowing capacity is already stretched, selling the first property and using the proceeds to buy the second outright or with a smaller loan might make more sense.

You also need to consider capital gains tax if you turn your home into an investment. The main residence exemption protects you from CGT while you live in the property, but once you move out and start renting it, the exemption stops. If you sell years later, you'll pay CGT on the gain made after it became an investment. That's not a reason to avoid the strategy, but it's a cost you need to factor in.

Getting the Structure Right Before You Commit

The way you draw down equity and structure your loans affects your tax position, your interest costs, and your ability to borrow again down the line. If you're buying the second property as an investment, keep the debt tied to that property separate and make sure the loan purpose is documented correctly. If you're moving into the new place and keeping the old one as a rental, talk to your accountant about whether you need to split the existing loan or refinance it to preserve deductibility.

A broker who works with self-employed tradies regularly will know which lenders assess bricklayer income properly and which ones don't. They'll also know how to structure the application so you don't lose borrowing capacity by declaring income the wrong way or mixing loan purposes.

If you're ready to use your equity to fund a second purchase, call one of our team or book an appointment at a time that works for you. We'll run the numbers, check your serviceability, and structure the loans so you keep as much borrowing capacity and tax deductibility as possible.

Frequently Asked Questions