Investor Finance
Lazy equity: how to spot the $80K sitting in your existing property
Most investors save for years for their next deposit. They squirrel away after-tax dollars, watching the property market move ahead of them while they wait. Meanwhile, they already have a deposit sitting in the property they bought five years ago. They just can’t see it.
I call it lazy equity. It’s the value that’s built up in a property since you bought it that isn’t being put to work. You can’t spend it like cash, but you can release it as a deposit for the next purchase. Most investors I meet for the first time have between $40,000 and $200,000 of lazy equity, and almost none of them know what to do with it.
This is one of the most useful concepts in property investing, and it’s also one of the easiest to get wrong. Here’s how I think about it.
What lazy equity actually is
Equity is the gap between what your property is worth and what you owe on it. If you bought a home for $700,000 with a $560,000 loan, and the property is now worth $900,000, your equity is $340,000.
Lazy equity is the portion of that equity that you could access without selling, but currently haven’t. The bank doesn’t mind sitting on the additional security. You’re paying interest on the same loan you had at the start. The property is doing its job. The equity is just... sitting there.
Most lenders will let you draw on equity up to 80% of the property’s value before lender’s mortgage insurance becomes payable. So in the example above:
- Property value: $900,000
- 80% of value: $720,000
- Existing loan: $560,000
- Releasable equity (lazy equity): $160,000
That $160,000 isn’t imaginary. It’s just been sitting there, working as security for the bank instead of as a deposit for you.
Why most investors don’t see it
Three reasons. They’re different problems and they need different fixes.
1. The property hasn’t been formally revalued
Your bank’s file says the property is worth what it was when you bought it. The market may have moved 30% since then, but until a lender orders a new valuation, the lazy equity is invisible to the system. The valuation costs nothing in most cases, and it’s the first thing I do when looking at an existing portfolio. Often there’s $50,000 to $100,000 of equity that nobody knew was there because the file was stale.
2. The bank quoted ’available equity’ that wasn’t the full picture
Banks sometimes quote a number that ignores serviceability or LMI thresholds. Or they quote the absolute maximum without explaining the LMI cost involved. The realistic number for most investors is the equity available within the 80% LVR cap, and the actual usable amount depends on serviceability at today’s rates. The bank’s phone-call number isn’t always the broker’s number.
3. The structure of the existing loan blocks it
If your existing loan is on a fixed rate, releasing equity often triggers a partial break cost. If your existing loan is cross-collateralised with another property, the equity calculation includes both properties’ valuations and may be less than what one property alone would yield. If the loan is in the wrong name or structure for what you want to do next, the equity might be there but the path to using it is blocked.
How to estimate your own lazy equity
Three steps, ten minutes:
- Get a realistic estimate of what your property is worth today. Look at recent comparable sales in your suburb (CoreLogic, Domain or realestate.com.au). Don’t use the sale price you remember. Don’t use the council valuation. Look at what’s actually selling.
- Multiply that estimate by 0.8. That’s the amount most lenders will let you borrow against the property at the LMI threshold. Some go higher, but 80% is the working number.
- Subtract what you currently owe. The number left is your approximate lazy equity. Conservative on the property value, generous on the loan balance, and the number is usually still bigger than people expect.
This is an estimate, not a credit decision. But it’s usually accurate to within ten or twenty thousand dollars, and it’s a good enough number to know whether the next conversation is worth having.
What to do with lazy equity
Three sensible paths, depending on what you’re trying to achieve.
Path 1 - The deposit on your next purchase
The most common use. The released equity becomes the deposit (and stamp duty, and conveyancing) on your next property. The structural rule is the same one I covered in the cross-collateralisation post: the released equity should sit in a separate split or sub-loan secured against the existing property, not bundled into the new investment loan. That keeps the borrowed funds clean for tax purposes when they’re used for an investment.
Path 2 - Park it in offset, ready to deploy
If you’re not buying immediately but you can see a window in the next twelve months, releasing equity early and parking it in an offset account against the new split costs you nothing in interest while it sits there. You’re ready to move when the right property turns up. The cost is the application and valuation fees up front, plus the slightly higher overall debt position on paper.
Path 3 - Debt recycling (with proper advice)
Some investors use released equity as part of a debt recycling strategy, replacing non-deductible home-loan debt with deductible investment debt over time. The mechanics are real and the tax outcome can be meaningful, but this is firmly a financial planner conversation, not a broker one. My job is the loan structure that makes it possible. The strategy itself sits with your accountant or planner.
Mistakes I see when investors release equity
- Drawing it down before they need it. Released equity sitting in a regular savings account loses the clean tax trail. Park it in offset until you’re actually using it.
- Topping up the existing loan instead of creating a separate split. Mixes deductible and non-deductible purposes in one balance. Your accountant will not thank you.
- Cross-collateralising the new property to the existing one. Banks default to this on equity-release purchases. Tell the broker to keep them separate.
- Releasing to 80% on every property without modelling cumulative serviceability. Just because each individual property allows it doesn’t mean your portfolio can carry the combined debt load.
How I use it on my own portfolio
My partner and I have used lazy equity to fund the deposits on at least three of our seven properties. Property went up. We released the lazy equity. The released funds bought the next property. The next property eventually grew its own equity. We released that and bought again.
This is the engine that lets investors keep buying without saving for a fresh deposit each time. It only works if the structure is clean. Separate splits, separate security, separate purpose codes. The cross-collateralisation post covers why this matters in detail.
Lazy equity is one of the most useful tools in property investing, and one of the easiest to leave on the table. Most investors have more of it than they think.
