Equity explained: buying an investment property without a cash deposit
From Aaron’s TikTok: “Equity explained in 5 mins — buy an investment property using the equity in your own home.”
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Posted 17 August 2026
The short version
- Equity is your home’s value minus what you owe. If you have owned for a few years, you may be sitting on a deposit without knowing it.
- You do not sell to use it — the bank lends against your existing home to fund the deposit on the next one. No suitcase of cash required.
- Only part of it is usable: LVR rules mean the bank keeps a buffer in your home, and investment properties need more equity than owner-occupied ones.
- Equity opens the door, but income closes the deal — both loans have to pass the bank’s servicing test at rates above what you actually pay.
The deposit you might already own
Say your home is worth more than you owe on it — for most people who bought more than a few years ago, considerably more. That difference is equity, and banks will lend against it. Instead of saving a cash deposit for an investment property, you borrow the deposit against your own home and borrow the rest against the property you are buying.
Nothing is sold and no cash changes hands from your savings. What changes is your lending: more debt, secured across the properties, ideally structured so each loan is clean, separate and doing its own job.
Usable equity: the number that actually matters
You cannot lend your equity down to zero. Loan-to-value rules require a buffer left in your own home, and investment lending carries stricter deposit requirements than owner-occupied lending — under current NZ settings, investors generally need substantially more equity in the deal than an owner-occupier would. What is left after those buffers is your usable equity, and it is always smaller than the raw number.
Then comes the real gate: servicing. The bank tests whether your income — plus a discounted share of the expected rent — can carry both loans at a test rate above the advertised one. Plenty of people are equity-rich enough on paper but get stopped by the servicing maths, and that is better discovered in a planning conversation than in a declined application.
Do the sums before you fall for a rental listing
A workable equity purchase is a numbers exercise: what your home would value at, what is usable after buffers, what the rental would earn, and what both loans cost at test rates. Get those four numbers and the decision mostly makes itself. Guess at them and you are shopping blind.
This is also where structure decisions pay for years — how the loans are split, what is fixed, what is interest-only and for how long, and keeping the securities as clean as sensible. Aaron maps the whole picture and tells you straight whether the numbers work, and if not yet, what has to change first.
This is general information, not personalised financial advice. For advice on your situation, talk to Aaron.
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