When interest rates drop and property values rise, most homeowners sit on their hands. But savvy investors? They leverage. In this article, I’ll break down how to use the equity in your home or investment property to generate passive income, build your portfolio, and minimise your tax — without needing a raise or taking on unnecessary risk.
What is Equity and Why Does It Matter?
Equity is the difference between what your home is worth and what you owe the bank. If your property is worth $900,000 and you owe $400,000, you’ve got $500,000 in equity. But the bank won’t let you access all of that — generally, only up to 80% of the property’s value.
So, in this case:
80% of $900,000 = $720,000
$720,000 – $400,000 = $320,000 of usable equity
This is called a cash-out refinance, and it’s how many investors buy their next property without using savings.
Here’s Where Most People Go Wrong…
They access equity to buy cars, go on holidays, or renovate their own kitchen. That money isn’t tax deductible — because it’s for personal use.
But if you use the borrowed funds to:
Purchase an investment property (like a HMO)
Renovate a rental
Invest through a trust
…then the interest on that borrowed money can be tax deductible.
And that’s where the magic happens.
A Real-World Example:
Let’s say you pull $300,000 out of your principal place of residence and invest it into a 6-bedroom HMO generating 10% gross yield. That’s:
~$117,000 in annual rent
~$15,000 in net cashflow after expenses
Plus, you claim ~$40,000 in depreciation using a tax schedule
On paper, your trust might show a loss of $25,000+ (thanks to depreciation)
The result?
$15,000 cash in your pocket $0 tax payable on that income Ability to use the full cashflow to pay down debt faster.
The Role of Trusts and Structure
If you borrow against your own home and lend the money to a discretionary trust, the interest becomes personally deductible. The income is earned in the trust and distributed to beneficiaries — ideally those in lower tax brackets.
So:
You get the deduction
Your family trust gets the income
Your accountant helps you legally reduce your tax bill
Final Thought: Equity Doesn’t Build Wealth. You Do.
Accessing equity is only powerful if you use it wisely. With the right structure, support team, and strategy, you can:
Turn tax into a tool
Fast-track debt reduction
Build wealth without sacrificing lifestyle
Most people sit on lazy equity. Smart investors make it work harder than they do.
Ready to move from theory to action?
Book a strategy call with our team and learn how to use your equity to buy your next HMO property