Equity vs. Savings:

What’s the Smartest Way to Fund Your Next Investment Property?

Equity vs. Savings: What’s the Smartest Way to Fund Your Next Investment Property?

When it comes to growing your property portfolio, how you fund your next purchase is just as important as what you buy. Many investors face a key decision: should you use your personal savings, or unlock equity from an existing property?

Both options can work—but the right choice depends on your financial position, investment goals, and risk tolerance. While savings involve building capital over time, equity gives you a faster way to invest by leveraging your existing assets. Each strategy has distinct benefits and trade-offs.

Let’s explore how both approaches work—and how to choose the best one for your situation.

What is Equity, and How Can You Use It?

Equity is the difference between your property’s current market value and what you still owe on the mortgage. As your property appreciates in value or you pay down your loan, you build usable equity that can be tapped into to fund your next investment.

There are several ways to access this equity:

  • Refinancing: You increase your loan based on the new, higher property value.

  • Equity loan or top-up: You take out an additional loan using the equity as security.

  • Line of credit: A flexible facility that allows you to draw funds as needed against your equity.

Why investors use equity:

  • Faster entry: You don’t need to save for years—your current assets can fund your next deposit.

  • Portfolio growth: Leveraging equity allows you to control more property and grow wealth faster.

  • Preserve your savings: You can keep your personal cash reserves intact for emergencies or other investments.

Risks to consider:

  • Increased debt: You’re borrowing more, which increases your loan repayments and overall exposure.

  • Market risk: A decline in property values can reduce your available equity.

  • Cash flow pressure: Higher borrowing may impact your monthly cash flow if not managed well.

Using Savings to Fund Your Next Property

Saving for a deposit is a more traditional and conservative approach. It involves putting aside a portion of your income over time until you reach the required deposit—typically 10–20% of the property’s value.

Benefits of using savings:

  • No additional borrowing: You avoid increasing your debt, which can reduce financial stress.

  • Lower interest costs: The smaller the loan, the less you pay in interest over time.

  • Stronger lending position: Lenders often favour borrowers with larger deposits and lower loan-to-value ratios.

Challenges of the savings-first approach:

  • Takes longer: Accumulating a deposit can take years—especially in rising markets.

  • Missed growth: While you’re saving, property values may increase, pushing the goalposts further.

  • Opportunity cost: Your savings may not be generating strong returns during this period.

Which Strategy Makes More Sense?

There’s no universal answer—it depends on your broader investment goals and financial situation.

  • If you want to build wealth faster, using equity could help you scale your portfolio sooner.

  • If you prefer lower risk and less debt, saving for your next deposit might be a better fit.

  • If you’re somewhere in the middle, combining both strategies could offer the best balance of growth and stability.

Example:
If you have $100,000 in usable equity, that’s enough to fund a 20% deposit on a $500,000 investment property. You could acquire a new asset without dipping into your savings or waiting years to build capital.

Alternatively, if you’re not comfortable increasing your borrowing, using your savings may give you more peace of mind—even if it takes longer.

Bringing it all together

Using equity allows you to accelerate your investment journey, while savings provide a safer, more traditional path. In many cases, a hybrid strategy can work well—leveraging some equity while contributing a portion of savings to maintain flexibility and control.

Unsure which path fits your investment goals? Book your investment session with PropVest and let’s map out a strategy that works for you.

 

Disclaimer: This article is for general information only and does not constitute financial advice. You should seek advice from a qualified professional before making any property or investment decisions.

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