Equity is the value of an asset less any mortgage on it.
If you have equity, you have the opportunity to use that equity as security for purchasing an investment property.
Equity is calculated on the current market value of your home (or investment property) minus what you owe the lender. As an investor you can access up to 80% of your home equity (without the need to take out Lenders Mortgage Insurance or LMI)
In the example the home above has a market value of $500K (determined by a professional valuer’s report nominated by the lender) and the bank is owed $240K. This means that there is equity of $260K or 52% but ‘available equity’ is calculated at 80% x $500K ($400K) minus the $240K still owed to the bank = $160K.
Normally the lender will then allow you borrow 100% of the purchase price of the investment property plus your costs. This means there is no cash outlay required