Why Leveraged Property Investment Can Mean Higher Returns
When you hear the word “leverage” in the media, it’s often in a negative light—linked with financial risk and economic downturns. But for property investors, leveraging is not only common, it’s one of the most powerful tools available to build wealth faster.
What is Leverage in Property Investment?
Leverage is simply borrowing money to invest. In the context of real estate, it means using a mortgage to purchase a property. Instead of using your entire savings to buy a property outright, you contribute a deposit and borrow the rest.
Leveraging allows you to access more expensive properties or spread your available capital across multiple investments. It’s what gives property its unique edge over many other types of investments—because you don’t need to pay for the entire asset yourself.
For example, if you buy a $700,000 home with a $140,000 deposit and borrow $560,000 from the bank, you’ve leveraged your deposit five times. If the home increases in value by 10% over the year (to $770,000), you’ve gained $70,000. That’s a 50% return on your original $140,000 investment. That’s the power of leverage.
How Leverage Magnifies Returns
Let’s look at three examples:
Example 1: No Leverage (Abby)
Abby buys a $700,000 house outright using her own savings. If the value increases by 10%, she gains $70,000—a 10% return.
Example 2: With Leverage + Price Increase (Bianca)
Bianca buys a $700,000 house with a $140,000 deposit and a $560,000 mortgage. A 10% increase in property value means a $70,000 gain. Since she only invested $140,000, that’s a 50% return.
Example 3: With Leverage + Price Decrease (Cindy)
Cindy is in the same situation as Bianca, but the house value drops 10% to $630,000. That’s a $70,000 loss. Since her deposit was $140,000, her equity is now $70,000—a 50% loss.
As you can see, leverage magnifies both gains and losses. This is why it’s essential to invest with a long-term horizon and understand the risks.
Using Equity to Leverage Further
Equity is the difference between what your property is worth and what you owe on the mortgage. As you pay down your mortgage or as property values rise, your equity grows.
Banks may allow you to access this equity to fund a deposit on another property. For example, if your house is now worth $900,000 and your mortgage is $500,000, you may have $400,000 in equity. Provided you retain at least 20% equity in your existing home, you could use the rest—up to $220,000—as a deposit on another property.
This is how experienced investors grow their portfolios: by recycling equity and using it as leverage to buy more assets.
Why Leverage Appeals to Investors
Access to high-value assets: You can invest in property without needing the full purchase price.
Increased returns on equity: Gains apply to the full property value, not just your deposit.
Diversification: Spreading your funds across multiple properties reduces risk.
Tax advantages: From April 2025, 100% of interest on investment mortgages can be deducted from taxable income.
The Risks of Leverage
Of course, leveraging isn’t without downsides:
Price drops hurt more: A 10% property value drop could wipe out half your deposit.
Higher repayments: Interest and principal repayments can stretch your budget.
Property may be illiquid: You can’t easily sell quickly if you need cash.
Additionally, your return is only "realised" when you actually sell the property. Until then, any losses or gains are only on paper.
Loan-to-Value Ratios (LVRs) and Rules
Banks apply limits to how much you can borrow based on the property type:
Owner-occupied: Up to 80% of the property's value.
Investment property: Typically 70%, meaning you need at least a 30% deposit.
New builds: LVR restrictions are more flexible.
Leveraging Equity in Practice
Imagine you bought a home for $685,000 in 2014 and now it’s worth $890,000. You owe $509,000. That means you’ve built $381,000 in equity. You might be able to borrow against that equity to buy an investment property—without touching your savings.
Just remember, the bank will assess your entire financial picture:
Property value
Expected rental income
Your income and debt
Your ability to service both loans
Leveraging for Renovation or Subdivision
Leveraging isn’t just for buying another property. You can use it to:
Renovate (add value)
Subdivide and sell part of the land
Add a minor dwelling or secondary unit
These improvements can increase the property’s value and rental yield, further boosting your return.
Get the Right Advice
Using leverage successfully requires planning. Talk to a mortgage broker, accountant, and lawyer before you act. They’ll help you:
Structure your loan properly
Understand the tax implications
Build a risk-managed strategy
Don’t Let Jargon Hold You Back
Leverage may sound complicated, but it simply means using borrowed money to grow your investment faster. When done carefully and with expert guidance, it can dramatically improve your returns and expand your property portfolio.
With the right financial advice and a strategy tailored to your situation, you can turn your existing home into a springboard for future wealth.
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