How to Finance a Second Property | Investment & Upgrader Loans | Esteb and Co
🏠 Investment or Upgrade

How to Finance Your Second Property

Complete guide to buying property #2. Whether it's an investment or upgrade, we'll show you deposit options, equity strategies, and lender criteria.

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Important Information

Esteb and Co provides credit assistance services. We are licensed credit representatives (ASIC Credit Rep #574070) who help you compare loan options from our panel of lenders. We do not lend money directly. All loan approvals are made by lenders, subject to their criteria and responsible lending assessments. Our service is free to you - we receive commissions from lenders. Read our Credit Guide

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10-20%
Deposit Required
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Two Types of Second Property (Which Are You?)

The financing strategy depends on your goal - investment or upgrade

📊

Investment Property

Goal: Keep your current home, buy property #2 as an investment to generate rental income and build wealth.

Benefits:

  • ✓ Rental income helps cover mortgage
  • ✓ Tax deductions on interest & expenses
  • ✓ Build wealth through capital growth
  • ✓ Keep your current home

Financing Challenges:

  • ⚠️ Need deposit for property #2
  • ⚠️ Must service both loans
  • ⚠️ Investment rates slightly higher
  • ⚠️ Pay stamp duty (no exemptions)
🏡

Upgrader (Sell & Buy)

Goal: Sell your current home and buy a bigger/better property. Moving from property #1 to property #2.

Benefits:

  • ✓ Use equity from sale as deposit
  • ✓ Only service ONE mortgage
  • ✓ Owner-occupier rates (lower)
  • ✓ Possible stamp duty concessions

Financing Challenges:

  • ⚠️ Timing: sell before or after?
  • ⚠️ May need bridging finance
  • ⚠️ Temporary accommodation if gap
  • ⚠️ Transaction costs on both properties

5 Ways to Finance Your Second Property

1

Use Equity from Property #1 (Most Popular) 💰

How it works: Borrow against the equity in your current home to fund the deposit for property #2.

Example:

Property #1 Value: $800,000
Current Loan Balance: $400,000
Usable Equity (80% LVR): $640,000 - $400,000 = $240,000
Available for Deposit: $240,000
You can buy property #2 worth up to $1.2M (with 20% deposit)
✅ Pros:
  • No need to save cash deposit
  • Access funds quickly
  • Keep emergency savings intact
  • Interest on equity loan is tax-deductible (for investment)
❌ Cons:
  • Higher total debt
  • Risk to property #1 if things go wrong
  • Must service both loans
2

Save Cash Deposit (10-20%) 💵

How it works: Save $50K-$150K in cash and use it as the deposit for property #2.

Typical Deposit Requirements:

Property Price 10% Deposit + LMI 20% Deposit (No LMI)
$500,000 $50,000 + $12,000 $100,000
$700,000 $70,000 + $18,000 $140,000
$1,000,000 $100,000 + $28,000 $200,000
✅ Pros:
  • No additional debt on property #1
  • Cleaner structure
  • Lower risk
❌ Cons:
  • Takes years to save
  • Miss market growth while saving
  • Opportunity cost
3

Sell Property #1 First (Upgraders) 🔄

How it works: Sell your current home, use proceeds as deposit for your next home.

Typical Upgrade Scenario:

Step 1: Sell Property #1
Sale Price: $800,000
Loan Payoff: -$400,000
Selling Costs: -$25,000
Net Proceeds: $375,000
→
Step 2: Buy Property #2
Purchase Price: $1,200,000
Deposit (30%): $375,000
New Loan: $825,000
You've Upgraded!
✅ Pros:
  • Large deposit = lower LVR = better rates
  • Only one mortgage to service
  • Clean transaction
❌ Cons:
  • Timing risk (sell before you find next home)
  • May need temporary accommodation
  • Double moving costs
4

Bridging Loan (Buy Before Selling) 🌉

How it works: Short-term loan lets you buy property #2 BEFORE selling property #1. Gives you 6-12 months to sell.

How Bridging Finance Works:

Month 1:
Get bridging loan approved
Borrow deposit for property #2
Month 2-3:
Buy property #2
Temporarily service both loans
Month 4-6:
Sell property #1
Pay off bridging loan
End:
Keep property #2
Back to one loan!
✅ Pros:
  • Buy before selling = no timing stress
  • Don't need temporary accommodation
  • Inspect & buy at your own pace
❌ Cons:
  • Higher interest rates (0.5-2% premium)
  • Service TWO mortgages temporarily
  • Must sell within 6-12 months
  • Additional fees
5

Family Guarantee (Parents Help) 👨‍👩‍👧

How it works: Parents use their property equity to guarantee part of your loan. Lets you buy with smaller deposit.

Example:

You want to buy: $700,000 property #2

Your cash deposit: $35,000 (5%)

Parents guarantee: $105,000 (15%) using their home equity

Result: 20% total deposit, no LMI needed!

✅ Pros:
  • Buy with smaller cash deposit
  • Avoid LMI
  • Better interest rates
❌ Cons:
  • Parents' property at risk
  • Affects parents' borrowing capacity
  • Family dynamics if issues arise
  • Not all lenders offer this

Lender Criteria for Second Property Loans

What lenders look for when you're buying property #2

📊

Serviceability (Can You Afford Both Loans?)

Lenders assess if you can service BOTH loans - your existing mortgage plus the new one.

What They Calculate:

  • Your Income: Salary, rental income (80% counted), bonuses
  • Existing Loan Repayments: Current mortgage P&I at assessment rate (usually 3% above actual rate)
  • New Loan Repayments: Property #2 loan at assessment rate
  • Living Expenses: HEM benchmark ($2K-$4K/month depending on household)

💡 Tip: Investment rental income helps serviceability! 80% of rent counts as income.

🏦

Loan-to-Value Ratio (LVR)

Maximum LVR for second property depends on purpose and your situation.

Situation Max LVR Deposit Needed
Investment Property 90% (with LMI) 10%
Owner-Occupier Upgrade 95% (with LMI) 5%
Avoid LMI 80% 20%
Ideal LVR 70-80% 20-30%
💳

Credit Score & History

Your credit score matters more for second property loans.

✅ Excellent (700+):
  • Access to all lenders
  • Best interest rates
  • Up to 90% LVR investment
⚠️ Average (600-699):
  • Most mainstream lenders OK
  • May need larger deposit
  • Slightly higher rates
❌ Below 600:
  • Limited lender options
  • Need specialist broker
  • 20%+ deposit required
📄

Employment & Income Stability

Lenders prefer stable employment when you have multiple loans.

  • PAYG Employees: 3-6 months payslips, 2 years employment history preferred
  • Self-Employed: 2 years tax returns, recent BAS statements, accountant letter
  • Casual/Contract: 12+ months history with same employer, contract showing ongoing work
  • Multiple Income Streams: All income sources documented and verifiable
💰

Genuine Savings (For Some Lenders)

Some lenders want to see you've saved part of the deposit (not just using equity).

Genuine Savings = Money held for 3+ months

  • ✓ Bank savings account balance
  • ✓ Term deposits
  • ✓ Shares held for 3+ months
  • ✓ First Home Super Saver Scheme

Not Genuine Savings:

  • ✗ One-off bonuses or gifts (unless held 3+ months)
  • ✗ Borrowed funds
  • ✗ Equity alone (depends on lender)
🏡

Property Type & Location

Not all properties are treated equally by lenders.

✅ Standard Properties (Easy to Finance):
  • Houses in metro/regional cities
  • Apartments 50m²+
  • Land size 150m²+
  • Standard construction
⚠️ Restricted Properties (Harder/More Expensive):
  • Serviced apartments
  • Apartments under 50m²
  • High-rise (15+ floors)
  • Regional/remote locations
  • Properties with defects

Stamp Duty Costs for Second Property

Stamp duty adds $20K-$60K+ to your purchase cost - here's what to expect

⚠️ Bad News: No First Home Buyer Concessions

Since it's your second property, you DON'T get first home buyer stamp duty exemptions or discounts (even if you sell property #1 first).

Exception: Some states offer concessions if you're upgrading and selling your PPOR within a certain timeframe. Check your state rules.

💸 Stamp Duty by State (2025)

NSW

$500,000 $17,990
$750,000 $28,490
$1,000,000 $40,490
+8% Foreign Buyer Surcharge

VIC

$500,000 $21,970
$750,000 $38,470
$1,000,000 $55,000
+8% Foreign Buyer Surcharge

QLD

$500,000 $15,925
$750,000 $26,425
$1,000,000 $38,025
+8% Foreign Buyer Surcharge

💡 Investment Property Tip:

Stamp duty on investment property is TAX DEDUCTIBLE - but spread over 5 years, not claimed upfront.

Example: $40,000 stamp duty = $8,000/year deduction for 5 years = ~$3,600/year tax saving (45% bracket)

Investment vs Owner-Occupier Second Property

Key differences in financing, rates, and tax treatment

Factor Investment Property Owner-Occupier (Upgrade)
Interest Rate 6.3-6.8%
(0.2-0.4% higher)		 5.9-6.4%
(Lower rates)
Deposit Required 10-20%
(20% to avoid LMI)		 5-20%
(More low-deposit options)
Tax Deductibility ✅ Interest 100% deductible
✅ All expenses deductible		 ❌ No tax deductions
❌ Pay from after-tax income
Loan Features Interest-only common
Offset preferred
Flexibility key		 P&I standard
Offset available
Focus on paying down
Serviceability Rental income helps (80%)
Must still cover shortfalls		 Based on your income only
No rental income to help
Capital Gains Tax ❌ Pay CGT when you sell
(50% discount if held 12+ months)		 ✅ No CGT on PPOR
(If lived in 12+ months)
Stamp Duty Full rate
Deductible over 5 years		 Full rate
Some states offer upgrade concessions
Lender Preference More scrutiny
Tighter serviceability		 Easier to qualify
Better rates/terms

Which is better? It depends on your goal:

  • 📊 Investment: Better for wealth building, tax benefits, passive income. Higher rates but deductible.
  • 🏡 Owner-Occupier: Better for lifestyle upgrade, lower rates, no CGT. Pay with after-tax income.

Second Property FAQs

Can I buy a second property with only 10% deposit?

Yes, but you'll pay LMI.

For investment properties, most lenders allow 10% deposit (90% LVR) but you'll pay Lenders Mortgage Insurance ($10K-$30K depending on loan size).

For owner-occupier upgrades, some lenders allow 5% deposit with LMI.

Better option: Use equity from property #1 to reach 20% deposit and avoid LMI entirely.

How much equity can I access from my first property?

Typically up to 80% LVR across all properties.

Formula: (Property Value × 80%) - Current Loan = Usable Equity

Example: Property worth $800K with $400K loan = ($640K - $400K) = $240K usable equity

Some lenders allow 85-90% LVR but you'll pay LMI and higher rates.

Should I sell my first property or keep it as an investment?

Keep it if:

  • ✓ You can afford to service both loans
  • ✓ Rental yield covers 80%+ of costs
  • ✓ Property in growth area
  • ✓ You want to build investment portfolio

Sell it if:

  • ✓ Can't service both loans comfortably
  • ✓ Need equity for bigger deposit
  • ✓ Property in declining area
  • ✓ Don't want landlord responsibilities

What's the difference between a bridging loan and using equity?

Using Equity: Increase loan on property #1 to access funds for property #2 deposit. You keep both properties long-term.

Bridging Loan: Short-term loan (6-12 months) that lets you buy property #2 BEFORE selling property #1. You sell property #1 and pay off bridging loan.

Key difference: Bridging is temporary (for upgraders), equity is permanent (for investors).

Can I use the First Home Guarantee for a second property?

No. The First Home Guarantee (5% deposit, no LMI) is only for first home buyers who have never owned property before.

If you already own property #1, you're not eligible - even if you sell it first.

Alternative: Use equity from property #1 or save 10-20% deposit.

How do lenders calculate rental income for serviceability?

Lenders typically count 80% of rental income toward your borrowing capacity.

Example:

  • Rental income: $500/week = $26,000/year
  • Lender counts: 80% = $20,800/year
  • This helps service the investment loan

The 20% buffer accounts for vacancies, maintenance, and management costs.

Do I pay capital gains tax if I sell my first home?

No CGT if it's your main residence (PPOR).

If you've lived in property #1 as your main residence, there's no capital gains tax when you sell it.

BUT: If you converted it to an investment property and rented it out, CGT applies for the period it was an investment (with some exceptions under the 6-year rule).

Tip: Consult an accountant before converting PPOR to investment.

What if I want to buy property #2 but don't have enough borrowing capacity?

Options to increase serviceability:

  • 💰 Increase income: Get a raise, side income, or rental income from property #1
  • 📉 Reduce debts: Pay off credit cards, personal loans, car loans
  • 🏡 Buy cheaper property #2: Lower loan = lower serviceability requirement
  • 🤝 Add co-borrower: Spouse/partner income helps
  • ⏰ Wait: Increase income or pay down debt for 6-12 months

Ready to Finance Your Second Property?

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Ricky Esteb - Licensed Mortgage Broker
Richard (Ricky) Esteb
Licensed Mortgage Broker & Founder
Credit Rep #574071 ACN 681 636 056 83+ Lender Panel

With direct experience helping Australians secure home loans, car finance, and business funding, Ricky founded Esteb and Co to bring transparency and technology to mortgage broking. Every piece of content is written from real-world lending experience.

✓ Verified & Last Reviewed: December 2025 | Content meets ASIC regulatory requirements
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