Releasing equity from an investment property for your business

Plenty of business owners hold their wealth in bricks and mortar: a rental house bought a decade ago, a unit in a growing suburb, a small commercial building leased to a tenant. That equity sits quietly on paper while the business that created it is short of cash.

You don’t have to sell the property to use it. A private secured loan lets you release some of that equity for the business, keep the tenant, and keep the asset.

Can I release equity from an investment property for business use?

Yes. Investment property is one of the most common forms of security for business loans. The lender looks at:

• the property: type, location, condition and how easy it would be to sell;
• what’s already owing on it;
• the lease, if any, as part of understanding the property;
• the exit: how the loan will be repaid.

The tenant continues as usual. The lender takes a mortgage or caveat on the title; nothing changes for the person living or trading there.

This page focuses on the business use of the funds. For the mechanics of the security itself, see the guide to a second mortgage on an investment property.

Which structure suits an investment property equity release?

Your investment property	Usual structure	Why
No loan on it	Private first mortgage	Clear title, simplest security, sharpest pricing
Bank loan, well priced and in good order	Second mortgage behind the bank	Keeps the bank loan; adds only what you need
Bank loan in arrears, or bank won’t consent	Refinance into a private first mortgage	One lender, one loan, problem solved at settlement
Small, urgent amount	Caveat loan	Fast; can convert to a registered second mortgage
Equity spread across two rentals	Both titles as security	Combined equity supports the amount

A second mortgage or caveat generally costs more than a first mortgage, because the lender ranks behind another lender. To weigh keeping the bank loan against replacing it, see second mortgage vs refinance.

How is the interest treated for tax?

Ask your accountant, but understand the principle first: the purpose of the borrowed money generally matters more than the property securing it.

• The ATO lists interest on money borrowed to produce assessable income, or to buy income-producing assets, among common business operating expenses.
• The ATO’s rental property guidance shows that where a loan is used partly for the rental and partly for something else, the interest is apportioned between the purposes.

So equity released from a rental and used in your business is generally assessed by reference to the business use, not the rental. Keep the business loan separate from any existing investment loan so the paper trail is clean. Your accountant can confirm the right treatment for your structure.

What else should I think about before releasing equity?

• Ownership. If a family trust or company owns the property, the trustee or company signs, and the trust deed must allow borrowing and giving security. See company or trust owned property.
• Land tax. It doesn’t change because of the loan, but it is a holding cost. In NSW, land tax applies once the combined value of your non-exempt land passes the general threshold, is based on what you own at midnight on 31 December, and isn’t reduced for part-year ownership.
• The lease. Note any options or break clauses. A long lease with a reliable tenant makes the property easier to assess and to sell if needed.
• How much to release. Use our guide on how much equity you can use to understand limits, then borrow what the business needs.

What will the lender ask for?

An investment property file is usually one of the simpler ones to assemble, because most of the information already sits with you or your property manager.

• ID for every borrower, director and guarantor.
• Ownership details, and the trust deed or company extract if an entity holds the title.
• A current statement for any loan secured on the property, so the lender knows exactly what ranks ahead.
• The lease and a recent rental statement from the property manager.
• A short note on the business purpose: what the funds will do and roughly when.
• The exit, with whatever evidence exists: a bank conversation, a planned sale, or contracted income.

If the property is commercial, add any outgoings recovered from the tenant and the lease’s option dates. The comparison of residential vs commercial security explains why those details matter for a commercial title.

What does an investment property equity release look like?

Illustrative example: an Adelaide IT services company director owns a townhouse rented to long-term tenants, worth around $750k with $280k owing to a bank on a well-priced investment loan. The company needs $200k to fund a two-year managed services contract’s upfront hardware and staffing. A $220k second mortgage behind the bank is arranged for 12 months, with interest capitalised. The tenants are unaffected. As the contract’s monthly fees roll in, the company builds a track record, and the director refinances the townhouse with the bank 11 months later, clearing the second mortgage.

The property kept earning rent throughout, and the business got its funding without selling a long-held asset.

To see what your rental could release, send a specialist the property details.

What exit works for an investment property equity release?

Every loan needs a clear exit:

1. Bank refinance of the investment property, folding the private loan into a longer-term facility.
2. Sale of the investment property or another asset. See bridging until a property sells if a sale is already planned.
3. Business income from the activity the funds supported.

Interest can be prepaid or capitalised, so there may be no monthly repayments during the term while the funds do their job.

Key terms

• Equity release: borrowing against the gap between a property’s worth and what is owing on it.
• Second mortgage: a loan registered behind an existing first mortgage.
• Apportionment: splitting interest between different uses of the borrowed money for tax purposes.
• Exit: the refinance, sale or income that repays the loan.

Equity sitting in a rental? See if you qualify

There is no credit check when you first enquire. A real specialist reads your details and replies personally, and nothing is circulated to a panel of lenders. Our lending partner fundU is the direct lender and assesses the property itself.

Tell us the property, what is owing on it, the lease position, how much the business needs and how it will be repaid. Precise answers about the property and its debts let us give you the right answer first time. Start your 60-second enquiry.