Context & Problem

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Australians are increasingly looking to property as a way to grow wealth—but also to improve lifestyle. A second property could mean:

• A larger or better-located home
• A rental property to generate income
• A holiday house with future retirement potential

But it’s rarely clear-cut. Many buyers underestimate the financial implications of each option—especially when it comes to borrowing power, tax rules, and long-term flexibility.

Get it wrong, by investing everything in your home, and you could find yourself asset-rich but cash-poor and stuck with a property that limits your future options.

1. Upgrade Your Primary Residence

Often driven by life changes—more kids, better schools, or improved lifestyle.

Considerations:

• You may need to sell your current home to fund the upgrade
• Stamp duty and moving costs can be substantial
• Upsizing increases your non-deductible debt (home loans aren’t tax deductible)
• May limit borrowing capacity for future investments

Best for: Homeowners with long-term stability who want better quality of life, not investment growth

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2. Buy an Investment Property

This route is all about capital growth or rental yield.

Considerations:

• Rental income could help service the loan
• Expenses (e.g. interest, maintenance, insurance) may be tax deductible
• Negative gearing can be used to reduce taxable income, but you’ll still need strong cash flow to cover shortfalls (refer to the article about this in our library)
• Long-term capital gains may be taxed when you sell
• You’ll need to manage tenants,  maintenance, and vacancy periods

Example:

• Buy for $650,000
• Rent for $550/ week = ~ $28,600/ year gross income
• Holding costs may offset income, making it negatively geared
• Long-term capital gains may be taxed when you sell
• You’ll need to manage tenants,  maintenance, and vacancy periods
• If value grows to $900,000 in 10 years, capital gain = $250,000
• If eligible and held over 12 months, individuals/trusts may receive a 50% CGT discount, with the remaining gain taxed at their marginal rate

Best for: Buyers with strong income, comfortable borrowing power, and a long-term investment mindset

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3. Buy a Holiday Home or Future Retirement Property for personal use

This hybrid approach is appealing but comes with traps.

Considerations:

• Often not income-generating(unless rented out)
• Mortgage is usually not tax deductible
• May sit empty for large parts of the year
• Can tie up capital that could be growing elsewhere
• May become a liability if circumstances change

Best for: Financially secure buyers who value lifestyle access and are happy to absorb costs

Can I turn my first home into an investment and buy a second to live in?

Yes—many do. But once your old home becomes a rental, CGT may apply if you sell later. Always get tax advice before changing the property’s use.

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Is borrowing easier for a second property?

Not necessarily. Your existing debts, living costs, and projected rental income all affect how much you can borrow.

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Does an investment property guarantee profit?

No. Property markets fluctuate, and costs like interest rates, maintenance, and vacancies can eat into returns.

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Can I use equity in my home?

Yes—many people refinance or draw equity from their first property as a deposit for the second. But this increases your total debt and repayments. Better still, put all additional loan repayments into a deposit offset savings account so that this cash can be used as a larger deposit on the new home instead of being locked up in the equity of the first home. This can preserve flexibility and may improve tax outcomes in some structures, butget tax advice before acting.