For many homeowners, turning a primary residence into an investment property can be a smart financial move. Whether it’s due to relocating for work, upgrading to a larger home, or simply holding onto a property for sentimental reasons, repurposing your home as an investment asset is becoming increasingly popular.
But before you list your former home for rent, it’s important to approach the decision like any savvy investor would—by doing your research and understanding the financial, legal, and strategic implications.
Here’s a breakdown of what to consider before converting your owner-occupied property into a long-term investment.
Understand the Six-Year Rule
One of the biggest advantages for homeowners in Australia is the Capital Gains Tax (CGT) exemption on your primary residence. However, the Australian Taxation Office (ATO) also allows you to continue claiming this exemption for up to six years after moving out—provided the property was your main residence and is not nominated as such for another property.
This is known as the “six-year rule”, and it can have major tax benefits.
How it works:
- If you move out and rent your home, you can still claim it as your primary residence for up to six years.
- During this time, if you sell the property, you can be exempt from CGT—as long as you haven’t claimed another home as your main residence.
However, if you rent the property out for more than six years and then sell it, CGT will apply—but only for the period after the exemption ended. This is calculated on a pro-rata basis.
Check out “How to Calculate Capital Gains Tax“
What this means:
If you plan to return to your former home within six years, you could rent it out in the meantime and still avoid capital gains tax when you sell. But if your strategy is longer-term, be prepared to account for potential CGT obligations in your future calculations.
Tax Deductions and Debt Considerations
A key benefit of owning an investment property is the ability to claim various tax deductions, including interest on your mortgage, property management fees, depreciation, repairs and maintenance, and more. But if you’ve already paid down much of your home loan before converting the property into an investment, your ability to claim deductions may be limited.
Let’s look at an example.
Scenario:
You originally borrowed $900,000 to purchase your home. Over time, you’ve reduced the loan to $300,000. Once the property becomes an investment, only the $300,000 balance is tax-deductible, not the original $900,000.
So while it may feel like a smart move to pay off your mortgage early, if you later plan to convert the home into an investment property, you could be missing out on tax deductions that would have improved your cash flow.
If you’re considering this move as part of a broader investment strategy, it’s worth discussing your tax position with an accountant first.
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Your Mortgage May Need to Change
When you first purchased your home as an owner-occupier, your mortgage would have been structured around your personal circumstances—likely with features and repayment terms tailored for homeowners rather than investors.
But investment loans often have different lending criteria and structure requirements. So if you’re transitioning to an investment property, it may be time to reassess your mortgage.
What to review:
- Line of Credit Mortgages: These are often set up to reduce interest on your home loan through offset features or redraw facilities. But once your home becomes an investment property, those benefits may no longer apply. That’s because the ATO requires clear purpose-based delineation when it comes to interest deductibility.
- Principal & Interest vs Interest-Only: Owner-occupier loans are often structured to reduce principal over time. But many investors prefer interest-only loans to maximise short-term cash flow and tax deductibility—particularly if they’re simultaneously servicing a non-deductible owner-occupied loan elsewhere.
Before you make the switch, speak with a mortgage broker or financial adviser to assess whether refinancing or restructuring your loan could improve your position.
Check out “Compare Different Types of Home Loans and Interest Rates“
Is Your Property Positively or Negatively Geared?
Another key consideration when turning your home into an investment property is how it will perform from a cash flow perspective. That means understanding whether the property will be positively geared or negatively geared.
Positive Gearing
This occurs when your rental income exceeds your expenses—such as mortgage repayments, maintenance, insurance, and management fees. A positively geared property provides a surplus income stream, but it also means you’ll be taxed on that profit at your marginal tax rate.
Negative Gearing
This occurs when your rental income is less than your expenses, resulting in a taxable loss. However, this loss can often be offset against your other income—potentially lowering your overall tax bill.
What to consider:
- A property that is negatively geared may be more beneficial when held in the name of the higher income earnerin a household, as the tax offset will be more valuable.
- If the property becomes positively geared, it may be preferable to have ownership split or structured in a way that aligns with your broader tax strategy.
- If you own the property jointly with a partner, it’s worth evaluating whether you should keep the title structure as-is or look into other arrangements, such as tenants in common, discretionary trusts, or company structures—though these often come with higher complexity and costs.
Check out “Crunching the Numbers: Positive Cash Flow vs. Negative Gearing“
What Rental Income Can You Expect?
When preparing to rent out your former home, take the time to research comparable rental listings in your area. Factors that can influence your potential rental income include:
- Location and suburb desirability
- Size and condition of the home
- Recent renovations or upgrades
- School zones, transport, and local amenities
- Rental demand in your local market
Keep in mind that tenants view properties differently to buyers. What appeals to a buyer may not necessarily justify a premium rental. You’ll need to ensure the home meets legal requirements for health, safety, and compliance—smoke alarms, electricals, insulation, and even fencing standards might need updating.
If your home has been designed with owner-occupier comfort in mind, there may be upgrades or modifications needed to make it “tenant ready.”
Will You Self-Manage or Use a Property Manager?
One of the biggest decisions property owners face is whether to manage the rental themselves or engage a professional property manager.
DIY Management:
- Offers more control and saves on agent fees
- Suitable if you’re experienced, live nearby, and have time
- Requires knowledge of tenancy laws, bond handling, rent collection, dispute resolution
Professional Management:
- Typically charges 6–10% of rental income (plus leasing fees)
- Provides legal compliance, tenant screening, rent tracking, and repairs
- Can add value by increasing tenant retention and ensuring proper documentation
For most first-time landlords—particularly those turning a home into an investment—working with a licensed property manager provides peace of mind and helps ensure compliance with the Residential Tenancies Act.
Don’t Forget Landlord Insurance
Once your property is tenanted, your standard home insurance policy may no longer apply. Instead, you’ll need landlord insurance, which covers:
- Loss of rental income due to tenant default
- Malicious or accidental damage by tenants
- Legal expenses arising from tenant disputes
- Liability protection
Premiums vary based on the insurer, property type, location, and rental amount—but it’s a non-negotiable for any serious property investor.
Renovations: Should You Update Before Renting?
Depending on the condition and layout of your home, you may need to undertake some light improvements to increase its rental appeal. These could include:
- Repainting walls in neutral tones
- Updating kitchen cabinetry or appliances
- Replacing old carpet with hard flooring
- Upgrading bathrooms with new fixtures
- Improving storage or outdoor areas
Avoid overcapitalising—especially if the property is in a lower-yielding area. Focus on cost-effective cosmetic upgradesthat increase rentability, not major structural renovations that won’t deliver a strong return.
Converting your home into an investment property can be a financially rewarding decision—but only when it’s done with the right strategy, financing, and tax planning. From understanding your eligibility for CGT exemptions to deciding on the right loan structure and gearing strategy, there are several moving parts to consider.
Take the time to evaluate:
- The financial impact of retaining vs selling
- The tax implications of converting your home into a rental
- Whether your mortgage still suits your investment goals
- How much income and return you can expect from the property
With the right planning—and support from professionals like mortgage brokers, accountants, and property managers—you can make the transition from homeowner to property investor with confidence.
