Should you sell your property or rent it out?

Deciding whether to sell your current home or lease it out as an investment is rarely straightforward. The right path depends on your financial position, your long-term plans, and how comfortable you are taking on the responsibilities of being a landlord. Below is a practical breakdown to help frame the decision.

The emotional vs financial side

A key early question is whether you are comfortable having tenants in a property that was once your home. For some, this is easy. For others, the emotional attachment to the home makes it difficult to hand over the keys.

If you feel ready to detach, turning the property into a rental can offer flexibility and long-term benefits. If not, selling may give a cleaner break and allow you to focus on your next home without added obligations.

Hypothetical Scenario

Consider a common Sydney scenario:

• Home value: $1.2 million

• Remaining mortgage: $300,000

• Potential sale proceeds: around $900,000 before selling costs
  
  

Selling in this situation might give you a substantial deposit for your next home and keep your financial structure simple.

If you keep the property as a rental instead, the rental income may help cover holding costs, but you will usually also take on a second mortgage for your new residence. This can improve long-term net worth if the investment performs well – but only if the cash flow, tax position, and borrowing structure suit your circumstances.

The critical piece: tax considerations

This is the part many owners overlook.

If the property was your main residence the entire time you lived in it, selling now usually avoids Capital Gains Tax (CGT). That tax-free benefit can be significant.

But if you keep it and convert it to an investment property:

• All rent becomes taxable income.

• If the mortgage is low, the property may turn cash-flow positive, meaning it generates income after expenses.

• That sounds attractive, but cash-flow-positive properties increase your taxable income, which can lead to an end-of-year tax bill if you already earn a solid salary.

• When you eventually sell, CGT may apply, depending on how long you lived in it and how the main-residence exemption rules apply.
  

Because these outcomes vary greatly and the sums involved can be substantial, it is essential to consult a qualified tax professional before deciding.

Things to consider if you keep the property and rent it

Cash flow reliability
Rent is not guaranteed. Consider vacancies, maintenance, insurance, council rates, and any strata costs. A low mortgage can make the property cash-flow positive, but this also means higher taxable income.

Investment potential
If the suburb is projected to grow, holding the property may build wealth over time. But if growth prospects are modest, your money may work harder elsewhere.

Your borrowing capacity for the next home
Holding the existing home often means carrying two mortgages. Some lenders will treat the rental property as neutral or positive for servicing; others will not.

Future plans
If moving back into the property later is a possibility, holding it may offer flexibility. If not, the investment case needs to stand on its own merits.

When selling might be the smarter option

Selling may be better if:

• Eliminating CGT by selling your main residence now is financially advantageous.

• You want a straightforward structure with only one mortgage.

• You prefer to avoid landlord obligations entirely.

• You need the proceeds to fund your next purchase.

• Holding two properties introduces stress or complexity you do not want.
  

A sale provides certainty, liquidity, and simplicity.

When keeping it might work well

Holding the property can make sense when:

• You are comfortable being a landlord.

• The property is likely to grow strongly in value.

• Rent will reliably cover most or all expenses.

• Your tax position still makes the strategy beneficial.

• You value the option of selling later in a stronger market.
  
  

A final thought

For many property owners, the decision turns on tax, cash flow, and how much leverage you want to carry. In some cases, selling now while the CGT exemption applies and purchasing a new, fully geared investment property can produce a better long-term outcome.

Because every situation is different - especially when tax is involved - it is important to seek personalised advice from a tax professional before choosing a path.

Disclaimer: This article provides general information only and does not constitute financial or tax advice. Always consult a qualified adviser to consider your personal circumstances before making any property decisions.