How to Buy a Second House and Rent the First in Australia

Financial impacts of converting your first home to an investment

Turning your principal place of residence (PPOR) into a rental property changes its financial and tax position, creating new obligations and opportunities. This is a common strategy in Australia but requires careful planning.

• Capital Gains Tax (CGT): Your PPOR is normally CGT-exempt, but once rented, a portion of any future capital gain becomes taxable based on the time it was used as an investment.

• The 6-year rule: You can still treat your former home as your PPOR for up to six years after renting it out, if you don’t claim another PPOR, potentially reducing or eliminating CGT.

• Tax deductions: Once rented, you can claim expenses such as loan interest, maintenance and management fees. However, deductions apply only to the investment-use portion of the loan.

Reclassifying your loan and managing CGT can be complex. HeyNest brokers help you model financial outcomes and structure your transition to renting your first home while buying your next property in Australia.

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Loan strategy: restructuring for your next property purchase

When buying a second home and renting the first, your loan structure and borrowing capacity must be reassessed. Lenders evaluate your serviceability differently once one property generates income.

• Loan restructuring: Your original home loan may need to be split or converted into an investment loan so interest on the rental portion remains tax-deductible.

• Serviceability: Lenders factor in rental income (typically discounted for vacancies) and the costs of both loans to confirm you can manage total repayments.

• Equity access: The equity in your first home often funds the deposit for the new property. Lenders will review your Loan-to-Value Ratio (LVR) and debt capacity before approving an equity release.

• Keep investment and owner-occupied loans separate to simplify tax reporting.

A HeyNest-connected broker specialises in complex lending structures, comparing multiple lenders to secure optimal equity release and investment terms for your property transition.

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Navigating the new principal place of residence (PPOR) requirements

Moving from one PPOR to another while renting your first home is a key step that affects taxes, grants and loan eligibility. Getting the structure right ensures long-term financial efficiency.

• Defining your new PPOR: Ensure your new property is correctly designated as your main residence to access PPOR-related loan benefits and avoid unnecessary CGT.

• Stamp duty and grants: Having owned property before generally makes you ineligible for First Home Owner Grants or stamp duty concessions on your new home.

• Property management: Appoint a qualified property manager to maintain your first property and secure steady rental income, which supports your loan serviceability.

HeyNest simplifies this dual transition by connecting you with experienced, impartial brokers who coordinate your finance, structure and lender strategy, so you can confidently manage both your new home and investment property.

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Frequently asked questions

Can I avoid Capital Gains Tax entirely when I sell my first house?

No, not entirely, but the "Six-Year Rule" can potentially exempt you from CGT for up to six years after converting it to a rental, provided you don't designate another property as your PPOR in that time.

How much rental income will the bank consider for my new loan application?

Lenders typically "shade" the gross rental income, only counting 70% to 80% of it, to account for potential vacancies, management fees, and ongoing expenses.

Do I have to change my existing mortgage to an investment loan?

It is highly recommended (and often required by lenders) to separate or reclassify the loan to correctly track the tax-deductible interest portion related to the rental property.