Key takeaways:
Selling may provide funds for your next home. Your available funds will depend on the sale price, outstanding loan and selling costs.
Keeping your home means continuing to carry its debt and ongoing costs. Rental income may help offset some costs, but you'll need to allow for loan repayments, vacancies and other property expenses.
Your borrowing capacity could change. Lenders assess your existing debt, expenses and eligible rental income recognised by the lender when considering finance for your next home.
Renting out your former home can have tax implications. Rental income is generally assessable, and CGT may apply when you eventually sell.
There's no single better option. Compare the cash flow, equity, borrowing and longer-term implications of selling versus renting out your house.
If you're planning your next property move, deciding whether to sell your current home or rent it out can affect your borrowing capacity, cash flow and how much equity you have available for your next purchase.
Selling can turn the equity in your current home into funds for your next purchase, after accounting for your outstanding loan and selling costs. Using those funds toward your next property may reduce the amount you need to borrow. Renting out your current property lets you retain it as an investment and may provide rental income, but it can also mean carrying more debt, ongoing property costs and landlord responsibilities.
Before deciding whether to sell or rent out your house, consider:
Borrowing capacity: Keeping your mortgage may reduce how much you can borrow, even with rental income.
Cash flow: Check whether you can cover two properties, including repayments, running costs and vacancies.
Available equity: If you sell, the equity remaining after repaying your loan and selling costs may be available for your next purchase.
Tax implications: Renting out your former home may have tax consequences, including CGT when you sell.
Long-term plans: Consider whether keeping the property fits your goals and appetite for additional debt and responsibility.
This guide compares selling versus renting out your house, including what each option could mean for your equity, borrowing capacity, cash flow and next property purchase.
Selling vs renting out your house: Key differences
Selling your current home or keeping it as a rental can affect your equity, debt, cash flow and borrowing capacity in different ways. Here's how the two options compare:
Factor | Sell it | Rent it out |
|---|---|---|
Equity | Net sale proceeds may be available after repaying your loan and selling costs. | Equity remains in the property unless you can access usable equity, subject to lender criteria. |
Existing debt | Your existing home loan is generally repaid at settlement. | Your existing debt remains part of your overall financial position. |
Rental income | The property won't generate rental income after it's sold. | You may receive rent, but it may not cover all repayments and property costs. |
Ongoing costs | Many ongoing ownership costs associated with the property cease once the sale settles. | You continue to pay costs such as repayments, rates, insurance, maintenance and property management fees. |
Property value | You no longer have exposure to future price movements in that property. | You remain exposed to increases or decreases in the property’s value. |
Tax | Tax implications depend on how you’ve used the property and your circumstances. | Rental income has tax implications, and CGT may apply when you sell. |
Next-home finance | Selling may free up funds and reduce existing debt before your next purchase. | Lenders assess your existing debt, expenses and eligible rental income, recognised by the lender when considering your next loan. |
Neither option is automatically better. Compare how each could affect your equity, borrowing capacity, cash flow and long-term plans before deciding.
What are the benefits of keeping your home as a rental?
Keeping your current home as a rental lets you retain the property and may provide rental income. However, you need to weigh the benefits against the costs, debt and risks of owning an investment property.
1. Rental income may help cover property costs
Rental income may help contribute towards your loan repayments and other property expenses, reducing the amount you need to fund from your own income.
However, rent may not cover all your costs. Factor in periods of vacancy, property management fees, repairs and maintenance, council rates and other property charges, and insurance.
If you're borrowing for your next home, lenders will also assess rental income according to their lending criteria. An Aussie Broker can help you understand how your existing debt and potential rental income could affect your borrowing capacity.
2. You retain exposure to future property value changes
Keeping your home means you retain exposure to any future increase in its value. However, property values can also remain flat or fall, so don't assume capital growth.
Consider the local property market, the property's longer-term prospects and whether you can afford to hold it without relying on future price growth.
3. You may have more flexibility around the timing of a future sale
Keeping your current home means you don't need to sell it as part of your immediate move. This may make it easier to time your next purchase without coordinating a sale at the same time.
Selling later does not necessarily result in a better financial outcome. Property values and your circumstances can change, so consider whether retaining the property is affordable and aligns with your longer-term plans.
What are the costs and risks of keeping your home?
Keeping your current home as a rental means funding and managing it while you buy your next property. Before deciding, consider how this could affect your equity, borrowing capacity, cash flow and responsibilities as a landlord.
1. You may need savings or usable equity for your next purchase
If you don't sell, you won't have the sale proceeds available for your next purchase. You may need to use savings or access equity in your existing property, subject to lender approval.
Your total equity isn't necessarily the amount you can borrow against. Usable equity depends on factors such as your property's value, outstanding loan balance, loan-to-value ratio (LVR), borrowing capacity and lender criteria.
You might also be interested in: Using equity to buy a second home or investment property
2. You'll need to budget for two properties
Rental income may offset some costs, but you'll still need to budget for expenses across both properties, including:
Home loan repayments
Council and water rates
Landlord and other relevant insurance
Repairs and maintenance
Property management fees
Strata or body corporate fees, where applicable
Vacancies or periods when rent doesn't cover your costs
Interest rates, rental income and unexpected expenses can change. Stress-testing your budget can help you assess whether you could continue to afford both properties if costs rise or rental income falls.
3. You'll take on landlord responsibilities
Renting out your home means meeting the legal and practical responsibilities of being a landlord.
These may include maintaining the property, complying with tenancy laws, arranging appropriate insurance and managing tenants yourself or through a property manager.
Tenancy laws and landlord obligations vary by state and territory, so check your local requirements before renting it out.
What are the tax implications of renting out your home?
Turning your former home into a rental can change how the Australian Taxation Office taxes it.
You'll generally need to declare rental income, while renting out a former main residence can affect capital gains tax (CGT) when you sell.
Rental income and deductions
Rental income is generally assessable and must be declared in your tax return. You may also be able to claim deductions for eligible expenses incurred in earning that income. What you can claim depends on your circumstances. Consider seeking independent taxation advice and see Aussie's guide to investment property tax deductions for more information.
Capital gains tax when you sell
Renting out your former main residence can affect the property's CGT treatment when you sell.
Depending on your circumstances, the main residence exemption and the ATO's six-year absence rule may apply. Under this rule, you may be able to continue treating a former home as your main residence for CGT purposes for up to six years while it produces income. Rules apply if you also own another property that could qualify as your main residence during this period.
If your former home is first used to produce income, another CGT rule may also apply. In some circumstances, the If your former home is first used to produce income, another CGT rule may also apply. In some circumstances, the property may be treated as having been acquired at its market value when it was first used to produce income.
Your CGT position will depend on how and when you've used the property and your individual circumstances. Consider seeking independent taxation advice before renting out your former home or selling a property that has previously been rented.
What are the potential benefits of selling your current home?
Selling your current home may turn some of your equity into funds for your next purchase and reduce the debt and costs you need to manage. How much you have available will depend on your sale price, outstanding loan and selling costs.
1. More funds for your next purchase
At settlement, you generally use your sale proceeds to repay your outstanding home loan and other amounts due. The remaining funds may then be available for your next property.
Your sale price isn't the same as your net proceeds. Selling costs may include:
Real estate agent fees and commission
Marketing and advertising
Conveyancing or legal fees
Preparing the property for sale
Applicable loan discharge and other fees
Estimating your net sale proceeds can help you understand how much you may have available for your next deposit and purchasing costs.
2. A simpler debt position
Selling generally removes your existing home loan once it's repaid at settlement, so you no longer carry the associated loan and ongoing ownership costs for that property.
However, your overall debt position will depend on how you structure your sale and next purchase, your financial circumstances and your lender's criteria.
3. More certainty about your available funds
A property estimate can help you plan, but your final sale price, outstanding loan and selling costs determine how much you have available after settlement.
If you decide to sell, Aussie Seller Assist can help you compare local real estate agents based on factors such as sales results, listings, customer reviews and experience with similar properties. You'll receive a shortlist of up to five agents to consider, so you can compare their appraisals, selling strategies, fees and commission before choosing whether to select one from the shortlist.
How to make the right decision for you
Deciding whether to sell or rent out your current home involves more than comparing a sale price with potential rent. Compare how each option could affect your equity, cash flow, borrowing capacity, tax position and longer-term plans.
Asking these questions can help bring clarity:
What could you sell for?
Start by estimating a realistic sale price based on:
Recent sales of comparable properties
Local supply and buyer demand
Your property's condition and features
Selling costs, including agent fees, marketing and conveyancing
Your estimated property value isn't the amount you'll necessarily have available. Your net proceeds will depend on the final sale price, outstanding debt and selling costs.
What could you rent it for?
Estimate your potential rental income and compare it with the cost of keeping the property. Consider:
Rents for comparable properties
Potential vacancies
Property management fees
Rates and insurance
Strata or body corporate fees, where applicable
Maintenance and repairs
A rental appraisal can help estimate potential rent, but income isn't guaranteed. Allow for vacancies, unexpected costs and changes in rental conditions.
Can you afford to own both properties?
Having enough equity for your next deposit doesn't necessarily mean you'll have the borrowing capacity or cash flow to keep both properties. Consider:
Household income
Existing debts and commitments
Repayments on your new and existing loans
Eligible rental income
Living expenses
Potential interest rate changes
A buffer for vacancies and unexpected costs
Lenders assess borrowing capacity differently and may not count all expected rental income.
How could your tax position change?
Selling and renting out your former home can have different tax implications. Rental income is generally assessable, while eligible property expenses may be deductible. Renting out a former main residence can also affect its CGT treatment when you sell.
Consider the tax implications above and seek independent taxation advice for your circumstances.
Which option fits your longer-term plans?
The numbers matter, but so do your longer-term goals. Consider:
How long you plan to keep the property
Whether you want to become a landlord
How additional debt could affect future borrowing
How much of your overall finances you're comfortable committing to property
Whether accessing some of your usable equity may support your next move
There's no single answer to whether you should sell your house or rent it out. Comparing both scenarios can help you understand the financial and practical trade-offs.
Ready to compare your options?
Whether you sell your current home or rent it out depends on how each option could affect your finances and longer-term plans. Before deciding, compare:
Net sale proceeds: What you could have left after repaying your loan and selling costs.
Rental cash flow: Potential rent compared with repayments, vacancies and ongoing property costs.
Borrowing position: How selling or keeping the property could affect your equity and borrowing capacity.
Tax implications: How either option could affect your tax position. Consider seeking independent taxation advice.
An Aussie Broker can help you compare the finance side of both scenarios, including your equity, borrowing capacity and home loan options, subject to lender criteria.
If you decide to sell, Aussie's Seller Assist service can do the research and compare local real estate agents and provide a shortlist of up to five agents for you to consider, helping take the stress out of finding, researching and shortlisting agents on your own.
