Two ways out: sell it or keep it
Selling frees up your equity as cash for the next deposit, leaves you with one loan, and is usually free of capital gains tax if it has been your main residence the whole time. The risks are timing (you sell when you need to, not when the market suits) and costs: agent's commission, marketing, legal fees, then stamp duty on the next purchase.
Keeping and renting turns your current home into an investment. You keep a property you know well, avoid selling costs, and may avoid a sale in a weak patch. The trade-offs are a smaller deposit for the next home (unless you borrow against the equity), two loans to service, and a holding cost if the rent doesn't cover the costs. Lenders count only part of the rent and test your repayments at a higher rate than you'd pay, so check your borrowing capacity with a mortgage broker before deciding.
Not every home makes a good investment. A place that suited your family may have a low yield or little rental demand. A free Portfolio Health Check judges it as an investment, not on sentiment.
Buy first or sell first?
| Buy first | Sell first | |
|---|---|---|
| Certainty | You know where you're going | You know what you've got to spend |
| Main risk | Your sale takes longer or brings less than planned | You can't find the right home in time |
| Cost of getting it wrong | Two loans, possibly a bridging loan | Renting in between, moving twice |
| Suits | A sure-to-sell home, a strong buffer | A tight budget, a softer market |
Neither is safer in general. It depends on how confident you are about the sale price and how long you could carry both properties.
Bridging loans
A bridging loan lets you buy the new home before selling the old one. The lender lends against both properties for a limited period agreed up front, and with some lenders the interest is added to the loan until the sale. When the old home sells, the proceeds pay the debt down to a normal home loan.
It buys time, not certainty. If the sale takes longer or brings less than expected, you can end up with more debt than planned. Terms vary by lender, so a mortgage broker is the person to compare them.
Timing in the cycle
No one can reliably pick the top or bottom of a market, and we don't try. If you sell and buy in the same city at around the same time, you're usually dealing in similar conditions: a soft market lowers your sale price, but tends to soften the next purchase too. The risk grows when you sell in one market and buy in another, or leave a long gap between the two.
The capital gains tax points to check
- Moving between homes. If you buy the new home before selling the old one, the ATO lets you treat both as your main residence for up to six months, if you meet the conditions.
- The six-year rule. If you move out and rent your former home, you can generally keep treating it as your main residence for up to six years while it earns rent, as long as you don't treat another home as your main residence for the same period. You can only have one main residence at a time, so you would choose which home gets the exemption. Beyond six years, part of the gain becomes taxable.
- The 2026 tax changes. For established residential property acquired after 7:30pm AEST on 12 May 2026, from 1 July 2027 rental losses can only be offset against residential property income and gains, with unused losses carried forward. From 1 July 2027 the 50% CGT discount is replaced by an inflation-indexed cost base, with a 30% minimum tax rate for resident individuals (the gain taxed as the last slice of income). Assets held before 1 July 2027 are treated as sold and reacquired on that date, keeping the old discount on the gain to that date. Qualifying new builds can choose either treatment. Properties owned before 12 May 2026 keep the old loss treatment. Your accountant can tell you how it applies to you.
That last point matters for upgraders. If you bought your current home before 12 May 2026 and now rent it out, it keeps the old loss treatment. The CGT changes are different: they apply to any taxable part of a gain on a sale after 1 July 2027, whenever the property was bought. Commentary since the bill passed says the main residence exemption itself is unchanged, but how it interacts with the new rules is complex. Our guide to the 2026 tax changes has more, and your accountant can tell you how it applies to you.
Getting the order right
Upgrading usually comes down to three numbers: what your current home would net after costs and tax, what you can borrow with one loan or two, and what the next home will cost including stamp duty. Our calculators show what keeping the current home would cost to hold each week.
Sources
- ATO, "Capital gains tax and the main residence exemption", July 2026
- Accountants Daily, "Top 10 things you need to know about the CGT changes", September 2026
- APRA, "APRA maintains current macroprudential policy settings in highly uncertain environment", May 2026
General information only. Nothing on this site takes into account your objectives, financial situation or needs, and it is not financial, credit, tax or legal advice. Past performance is not a reliable guide to future performance.