Should You Sell One Geared Property To Pay Down Others?

Selling one geared investment property to pay down others can be a smart way to de‑risk, cut stress and improve sleep—or a costly way to crystallise tax and give up a good long‑term asset.

Within the first 100 words you need the clean answer: selling a geared investment property to reduce debt across the rest of your portfolio usually makes sense when (1) your cashflow or buffers are under real pressure, (2) the property you sell is lower quality than the rest, and (3) the after‑tax proceeds clearly improve your overall position. The trade‑offs are capital gains tax (CGT), future growth you give up, transaction costs and how much your risk actually falls.

This guide walks you through those trade‑offs so you can make a decision in the next week—not in three months.

Start by mapping your current properties, loans and cash buffers before deciding to sell.

1. When selling to pay down other loans is worth considering

1.1 The core decision in one sentence

You’re swapping one thing for another:

• You give up: an investment property, future capital growth, some rental income, and you pay CGT and selling costs.
• You gain: lower portfolio LVR, lower repayments, reduced risk and usually better sleep.

You’re trying to answer: Does the reduction in risk and monthly strain justify the tax hit and lost future upside?

1.2 Trigger points that should make you run the numbers this week

You don’t need to wait for a crisis. Consider selling one geared property to pay down others if:

1. Cashflow is tight now

   • Your portfolio or household is negative each month, even before unexpected costs.
   • You’re already trimming business drawings or personal spending to cover repayments.

2. Buffers are thin

   • Less than 3–6 months of total property and personal expenses in cash/offset.
   • You’d struggle if rates rose 2–3% or you had a 3–6 month vacancy. (See how to run this quickly in [/insights/stress-testing-geared-property-portfolio-rate-rises-vacancies].)

3. Risk is concentrated

   • High combined LVR (e.g. >80%) across home and investments.
   • Large debts secured by a single property or cross‑collateralised with business loans. (See [/insights/cross-collateralisation-property-equipment-loans-pros-cons-alternatives].)

4. The property you’re thinking of selling is clearly second‑tier

   • Weaker long‑term prospects vs your other holdings (location, land content, tenant quality).
   • Chronic maintenance problems, poor strata, or low income yield.

If two or more of these are true, a deliberate sell‑to‑de‑gear plan is worth modelling.

2. How selling to pay down others actually works (numbers)

2.1 A worked example: sell one, strengthen three

Let’s say you own:

• Home: $1,200,000, loan $720,000 (60% LVR)
• Investment A (unit): $800,000, loan $720,000 (90% LVR)
• Investment B (house): $1,000,000, loan $700,000 (70% LVR)

Combined portfolio:

• Total value: $3,000,000
• Total debt: $2,140,000
• Combined LVR: ~71%

You’re considering selling Investment A and using the net proceeds to pay down the home and Investment B.

Assumptions (illustrative only):

• Original purchase price of A: $500,000 (10+ years ago)
• Selling price now: $800,000
• Selling costs (agent, legal, staging): $30,000
• Loan payout on A: $720,000
• You’ve held >12 months and qualify for the 50% CGT discount.

1. Calculate the capital gain

• Capital proceeds: $800,000 – $30,000 costs = $770,000
• Cost base: $500,000 + $20,000 purchase/holding costs (estimate) = $520,000
• Capital gain: $770,000 – $520,000 = $250,000

With the 50% discount (individual or trust) after 12 months:

• Discounted gain: $125,000
• If you’re on a marginal rate of 39% including Medicare, indicative tax is:
  $125,000 × 39% ≈ $48,750 CGT

2. Net cash available after sale

• Sale price: $800,000
• Less selling costs: –$30,000
• Less loan payout: –$720,000
• Cash at settlement: $50,000
• Later, you’ll also need to fund the $48,750 CGT from savings/offset or that cash.

If nothing else changes, you have roughly $1,250 of net cash once the CGT bill is paid.

That’s not a helpful de‑gearing strategy.

The lesson: high‑LVR properties with modest growth often leave very little to pay down other loans once CGT and costs are factored in.

Now change one thing: the sale price.

Say Investment A sells for $1,000,000 instead.

• Capital proceeds: $1,000,000 – $30,000 = $970,000
• Cost base: $520,000
• Capital gain: $450,000
• Discounted gain: $225,000
• Estimated CGT at 39%: ~$87,750

Cash at settlement:

• Sale price: $1,000,000
• Less costs: –$30,000
• Less loan: –$720,000
• Cash: $250,000
• Less CGT (when due): –$87,750
• Net after tax: ~$162,250

If you apply this to debt reduction:

• Home loan drops from $720,000 to $570,000
• Combined portfolio LVR falls from 71% to roughly 62% (on remaining properties)

At, say, 6.5% interest P&I over 25 years, shrinking a loan by $150,000 cuts repayments by roughly $1,000–$1,050 per month.

That’s a meaningful improvement to both cashflow and resilience.

2.2 The cashflow impact: before vs after

Here’s how a simple comparison can look (illustrative interest‑only figures, 6.5% interest):

That’s around $867 per month improvement in cashflow, before factoring the lost rent from the sold property.

Your decision needs to compare:

• Lost rent and tax deductions from the sold property, against
• Interest savings and risk reduction from the lower total debt.

If your household or business is under strain, that $800–$1,000 per month plus lower overall leverage may absolutely be worth the trade.