When Should You Sell an Investment Property?

Sell when the property fails a test you can state. The five that matter: the net yield no longer covers your holding costs, the capital growth has stalled for three years or more, the next round of capital spending exceeds a year of rent, your six-year main residence window is closing, or the money would work harder somewhere else. “The market feels high” is not a test.

Five triggers, each with the test to apply

Most articles on this question say it depends. It does depend, but on things you can measure. Here they are.

1. The net yield stops covering the holding costs

The test: calculate net yield on the property’s current value, not what you paid. If it sits below your mortgage rate and you have no plan for that gap, you are funding the property monthly in exchange for growth you are guessing at.

In Melbourne’s north, net yields on three-bedroom houses land near 2.6% once management fees, rates, water, insurance, repairs and vacancy come out. Land tax takes it lower. Against a mortgage rate materially above that, the shortfall is real cash every month.

Funding a shortfall deliberately, for growth you have reasoned about, is a strategy. Funding one because selling feels like admitting something is not.

2. Growth has stalled for three years or more

The test: pull the median for your suburb and bedroom count for each of the last three years and look at the direction. Then do the same for one or two suburbs you would consider buying in instead.

Three years of flat prices while you fund a shortfall is a long time, and the opportunity cost compounds. The trap here is the sunk cost: people hold a flat property specifically because it has been flat, waiting to “get their money back”, which is not how markets decide what to do next.

3. The next round of capital spending exceeds a year’s rent

The test: list what the property needs in the next five years and total it. Roof, kitchen, bathroom, fencing, heating and cooling. If that number exceeds twelve months of gross rent, the property is asking you to re-invest rather than simply hold.

Every Victorian landlord now has a dated item on that list. From 1 March 2027, minimum energy efficiency standards begin phasing in across heating, cooling, hot water, showerheads, ceiling insulation and draughtproofing. For an unimproved older house, that is a known cost with a known deadline. Separately, as of 13 October 2026, gas and electrical safety checks are required every two years, and you must keep records proving the property met minimum standards before it was advertised, offered or occupied.

Price those before you decide to hold. A property returning 2.6% net and needing $25,000 of compliance work is making a decision for you.

4. Your six-year window is closing

The test: if this was once your home, work out exactly when you moved out.

The ATO lets you keep treating a former home as your main residence for up to six years while it earns rent, which keeps the capital gain exempt. You do not have to move back in to use that choice. What it requires is that you do not treat another property as your main residence over the same period. The period is unlimited if the property earns nothing, and beyond six years in one absence the gain attributable to the excess period becomes taxable.

This is the only trigger on the list with a hard date attached, and it is the one most often missed, because nothing happens on the anniversary to remind you. If you moved out in late 2020 and rented it out since, you are at the edge now.

Diarise year five, not year six. Selling takes a campaign, and the relevant date is when the contract is signed, not settlement.

5. The money would work harder elsewhere

The test: what would you do with the net proceeds? If you cannot answer specifically, do not sell yet. “Something better” is not a plan, and selling into no plan is how people pay duty twice.

If you can answer specifically, compare properly: the proceeds after selling costs and tax, against the current property’s total return of net yield plus realistic growth.

The capital gains arithmetic

Current rules first, then the change that is coming.

For capital gains tax events before 1 July 2027, a property held longer than twelve months qualifies for the 50% capital gains tax discount for individuals, and the taxable half is added to your income and taxed at your marginal rate. That discount has a legislated end date, covered in the next section.

Worked on a Mernda house. Say you bought at $500,000 and sell at $774,250, which is Domain’s four-bedroom median for the twelve months to October 2026.

Item	Amount
Sale price	$774,250
Purchase price	$500,000
Purchase costs: duty, conveyancing, searches	about $29,000
Capital improvements over the period	$40,000
Selling costs: agent fees, marketing, legals	about $22,000
Cost base	$591,000
Capital gain	$183,250
Less 50% discount	$91,625
Taxable gain	$91,625
Tax at a 37c marginal rate	about $33,900

Two things that table shows which people routinely miss.

Purchase costs and capital improvements go into the cost base. The $29,000 of duty and conveyancing you could never claim as a rental expense works for you here, reducing the gain by that amount. Which is why our rental income tax guide tells you to keep the settlement statement indefinitely. Without those documents, your cost base is just the purchase price and your gain is $29,000 larger.

And depreciation you claimed along the way generally reduces your cost base, increasing the gain. That adjustment is not small and the table above leaves it out, so here is its size. On a house with $250,000 of original construction cost, capital works at 2.5% a year is $6,250 of deduction annually. Held seven years, that is $43,750 off the cost base, which lifts the gain from $183,250 to about $227,000 and the tax at a 37c marginal rate from roughly $33,900 to roughly $42,000.

So the capital works deductions were worth having, and they were partly a deferral rather than a gift. Ask your accountant for the adjusted figure before you treat the simple arithmetic as your number.

What changes on 1 July 2027, and it is already law

This belongs at the centre of any article about timing a sale, and most published guides still describe it as a proposal. It is not.

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026, Act No. 49 of 2026, was made on 26 June 2026, with the Income Tax Rates Amendment (Tax Reform No. 1) Act 2026 alongside it. The Australian Taxation Office states that the measures “are now law”. They were announced in the 2026-27 Federal Budget on 12 May 2026 and they start on 1 July 2027.

Two changes, both in that Act, and both bear on when you sell.

Schedule 1, capital gains tax. The 50% discount is replaced, for individuals, trusts and partnerships, by cost base indexation and a 30% minimum tax rate on capital gains. Companies are unaffected. The reforms apply only to gains that accrue after 1 July 2027, so gains you have already accumulated are dealt with under the existing approach.

Schedule 2, negative gearing. From 1 July 2027, negative gearing for residential property is limited to new builds. Properties held at 7.30pm AEST on 12 May 2026 are exempt from that change.

What that does to the five triggers

Not an abstract tax note. It changes three of the tests above.

Trigger 1 gets sharper after 1 July 2027 if you bought recently. The first test asks whether the net yield covers your holding costs. For most negatively geared investors the honest answer has been “no, and the tax deduction absorbs part of the gap”. If you acquired the property after 7.30pm on 12 May 2026 and it is not a new build, that absorption changes from 1 July 2027, and the shortfall becomes a larger cash cost. Run the test again on the post-2027 basis.

Trigger 5 now cuts against selling, for grandfathered owners. The fifth test asks whether the money would work harder elsewhere. If you have held the property since before 12 May 2026, you hold something a new buyer cannot acquire: grandfathered negative gearing treatment on an established dwelling. Selling it to buy another established investment property gives that up permanently. That is a real cost of switching and it did not exist six months ago.

Timing is now a genuine variable rather than market guesswork. A disposal before 1 July 2027 happens under the 50% discount. After that date, indexation and the 30% minimum rate apply to gains accruing from 1 July 2027. If you were going to sell in the next twenty months anyway, the current rules are known.

What this is not is a reason to panic. Because the CGT reforms reach only post-1 July 2027 gains, the gain you have built up so far is broadly dealt with under the old approach. Nobody should dump an asset over a tax change that leaves their accumulated gain largely where it was.

One practical step while the valuation question is unsettled. As at 13 October 2026 the ATO’s apportionment method and tools for establishing an asset’s 1 July 2027 value had not been finalised, which means a market valuation at that date is the position to plan around. If you are holding long term, get a written appraisal with comparable sales attached, dated in the week of 1 July 2027, and keep it. It costs you nothing and it may be the document that sets your starting point.

These are the largest tax changes to Australian residential property in a generation. Take this section to your accountant, and ask the question that decides most of it: when did I acquire this property?

Should you sell with tenants in place?

Depends entirely on who is likely to buy it.

Sell tenanted if the property is most attractive to investors. A lease in place with a reliable renter and a documented rent is an asset to an investor buyer: income from settlement, no vacancy, no letting fee. In this corridor that argument is strongest for two-bedroom units and townhouses, which is where the yields are highest.

Sell vacant if the property is most attractive to owner-occupiers. In Melbourne’s north, that is most three and four-bedroom houses. Owner-occupiers want to move in, and they will not compete for a property that comes with someone else’s lease. Presentation also suffers: you cannot style a tenanted home and you cannot control how it shows at an open.

The honest read for this corridor: most houses sell better vacant and most units sell fine tenanted.

Which raises the hard question of whether you can end a lease to sell. Under Victorian rental law a notice to vacate needs a valid reason, and sale is among the valid reasons, with 90 days’ notice applying to certain notices since 25 November 2025. The no-fault notice was abolished on that date, and fixed-term agreements now roll into periodic agreements unless both parties agree otherwise or a valid reason exists.

Get the notice right. Serving an invalid notice costs you months, and the rules changed recently enough that advice from 2024 is unreliable. Your property manager should prepare it.

There is also a cost you should weigh honestly: three months of lost rent to present the property vacant. On an Epping three-bedroom house at $530 a week, that is $6,890. It is worth spending if vacant presentation adds more than that to the price, and on a family home it usually does. On a unit, often not.

A scenario worth working through: the flat Mernda rental

A specific case, because the five tests are easier to apply against one.

You own a four-bedroom house in Mernda. You bought it in 2019. It has been flat for three years, the rent has crept up, and you are tired of it. Hold or sell?

Run the tests.

Yield. Mernda’s four-bedroom median is $774,250. Doreen’s comparable four-bedroom advertised rent across the twelve listings available on 13 October 2026 was $590 a week, which is the closest current read I have for that segment. Gross is about 3.96%. Net, after management, rates, water, insurance, repairs and a few weeks’ vacancy, lands near 2.6%. Add land tax and it is lower. If your mortgage rate is above that, test one says sell.

Growth. Three flat years is the trigger, and you have had them. Test two says sell.

Capital spending. It is a 2019 build, so it comfortably postdates the 1985 and 1987 construction cut-offs, the capital works deduction is live, and the energy efficiency standards arriving on 1 March 2027 are unlikely to bite hard on a house that age. Test three says hold.

Six-year window. You never lived there, so there is no main residence election to protect. Test four is silent.

Better use. This is the one you have to answer, and it is the one most owners in this position have not. If the answer is “pay down the mortgage on the home I live in”, that is specific and defensible: non-deductible debt reduced with the proceeds of an asset netting 2.6%. If the answer is “I’d feel better”, that is not a plan.

Two tests say sell, one says hold, one is silent, and the fifth is yours. On that balance I would sell, and I would say so to a client rather than hedging.

The part I would add: the three flat years are not an argument for waiting for recovery. They are information about the asset, and they cost you the shortfall every month you spend waiting to be proven right.

What would change my answer

Worth naming, because a recommendation you cannot argue against is not a recommendation.

If the mortgage were small or gone. A property netting 2.6% with no debt against it produces modest income with modest risk. There is no monthly shortfall, no interest rate exposure, and no pressure. The case for selling weakens considerably, and it becomes a question about what else you would do with $774,250 rather than about whether you can afford to hold.

If something specific were coming to the suburb. A funded station, a committed school, a town centre with permits rather than a masterplan position. Three flat years ahead of delivered infrastructure reads differently to three flat years in a built-out suburb. The test is whether the thing is funded and permitted, not whether it appears on a plan.

If the property were in the segment where this corridor’s yields actually sit. The two-bedroom Epping unit measured at 4.83% gross, against 3.90% on the four-bedroom house, is a different proposition. A low-yield asset is a growth bet whether you intended it or not.

If you were close to retirement. Timing a sale around a change in your own income can matter more than timing it around the market, and from 1 July 2027 a 30% minimum tax rate on capital gains applies, which interacts with a low-income year differently to the current discount. That is an accountant’s calculation rather than an agent’s, and it is worth having before you retire rather than after.

Notice that three of those four are facts about you, not the property. Which is the real answer to when you should sell an investment property: when it stops suiting your circumstances, measured against tests you set in advance rather than reasons you find afterwards.

What I would do

Run the five tests. If two or more say sell, sell, and stop reading market commentary for a sign.

If none of them says sell, hold with your eyes open: diarise the six-year date if it applies, price the 2027 energy standards against the property, review the rent annually on documented evidence, and keep a dated valuation from around 1 July 2027.

What I would not do is try to time the market. Nobody in this industry has demonstrated they can, including us, and a sale driven by a test you can state will beat one driven by a feeling about where prices are heading.

Ask us for a written appraisal with the comparable sales attached, and a rental appraisal alongside it. Those two numbers are what the five tests need, and we will give you both whether or not you end up selling.

Frequently asked questions

1. When should you sell an investment property? When it fails a test you can state. The five that matter: the net yield on current value no longer covers your holding costs, growth has been flat for three years or more, the next five years of capital spending exceeds a year’s gross rent, your six-year main residence window is closing, or you have a specific better use for the money. A feeling that the market is high is not a test.

2. What are the signs it is time to sell? Recurring cash shortfalls you are funding without a growth thesis, three or more years of flat median prices in your suburb and bedroom count, a list of upcoming capital works larger than twelve months of rent, a six-year main residence deadline approaching, or repeated tenancy problems you have stopped trying to fix. Also simply this: you would not buy the property today at today’s price.

3. How is capital gains tax calculated on an investment property? Capital gain is the sale price minus the cost base, which includes the purchase price, purchase costs such as duty and conveyancing, and capital improvements. Selling costs come off too. Individuals who have held longer than twelve months currently get a 50% discount, and the taxable half is added to income and taxed at the marginal rate. Depreciation claimed along the way generally reduces the cost base and increases the gain.

4. What expenses can I claim when selling an investment property? Selling costs such as agent commission, marketing and legal fees are not deductible against rental income, but they reduce your capital gain as part of the calculation. The same applies to purchase costs including stamp duty and conveyancing, which form part of the cost base. Keep the settlement statements from both ends, because without them your cost base is understated and your tax is higher.

5. Should I sell with tenants in place? Sell tenanted if investors are the likely buyers, since a lease with a reliable renter and a documented rent means income from settlement. Sell vacant if owner-occupiers are the likely buyers, which in Melbourne’s north covers most three and four-bedroom houses. Weigh the cost: three months vacant on an Epping three-bedroom house at $530 a week is $6,890, worth spending only if vacant presentation adds more than that.

6. Can I end a lease to sell? Sale is a valid reason for a notice to vacate under Victorian rental law, and since 25 November 2025 the no-fault notice has been abolished and 90 days’ notice applies to certain notices. Fixed-term agreements now roll into periodic agreements unless both parties agree otherwise or a valid reason exists. Have your property manager prepare the notice, because an invalid one costs months.

7. Is it better to sell before or after a renovation? Renovate only where the spend returns more than it costs, which is usually presentation rather than structure: paint, floor coverings, garden tidy-up, minor kitchen and bathroom work. Full renovations before a sale rarely return their cost. One exception worth modelling is compliance: with minimum energy efficiency standards phasing in from 1 March 2027, a buyer who has to do that work will price it in, so doing it yourself can be cheaper than being discounted for it.

8. What is the six-year rule? If you move out of a home and rent it out, you can choose to keep treating it as your main residence for up to six years, keeping the capital gain exempt. You do not have to move back in to use it; the condition is that you do not treat another property as your main residence over the same period. The period is unlimited if the property produces no income, it applies separately to each period of absence, and vacant time does not count toward the six years.

9. How long should I hold an investment property? Long enough for growth to outrun the transaction costs, which on a $774,250 Mernda sale run to roughly $22,000 selling and $29,000 buying. That argues against short holds. It does not argue for holding forever: the five tests above are the thing to apply annually rather than picking a number of years in advance.

10. What are the selling costs? Agent commission, marketing, conveyancing and legal fees, and any presentation or repair spend before the campaign. Budget around $22,000 on a sale near $774,000, though commission structures vary and should be agreed in writing. Add the rent forgone if you sell vacant, and note that none of these is deductible against rental income, though they do reduce your capital gain.