The easiest way to upgrade your family home

Holding an investment property doesn't block your next move

You can upgrade to an owner-occupied family home while keeping your existing investment property, provided your income supports both loans. Lenders assess your ability to service the new owner-occupied loan alongside the existing investment loan, factoring in rental income from the investment property at a shaded rate, typically 70 to 80 per cent of the lease amount.

Consider a couple in Hobart who rent in Sandy Bay but own a unit in Glenorchy purchased as a rentvesting strategy three years earlier. They're now ready to buy a family home in the northern suburbs but want to retain the Glenorchy property for long-term growth. The rental income from that unit is assessed by the lender at 75 per cent of the weekly rent, reducing the net cost of holding it when serviceability is calculated. Their combined income is strong enough to support both the existing investment loan and a new owner-occupied loan for a home at the upper end of their budget.

That couple doesn't need to sell the investment property before purchasing. Instead, they apply for pre-approval on the new owner-occupied loan, demonstrating capacity to service both debts. Once approved, they secure the family home, move in, and transition from renters to owner-occupiers without unwinding their investment position.

How lenders assess dual property ownership

Lenders calculate serviceability by taking your gross income, deducting all ongoing commitments including the new loan repayment and existing investment loan repayment, and applying a buffer of at least 3.0 percentage points above the loan product rate. Rental income from the investment property is shaded, meaning only a portion is counted as income. The exact shading percentage varies by lender, but most apply between 70 and 80 per cent.

If the investment loan is interest-only, the lender will assess serviceability at the principal and interest repayment for the purpose of the application, even if you continue paying interest-only in practice. This is a prudential requirement and applies across all ADIs. The investment property's ongoing holding costs, including rates, strata fees, insurance and property management fees, are also factored into the assessment.

Borrowing capacity improves when rental income is strong relative to the loan balance, when the investment property has built equity, and when your household income has increased since the original purchase. In our experience, clients who purchased investment properties in regional Tasmania several years ago and have since seen wage growth or added a second income often find they have more capacity than expected when they return to the market as owner-occupiers.

Using equity in your investment property as part of the deposit

If you've held your investment property for several years and it has increased in value, you can use the equity to contribute toward the deposit on your new owner-occupied home. Equity release works by increasing the loan amount secured against the investment property, with the additional funds redirected to the new purchase.

A buyer in Launceston who purchased a house in Ravenswood five years ago might find the property has appreciated substantially. Rather than saving a full 20 per cent deposit in cash, they could release equity from the Ravenswood property to cover part or all of the deposit required for a family home in Riverside. The Ravenswood property remains tenanted and continues to generate rental income, while the buyer moves into their new owner-occupied home without depleting savings.

Equity release does increase the debt secured against the investment property, which means higher repayments and potentially a shift from positive to negative cash flow. You also need to meet serviceability for the increased loan amount. If releasing equity pushes the loan-to-value ratio above 80 per cent on the investment property, Lenders Mortgage Insurance will apply to the additional borrowing. These costs are worth modelling before proceeding, particularly if rental income only just covers the existing loan.

For clients upgrading within Tasmania, equity release on investment properties is often the most practical path forward when savings alone won't cover the deposit and you want to avoid selling an asset that's still performing.

Switching your loan purpose from investment to owner-occupied

If you want to move into your existing investment property rather than purchase a new home, you'll need to notify your lender and request a loan purpose change from investment to owner-occupied. Owner-occupied loans typically attract lower interest rates than investment loans, so the switch can reduce your repayments once you take up residence.

Not all lenders allow a straightforward purpose change. Some require you to refinance the loan entirely, while others will adjust the rate and loan terms internally without a full application. The process depends on your lender's policy and whether the loan product you're currently on has an equivalent owner-occupied version.

Once you move in and the property becomes your principal place of residence, you can no longer claim interest, property management fees, or other holding costs as tax deductions. The ATO treats the loan as owner-occupied from the date you take up residence, regardless of how the lender classifies it. If you later move out and convert the property back to an investment, only the interest portion relating to the period it was rented is deductible. Buyers considering this option should speak to an accountant before proceeding to understand the tax treatment on both sides of the transition.

Choosing the right loan structure for a second property

When you apply for a new owner-occupied home loan to upgrade your family home, the loan structure you select affects both serviceability and flexibility. A variable rate gives you access to offset accounts, which can reduce interest costs if you hold surplus cash. A fixed rate locks in repayments for a set period, which can be useful for budgeting when you're managing two properties. A split loan combines both, allowing you to offset against the variable portion while maintaining rate certainty on the fixed portion.

For buyers holding an investment property, offset accounts on the owner-occupied loan are particularly useful. Any funds sitting in the offset reduce the interest charged on the owner-occupied loan without affecting your ability to claim deductions on the investment loan. Because interest on owner-occupied loans is not tax-deductible, reducing that interest through an offset delivers a direct saving. In contrast, paying down the investment loan faster reduces deductible interest, which can increase your taxable income.

Loan portability is another feature worth considering if you expect to upgrade again in the medium term. A portable loan can be transferred to a new property without break costs or reapplication, which saves time and cost if you move within a few years. Not all lenders offer portability, and some apply restrictions on how it can be used, so it's worth confirming the terms upfront if this matters to your situation.

Tasmania-specific considerations for upgrading

Tasmania's property market has seen strong growth in regional areas over the past several years, meaning buyers who purchased investment properties in towns like Devonport, Burnie or Ulverstone may now hold significant equity. That equity becomes the foundation for upgrading to a larger family home in Greater Hobart or Launceston without needing to sell the original property.

From 1 July 2026, the Tasmanian First Home Owner Grant was reduced to $20,000 for new homes, and the stamp duty exemption for established homes that applied until 30 June 2026 has ended. Buyers upgrading from an investment property to an owner-occupied home are not eligible for first home buyer concessions, so the full transfer duty applies. For a home valued at the current median in suburban Hobart, transfer duty can add several thousand dollars to the upfront cost. Buyers should factor this into their budget alongside the deposit and settlement costs.

Rental vacancy rates remain low across most of Tasmania, which supports the decision to retain an investment property when upgrading. A well-located unit or house in a regional centre is likely to remain tenanted, providing ongoing rental income that contributes to serviceability and helps cover the holding costs. For buyers who purchased in areas with strong rental demand, holding the investment property while moving into a family home is often more financially sound than selling and losing that income stream.

When refinancing your investment loan makes sense

If your existing investment loan is on an uncompetitive rate or lacks features like an offset or redraw, refinancing before you apply for the new owner-occupied loan can improve your borrowing capacity. A lower rate on the investment loan reduces the assessed repayment amount, freeing up serviceability for the new purchase.

Refinancing also lets you consolidate debt, adjust the loan term, or move to a lender with more flexible policies around rental income shading. Some lenders assess rental income at 80 per cent rather than 70 per cent, which can increase your borrowing capacity by several thousand dollars. If you're planning to upgrade within the next six to twelve months, investment loan refinancing should be reviewed as part of the broader strategy.

Timing matters. Refinancing an investment loan and applying for a new owner-occupied loan simultaneously can trigger multiple credit inquiries and extend the approval process. In most cases, it's more efficient to refinance the investment loan first, allow the new loan to settle, and then apply for the owner-occupied loan once your financial position is clear. Your broker can structure the timeline to avoid unnecessary delays or serviceability complications.

Managing cash flow with two properties

Once you move into your new family home, you'll be managing repayments on both the owner-occupied loan and the investment loan, alongside rates, insurance, and maintenance on both properties. Cash flow becomes tighter, particularly in the first few years before wage growth or rental increases provide additional buffer.

If the investment property is negatively geared, meaning the rental income doesn't cover all holding costs, you'll need to fund the shortfall from your salary. That shortfall is tax-deductible, which reduces the after-tax cost, but it still requires cash each month. Buyers upgrading to a family home should model the net cost of holding the investment property after tax and ensure they have sufficient buffer to cover vacancies, maintenance, and interest rate increases.

For clients upgrading in Tasmania, holding an investment property in a regional area with strong rental demand and lower holding costs often makes the dual-property strategy more sustainable than holding an investment property in a capital city with higher strata fees and land tax. The cash flow dynamics are different, and regional properties can deliver positive or near-neutral cash flow even with modest rental yields.

Call one of our team or book an appointment at a time that works for you to discuss your upgrade strategy, review your borrowing capacity, and structure your loans to support both properties without unnecessary cost or complexity.

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