Five Practical De‑Gearing Paths For Property Investors In Australia

De‑gearing is simply the process of lowering the risk in a geared property portfolio by reducing leverage over time. For Australian investors, that usually means either paying debt down, selling assets, or reshaping where the debt sits so your home is safer and your retirement isn’t riding on aggressive gearing.

This guide breaks that into five clear paths you can actually act on this week: sell, partial sell‑down, accelerated pay‑down, debt recycling, and holding the line with guardrails.

1. Start With a Quick Portfolio Triage

Before you pick a path, you need a snapshot of where you are now.

1.1 Define your risk anchors

There are three anchors that determine how urgently you should de‑gear:

1. Time to retirement – most investors should treat the 10 years before retirement as a deliberate de‑gearing window (see /insights/keep-or-reduce-gearing-50s-60s-decision-framework).
2. Household cashflow resilience – would a 3% rise in interest rates and three months’ vacancy per property break your budget? (See the stress test at /insights/stress-testing-geared-property-portfolio-rate-rises-vacancies.)
3. Portfolio leverage (LVR) – across all properties, how much debt do you hold versus value?

As a rough guide:

• Conservative: portfolio LVR under 40%
• Balanced: portfolio LVR 40–60%
• Stretched: portfolio LVR over 60%, or any single property at 90–95%+ LVR

1.2 Do a 30‑minute stress test

A practical starting point (building on earlier work in /insights/gearing-now-or-saving-longer-first-time-investor-guide and /insights/stress-testing-geared-property-portfolio-rate-rises-vacancies):

• Add 3% to your current interest rate on all investment loans
• Assume rents are flat for 2–3 years
• Assume 3 months’ vacancy per property over the next 12–24 months

Then ask:

• Can you still cover all property costs from rent plus your income?
• How long would your cash buffer last under that scenario?

If it looks tight, you’re not just choosing whether to de‑gear – you’re deciding how quickly.

Start with a clear view of your current position, then choose a primary de‑gearing path.

2. Path One – Full Sale and Reset

Selling a property (or multiple properties) is the cleanest, fastest way to de‑gear. It can turn a fragile portfolio into a solid base in one move – but there are tax and timing trade‑offs.

2.1 When a full sale makes sense

A clean sale is worth serious consideration when:

• The property has weak fundamentals – poor land content, flat rents, high strata, or persistent vacancies
• You’re within 5–10 years of retirement and still carrying high LVRs
• Servicing the debt is stressing the family budget, even before any rate rise
• You’re sitting on a large unrealised gain and post‑2027 CGT rules would make a later sale much harsher (see /insights/updated-cgt-rules-geared-property-investors-2027-playbook)

Remember: under the 2026–27 reforms, many investors will lose the automatic 50% CGT discount and face a 30% minimum tax on real gains from 1 July 2027 for many assets. Early, planned sales can avoid sleepwalking into a larger tax bill later.

2.2 Worked example – selling to reset your home debt

• Investment unit value: $800,000
• Investment loan: $520,000 (65% LVR)
• Selling costs (agent, legals): $25,000

Net sale proceeds:
$800,000 − $520,000 − $25,000 = $255,000

If you direct the $255,000 to your home loan instead of sitting in cash:

• Home loan before: $600,000 at 6%, 25 years remaining
  Approx repayment: $3,867/month
• Home loan after: $345,000 at 6%, 25 years remaining
  Approx repayment: $2,222/month

Monthly cashflow freed: about $1,645.
You’ve also removed the investment loan entirely, so your overall household risk drops sharply.

There may be a CGT bill on the sale – that needs modelling carefully given the new rules. But in cashflow and stress terms, this is often the single biggest de‑gearing lever.

2.3 Pros and cons

Pros

• Rapid drop in debt and LVR
• Simplifies your life (fewer properties, fewer headaches)
• Can convert risky equity into a lower home loan or liquid assets

Cons

• Transaction costs and potential CGT
• You lose future capital growth on that asset
• If you sell the wrong property, you may keep the weaker performers

3. Path Two – Partial Sell‑Down to Reshape the Portfolio

Partial de‑gearing is selling one or two properties to strengthen the rest of the portfolio. You don’t exit property entirely – you just stop being hostage to it.

3.1 When partial sell‑down fits

Consider this route if:

• You’re property‑heavy, cash‑light, with multiple geared assets (see /insights/property-heavy-cash-light-gearing-decisions-pre-retirees)
• One or two properties are clear underperformers or tax headaches post‑2027
• You want to move towards standalone loans and clean securities (see /insights/standalone-vs-cross-collateralised-investment-loans-best-for-gearing)

The aim is to:

1. Sell the lowest‑conviction assets
2. Use surplus to reduce loans on your highest‑quality properties and/or your home
3. Move towards 40–50% portfolio LVR over 5–10 years

3.2 Worked example – three properties, one sale

Assume:

• PPOR: $1.4m, home loan $700k
• IP1: $900k, loan $630k
• IP2: $800k, loan $560k

Total property value: $3.1m
Total debt: $1.89m (portfolio LVR ≈ 61%)

You decide to sell IP2 (weaker long‑term outlook):

• Sale price: $800k
• Sale costs: $25k
• Loan cleared: $560k

Net surplus after sale costs and loan:
$800k − $560k − $25k = $215k

You then:

• Pay $150k off the home loan (down to $550k)
• Pay $65k off IP1 loan (down to $565k)

New picture:

• Value: $1.4m + $900k = $2.3m
• Debt: $550k + $565k = $1.115m
• Portfolio LVR ≈ 48%

You still own two quality properties, but your leverage is now in the safer “balanced” band, and your home is less exposed.

3.3 Pros and cons

Pros

• Targets weakest assets first
• Meaningfully lowers portfolio LVR without exiting property
• Can unwind risky cross‑collateralised structures

Cons

• Still triggers CGT and costs on the sold properties
• You must avoid “pro‑cyclical” behaviour (panic selling good assets in a soft patch)
• Requires a clear ranking of property quality – not all investors have done this work

A partial sell‑down can turn a stretched portfolio into a safer, more resilient one.