How and When to Start De‑Gearing Your Investment Property Loans

A sensible de‑gearing plan is the missing piece in many Australian property strategies. De‑gearing simply means gradually reducing your investment debt and risk so that, by the time you want to work less (or stop), your loans are at a level your retirement income can comfortably support.

For most investors, you don’t wait until you retire to start. You usually begin 5–10 years out from your target retirement – or earlier if cashflow is tight, rates rise or tax rules (like the 2026–27 negative gearing changes) make high leverage less attractive.

This guide gives you clear triggers, numbers and a one‑week action plan to decide whether it’s time to start paying down your investment loans.

De-gearing is a gradual shift from growth to preservation, not an abrupt stop.

1. What “de‑gearing” really means (and why it matters now)

De‑gearing is the deliberate, staged process of lowering your loan‑to‑value ratios (LVRs) and softening your cashflow risk. It’s not usually “sell everything and go to cash”.

In practice, de‑gearing might include:

• Redirecting surplus cash to investment loan offsets
• Converting some interest‑only loans to principal & interest (P&I)
• Paying down non‑deductible home debt before investment loans
• Selling one underperforming property to reduce overall debt
• Restructuring loans so riskier debts sit against stronger assets

This matters more after the 2026–27 tax reforms, because:

1. Negative gearing on most established properties bought after 12 May 2026 can’t be used against wages – rental losses become a true cash cost, not a tax strategy.
2. Capital gains are taxed more heavily for many investors, so relying purely on capital growth while staying highly geared is less attractive.
3. Rates have been volatile, and the RBA has made clear that longer‑term inflation risks are not going away.

If your whole strategy assumes “the tax office and low interest rates will always bail me out”, it’s time to rethink.

For a grounding in how gearing works in the new rules, see Plain-English Gearing Basics Every Australian Property Investor Must Know.

2. The core question: What are you optimising for now?

2.1 Accumulation vs preservation

Your de‑gearing timing comes down to one honest question:

Am I still in growth mode, or am I now in preservation/income mode?

If you’re:

• In your 30s–40s
• Income rising strongly
• Comfortable with some volatility

…you’re often still in accumulation mode. Higher gearing can make sense if you’ve stress‑tested it properly and have buffers.

If you’re:

• In your 50s–60s
• Wanting to work less or retire within 5–10 years
• Feeling more uncomfortable with debt and volatility

…you’re moving into preservation/income mode. That’s when de‑gearing becomes a core strategy, not an afterthought.

2.2 Your “sleep‑at‑night” test

Ask yourself and your partner:

• If rates rose another 1–2% from here, how would I feel?
• If one property sat vacant for 6 months, could we handle it?
• If my business income dropped 20%, would we still be okay?

If your honest answers make you uneasy, that’s a strong signal you’ve hit your personal risk ceiling and should start de‑gearing – regardless of your age.

For self‑employed and high‑income investors, this question is especially important given the new tax settings. The guide on property strategy for self‑employed and high‑income investors after tax shifts walks through this in more detail.

3. Clear triggers that it’s time to start de‑gearing

There’s no magic age. Instead, look for these concrete triggers.

3.1 Time‑based triggers

• 10+ years from retirement: usually fine to stay geared if cashflow is strong and buffers are solid.
• 5–10 years from retirement: this is the prime window to start de‑gearing. You have time to:
  • Let compounding growth keep working
  • Pay down debt meaningfully
  • Rebalance without fire‑sales
• 0–5 years from retirement: you want a very clear endgame already in motion. If not, you may need sharper moves (e.g. selling one property) rather than gentle tweaks.

3.2 Cashflow triggers

You should strongly consider de‑gearing if any of these are true:

• Your household budget is tight even at current rates
• You’d struggle if your loans rolled off fixed rates
• You rely on ATO refunds from negative gearing to make things “work”
• You have less than 3 months of total loan repayments sitting in offset buffers (across home and investment debt)

Remember: from 1 July 2027, for many post‑2026 established properties, you can’t offset rental losses against wages. Those cash refunds you’ve been counting on may simply disappear.

3.3 Risk and life‑event triggers

De‑gearing jumps up the priority list when:

• One partner wants to stop work or scale back
• You’re heading into a business sale, redundancy or parental leave
• Health issues or caring responsibilities appear
• Lenders are already nervous about your servicing

Any of these is a cue to shore up your balance sheet.