Historically, the big difference between upgrading your family home and preserving borrowing capacity to buy an investment property was negative gearing.
Home loan interest is not tax deductible. Investment loan interest, by contrast, generally is. So, from a tax and cash flow perspective, borrowing to invest in property was often more attractive than simply spending more on your home.
But there has always been an important counterweight: your family home is capital gains tax free, whereas investment property is not. And once the new post-1 July 2027 indexation regime applies, the effective tax rate on capital gains (property growing at 7% p.a.) will rise materially, from roughly 20% to 23% under the current 50% discount regime, to something closer to 30% to 35%, depending on inflation and holding period.
The loss of negative gearing benefits, combined with a higher effective capital gains tax rate, makes investing more of your financial capacity in the family home look relatively more attractive.
What actually changes on 1 July 2027
As a quick reminder, from 1 July 2027, negative gearing on established property purchased after Budget night will be quarantined.
The 50% CGT discount will also be replaced with indexation, subject to a minimum 30% tax rate, and there will be limited ability to reduce that tax liability using deductions.
Importantly, the main residence exemption is unchanged.
You can read my more detailed breakdown from last week here.
The tax changes killed the old comparison
As I concluded in last week’s blog, the quarantine of negative gearing, and to a lesser extent the higher effective CGT rate, means investing in established property is no longer attractive relative to other investment options.
That changes the livevesting equation. Historically, livevesting was a comparison between upgrading your family home and preserving borrowing capacity to buy an established investment property. In my view, that comparison is now effectively dead.
It also changes how I frame the broader property-versus-shares debate.
In the past, I have argued that comparing property and shares was the wrong framework. The real decision was borrowing versus not borrowing, because borrowing to invest in property was generally more attractive than borrowing to invest in shares, particularly because both were taxed under the same rules. That is no longer the case. Established property now has its own, less favourable tax regime.
Therefore, if you want to gear into an investment, the share market is now likely to be the main option worth considering, given I do not regard commercial property or newly built property as attractive options.
That creates an opportunity to revisit my previous livevesting analysis. But this time, the comparison is different: is it more attractive to borrow to upgrade your family home, or to borrow to invest in the share market?
Even if you would not feel comfortable borrowing a large amount to invest in shares, it remains a useful theoretical comparison, because it helps clarify which strategy is likely to produce the better long-term financial outcome.
The two scenarios I compared
I wanted to test a simple question. If you are a high-income household with surplus cash flow and borrowing capacity, are you better off putting that capacity into a larger family home, or into a geared share portfolio?
Both households start in exactly the same position. They are two PAYG earners with annual combined pre-tax income of $400,000, one earning $250,000 and the other $150,000. They spend $130,000 annually, leaving $140,000 of surplus cash flow. They already own a $2 million home with a $500,000 loan.
The only difference between the two scenarios is how they use their surplus cash flow and borrowing capacity.
Scenario A: Livevesting
In the first scenario, they upgrade the family home from $2 million to $3 million. Their home loan increases from $500,000 to $1.5 million, and they hold no separate investments.
All surplus cash flow is used to repay the home loan. Once the loan is repaid, the surplus cash flow is redirected into a share portfolio.
The key advantage is that all growth in the family home is capital gains tax free, and the asset produces no taxable income along the way.
Scenario B: Smaller home plus a geared share portfolio
In the second scenario, they keep their existing $2 million home and $500,000 home loan. They then borrow an additional $1 million and invest it in an ETF portfolio.
The investment loan remains interest only while the home loan still exists, and the interest is tax deductible. All surplus cash flow is first directed towards repaying the non-deductible home loan. Once that loan is repaid, the surplus is split evenly, with half used to reduce the investment loan and half used to buy more shares.
Therefore, the real difference comes down to this: both households take on the same additional $1 million of debt, have the same total debt ($1.5 million) and both repay all debt in full over the next 18 years.
In Scenario A, the additional debt funds a larger family home. The interest is not deductible, but the growth is tax free.
In Scenario B, the additional debt funds a share portfolio. The interest is deductible, but the income and growth are taxable.
The key assumptions
I have kept the assumptions consistent across both scenarios to ensure the comparison is fair.
The family home grows by 6.5% p.a., being 3.5% above an assumed inflation rate of 3%. The home loan interest rate is 6% p.a. The investment loan is 6.3% p.a., reflecting the typical pricing premium for interest only investment debt.
The share portfolio returns 7% p.a. in total, comprising of 2.5% in taxable income and realised gains, and 4.5% in compounding capital growth. The portfolio is invested 20% in Australian shares and 80% internationally, reflecting our long-held view that a home country bias is difficult to justify when Australia represents less than 2% of global share markets. The Australian share component is assumed to be fully franked.
Investment income and deductions are assessed at the higher earner’s marginal tax rate of 47%. CGT on the share portfolio is calculated under the new rules applying from 1 July 2027, using indexation of the cost base rather than the old 50% discount, with the gain then taxed at the marginal rate.
The winner is… remarkably close
The table below compares net worth on an after-tax basis, including the family home, all liabilities, and the CGT liability attached to the share portfolio – discounted back into today’s dollars.
When I began this analysis, I expected borrowing to invest in shares would be far superior. But the results surprised me. Upgrading the family home is only mildly inferior over 10 years, virtually the same over 20 years, and slightly superior over 30 years.
The key takeaway is that we shouldn’t automatically dismiss upgrading the family home as financially inferior.
| Total after-tax net wealth after | A: Livevesting (bigger home) | B: Smaller home + geared shares | Winner |
| 10 years | $3.7m | $3.8m | Scenario B by $100k |
| 20 years | $6.8m | $6.8m | Even |
| 30 years | $10.9m | $10.7m | Scenario A by $200k |
It is worth understanding why the family home closes the gap over time, because it is not obvious. Both strategies hold assets growing at similar rates. The difference is tax leakage. The geared share portfolio produces taxable income each year, through distributions and realised gains. Initially, deductible interest offsets much of this, which is why shares are ahead over 10 years.
But once the debt is repaid, that tax shield disappears. The share portfolio then becomes a net generator of taxable income, while the family home keeps compounding tax-free. And when the shares are eventually sold, capital gains tax further erodes the early lead.
Six things the model doesn’t capture
Liquidity and flexibility
One downside with livevesting is that more of your wealth is tied up in an unlisted asset, and you carry more non-deductible debt, which creates a higher ongoing cash flow commitment. By contrast, holding less wealth in your home and investing more in liquid share market investments (ETFs) provides greater flexibility, particularly if your personal circumstances change.
Willingness to downsize in the future
Livevesting only works if it helps build wealth that can ultimately fund your retirement. In practical terms, that usually means you must be willing to downsize your home at some point and use part of that equity to supplement your retirement savings. That is the key trade-off. Before implementing this strategy, you need to be comfortable with the idea that the family home may not be a forever home.
Your home’s future capital growth rate
This comparison is very sensitive to the long-term growth rate of the family home. Not every suburb or property will qualify as investment grade and have strong future growth prospects. A poor-quality home asset can materially change the outcome. If the home doesn’t achieve at least 6.5% p.a. growth rate on average, then it’s likely livevesting will be inferior over 20 years.
Your expectations regarding future share market returns
The relative attractiveness of these two options depends largely on your view of future returns. Do you believe a well-located house in a blue-chip suburb can produce capital growth of more than 6.5% per annum, including inflation? For the share market comparison, I assumed a 7% p.a. total return, which is lower than long-term historical returns. I did that deliberately to allow for volatility and sequencing risk. But if you are concerned that future share market returns may fall short of that benchmark, then the case for livevesting becomes relatively stronger.
Your ability and willingness to borrow large sums to invest in the share market
The key to successfully borrowing large sums to invest in the share market is portfolio construction, and the first principle is diversification. A portfolio built using low-cost, rules-based index funds, using a range of indexing strategies, targeting the most attractive market opportunities gives you the best chance of generating above-average long-term returns. Whether you can implement this yourself depends on your knowledge, experience and discipline. If you do not have that, it is worth engaging an adviser who does.
Lifestyle benefits
The lifestyle benefits of livevesting shouldn’t be underestimated. Living closer to work, family, good schools, amenities and lifestyle infrastructure can materially improve your standard of living, even if the financial case is not always clear-cut.
Does the current market help or hurt?
Recent property data shows that prices have been falling since the start of the year. Importantly, reliable data from CBA and Cotality also suggests the top end of the market has declined by more than the lower end.
That matters because this is exactly the segment a livevestor is buying into. Yes, you may be selling your existing home in a softer market, but you are also buying a more expensive home in that same softer market. In dollar terms, that can make upgrading relatively attractive.
The main challenge will be stock. As the market softens, discretionary vendors are more likely to delay selling, which can make it harder to find a high-quality home that genuinely meets your needs.
What should you do now?
As discussed in last week’s blog, borrowing to invest in established residential property no longer looks attractive from an after-tax internal rate of return perspective, at least relative to other investment options. Therefore, if you still want to borrow to invest, shares are probably the main alternative.
If you believe the new negative gearing and CGT settings are permanent, then livevesting and borrowing to invest in shares are likely to become two of the more popular strategies.
However, if you think there is a reasonable chance these tax settings will not be permanent, as I do, then the best approach is to avoid making any significant financial decisions for now. Instead, I would wait 12 to 18 months and reassess. My view is that the longer these settings remain in place, the more negative consequences voters will experience, the more unpopular the policy will become, and the greater the likelihood it will eventually be changed.
Regardless of what happens, the general conclusion I would draw is that livevesting is unlikely to be a materially inferior wealth accumulation option, as long as the government doesn’t change the main residence CGT exemption.
The real lesson here
When I started this analysis, I expected the numbers to favour borrowing to invest in shares. They did not. Over any realistic time frame, livevesting and geared share investing are close enough, that the better strategy depends more on temperament, time frame, personal preferences, and the quality of the home you can actually buy.
Livevesting was never just a tax strategy. It works because it concentrates your capital in one high-quality, CGT-free asset and forces long-term ownership. The tax changes have not suddenly made livevesting brilliant. They have simply removed the main strategy that used to compete with it, borrowing to negatively gear into established residential property.
Therefore, my advice is to be deliberate. Do not necessarily rush into either strategy while these tax settings are still new and politically contested. Preserve your borrowing capacity, keep your options open, and reassess over the next 12 to 18 months. The strategies will still be there, but waiting may give you much more certainty.
