My investment property costs me money every month. Should I hold it, sell it, or replace it before July 2027?

Answering: My investment property costs me money every month. Should I hold it, sell it, or replace it before July 2027?

Estimated reading time: 14 min read

There is no single right answer for every negatively geared property, but there is a fast way to find yours: run hold, sell and replace against the same three numbers, monthly cash flow, what happens to your tax position after 1 July 2027, and how much capital each path ties up or frees, and the right move for you usually becomes obvious within an afternoon. That matters more than usual right now, with the cash rate sitting at 4.35 per cent after three rises in 2026 and the established-property side of negative gearing due to change from 1 July 2027. The Harmony Group’s team sees this exact decision most often from investors who are less interested in another tax argument than in a property that pays for itself.

If you are the one absorbing the shortfall between rent and repayments every month, none of this is abstract. Watching a property you bought to build wealth cost you money out of your own pay packet, while headlines argue about who the reform helps, is exhausting, and the 2027 deadline adds a genuine decision point rather than just more noise.

The reform itself, announced in the Budget and still subject to the passage of legislation, is narrower than the headlines suggest. Losses on established residential property bought after 7:30pm AEST on 12 May 2026 will only offset property income and carry forward, not your salary, from 1 July 2027. Property held before that moment is grandfathered and keeps full negative gearing until you sell it. New builds stay exempt and keep the current rules. None of that tells you what to actually do with the property costing you money now, which is where hold, sell and replace come in.

Key Insights

Three things matter more than anything else when you compare the paths:

• Hold: after 1 July 2027, losses on an established property bought after 12 May 2026 only offset property income, not your salary. Property owned before 7:30pm that day keeps full negative gearing until sold.
• Sell: frees capital now but usually means a capital gains tax bill under the current rules, and the RBA’s next call on 29 September could add to holding costs while you decide.
• Replace: The Harmony Group’s own worked figures show a nine-bed generating $179,010 a year gross against $45,000 for a standard property at the same $1.5 million price point. (Average figures based on most recent projects.) It is designed to produce that income from settlement rather than rely on a tax loss; whether it also meets the reform’s own definition of an eligible new build is unresolved.

Table of Contents

• The Three Paths at a Glance
• Monthly Cash Flow: What Each Path Actually Costs or Pays
• Tax Treatment After 1 July 2027
• Capital and Effort Each Path Requires
• Which Path Fits Which Investor

The Three Paths at a Glance

Hold means keeping the property as it is and living with the shortfall between rent and repayments every month, on the view that capital growth or a change in your own circumstances eventually makes up for it. Sell means realising the property now, paying selling costs and any capital gains tax owed, and redeploying whatever capital is left. Replace means moving your money into a different asset, one chosen to produce income rather than a deduction, rather than assuming your next property has to work the same way your current one does. A purpose-built nine-bed co-living property is one example of a replace-path asset, and it is worth understanding on its own terms before you compare it to holding or selling.

Monthly Cash Flow: What Each Path Actually Costs or Pays

Cash flow is where the three paths diverge hardest, and it is worth being specific rather than comparing vibes. A standard investment property bought at around $1.5 million typically returns about $865 a week, or roughly $45,000 a year gross, a yield near 3 per cent. (Average figures based on most recent projects.) That is why the monthly shortfall exists in the first place once interest at 4.35 per cent and rising is added on top. Hold that property and you are betting the shortfall is worth it. It is worth noting the cash rate has already risen three times in 2026, from 3.85 per cent in February to 4.35 per cent by May: the Reserve Bank’s next decision is 29 September, and NAB expects another 0.25 percentage point rise then, while CBA and ANZ expect one in November and Westpac expects a hold for the rest of the year.

Sell frees you from that monthly cash drain immediately, though what you are left with depends on selling costs and any CGT owed on the gain. Replace changes the maths altogether. The Harmony Group’s own worked example for a purpose-built nine-bed co-living property shows weekly rent around $380 a room across nine rooms, gross annual income of $179,010, against a base project cost of $1,574,000 ($1,650,250 including additional considerations), a gross yield of 11.36 per cent on the base cost. (Average figures based on most recent projects.) The underlying average is $382.50 a room, shown rounded to $380: $382.50 multiplied by nine rooms and 52 weeks equals $179,010. That 11.36 per cent is a separate, more recent figure from the team’s 10.8 per cent historical average gross yield across delivered projects, which is the longer-run number; both are historical results, not a promise of what any individual property will return.

• Work out your own property’s actual monthly shortfall before comparing paths, not an average.
• Factor in at least one more possible rate rise if you plan to hold past September.

Tax Treatment After 1 July 2027

Tax treatment is the part of this decision that is actually changing, so it is worth being precise about who keeps what. If you held the property, or were under contract, before 7:30pm AEST on 12 May 2026, you are grandfathered: negative gearing continues under the current rules until you sell, so the negative gearing change from 1 July 2027 does not touch you; the CGT changes still apply to gains accruing after that date, as the next paragraph sets out. If you bought established property after that moment, you can still negatively gear until 30 June 2027, but from 1 July 2027 any loss can only be offset against income from other property, including a capital gain on sale, and carried forward, not deducted against your salary.

Selling triggers its own tax event, and the transitional rule matters here: any gain made up to 1 July 2027 still gets the current 50 per cent discount even if the property sells after that date, using its value at 1 July 2027 as the cut-off, and only the growth after that date is taxed under the new indexation-plus-30-per-cent-minimum method, so a pre-cutoff purchase does not lose the discount outright. An eligible new build’s owner can also choose the existing 50 per cent discount or the new indexation method when they sell, a choice established property does not get on growth after 1 July 2027, though whether a single-title, purpose-built nine-bed meets the published new-build test is unresolved. A purpose-built nine-bed co-living property separately holds Class 1B certification, which confirms its construction classification, not its tax treatment. What it is designed to do regardless of how that question lands is produce income from settlement rather than rely on a tax loss in the first place.

• Confirm your grandfathered status in writing with your accountant before assuming anything.
• If you are buying again, established and new-build purchases now carry a genuinely different tax outcome.
• Remember these are announced measures, subject to the passage of legislation, not settled law yet.

Capital and Effort Each Path Requires

Hold requires the least action and the most ongoing cash: no transaction costs, but you keep funding the shortfall for as long as you own the property, and a further rate rise increases it. Sell requires selling costs, typically agent fees and any CGT owed, plus the effort of taking the property to market, but it converts an ongoing monthly cost into a one-off, known outcome.

Replace requires the most capital up front and the most diligence, because you are choosing a new asset rather than managing the one you already own. The Harmony Group’s own floor for a purpose-built nine-bed co-living project is $600,000 in cash, usable equity, or a combination of both, before the team’s 118-point location analysis on a specific opportunity even begins. The client pays the team nothing; the panel builder pays the same rate at settlement regardless of which builder wins the work. The team builds these properties in Melbourne, and investors join from every state; the process runs remotely, so location is rarely the limiting factor once the capital is in place. If your equity is doing the work rather than cash, it is worth knowing exactly how much of it is usable before you compare paths, since a lender will not lend against all of it.

Which Path Fits Which Investor

None of these paths is automatically superior, and the same property can point in different directions for two different investors depending on their own tax position, risk appetite, and the capital they have available.

Path	Tends to suit	Worth checking first
Hold	You are grandfathered, or the shortfall is manageable and you are confident in long-term growth.	Whether another rate rise this year changes your comfort with the monthly cost.
Sell	The monthly shortfall outweighs any capital growth you are counting on.	Your actual CGT liability and selling costs with your accountant, not an estimate.
Replace	You have $600,000 or more in cash, usable equity, or both, and want income built in from day one rather than a deduction.	Whether a specific opportunity passes the team’s own 118-point analysis; around 85 per cent of what it assesses does not.

Whichever path fits, the number that matters most is the one you calculate for your own property, not an average. If you are holding a property that is costing you every month, work out what changes for you specifically on 1 July 2027, and treat hold, sell and replace as three genuine options rather than one default.

For a deeper look at the sell path specifically, including the tax mechanics and how released capital compares to a purpose-built co-living investment, see our guide to selling a negatively geared property to invest in co-living.

Frequently Asked Questions

Q: Will I lose negative gearing on the property I already own?

A: No. If you held the property, or were under contract, before 7:30pm AEST on 12 May 2026, it is grandfathered and keeps negative gearing under the current rules until you sell it. The negative gearing change from 1 July 2027 does not apply to it; the CGT changes apply only to gains accruing after 1 July 2027, with the 50 per cent discount preserved on the gain built up to that date.

Q: What happens if I sell my negatively geared property before 2027?

A: You end the monthly shortfall immediately, but you are likely to owe capital gains tax on any gain, plus selling costs, under the current rules. Whether that trade-off makes sense depends on your own numbers, which is why running the comparison with your accountant matters more than a general guide.

Q: Does a new-build property let me keep negative gearing after 2027?

A: Yes, under the reform as announced and still subject to the passage of legislation. An eligible new build is a residential property that genuinely adds to supply: built on vacant land, or where an existing property is demolished and replaced with a greater number of dwellings. It keeps negative gearing, and its owner can choose between the existing 50 per cent CGT discount and the new indexation method when they sell. Established property bought after 12 May 2026 does not get that choice on growth after 1 July 2027, though the transitional rule still applies the current 50 per cent discount to any gain made up to that date, whichever property type it is.

Q: Is a nine-bed co-living property a new build under the reform?

A: It is a newly built dwelling, but whether it meets the reform’s own definition of an eligible new build is unresolved. The published test asks whether an existing property has been demolished and replaced with a greater number of dwellings, not simply whether it is newly built, and the open question for a purpose-built nine-bed is whether nine self-contained suites on one title count as a greater number of dwellings; that depends on the final legislation and your own adviser’s reading of your circumstances. Either way, it is designed to produce income from settlement rather than rely on a tax loss, which is a separate reason investors compare it to holding an established property.

Q: How much capital do I need to replace a property with co-living?

A: The Harmony Group’s floor is $600,000 in cash, usable equity, or a combination of both, before its team runs the 118-point location analysis on a specific opportunity. Around 85 per cent of what the team assesses does not pass.

Want to Learn More?

The Harmony Group’s team brings 15 years of specialist experience, spanning 200+ high-yield and specialist accommodation projects. The approach stays educators-first: run the numbers for your own property against each path, and if a purpose-built co-living investment is not the right replacement for you, the team will say so.

Citations

• “Tax reform, Budget 2026-27”: The Australian Government’s budget paper confirms that established-property losses bought after Budget night can only offset property income (not other income) and carry forward from 1 July 2027, that new builds keep negative gearing, and that the 50 per cent CGT discount is replaced by an inflation-based discount with a minimum 30 per cent tax. https://budget.gov.au/content/04-tax-reform.htm
• “Federal Budget 2026-27: Negative Gearing”: Pitcher Partners confirms the 7:30pm, 12 May 2026 cut-off, the grandfathering of property held (including under contract) before that moment, and the transitional window to 30 June 2027 for established property bought after the announcement. https://www.pitcher.com.au/insights/federal-budget-2026-27-negative-gearing/
• “Cash Rate”: The Reserve Bank of Australia confirms the current cash rate target of 4.35 per cent and the three 2026 increases, in February, March and May, that brought it there. https://www.rba.gov.au/statistics/cash-rate/
• “Expert predictions: what will the RBA do with interest rates next?”: Aussie confirms the next Reserve Bank decision date of 29 September 2026 and the major banks’ differing forecasts for that meeting and November. https://www.aussie.com.au/insights/news/expert-predictions-rba-rates/
• “Negative Gearing and Capital Gains Tax Reform” (fact sheet): The Australian Government’s own Budget fact sheet defines an eligible new build as a residential property that genuinely adds to supply, either built on vacant land or where an existing property is demolished and replaced with a greater number of dwellings, states that a knock-down rebuild that does not increase supply is not eligible, and sets out the transitional rule that the current 50 per cent CGT discount still applies to any gain made up to 1 July 2027 even if the asset sells later. https://budget.gov.au/content/factsheets/download/tax-explainers-negative-gearing-capital-gains-tax.pdf

The negative-gearing detail here is still moving through Parliament and the cash rate changes with each Reserve Bank meeting, so confirm the current position with the ATO or the RBA.

Related Reading

• Should I sell my negatively geared property to buy co-living instead?
• Negative gearing is changing: what is the positive-cashflow alternative?
• Negative gearing ends for established property in July 2027 but new builds keep it. What does that mean for an investor deciding now?
• How do I actually finance a co-living property: residential or commercial lending?
• What is a Class 1B certification? The complete guide for co-living investors

General information only. The Harmony Group provides general information about property and co-living investment, not personal financial, tax or legal advice, and does not hold an Australian Financial Services Licence (AFSL). It does not account for your objectives, financial situation or needs, so consider its appropriateness and seek advice from a licensed financial adviser, accountant or the ATO before acting. Past performance is not a guide to future results and historical figures may not be repeated. Any tax or regulatory measures described are announced rather than enacted and are subject to change.