Is the Biggest Home You Can Afford a Good Investment In AUS?
There is a growing piece of property advice I strongly disagree with: buy the upgrader now, stretch your borrowing capacity and treat your home as your best investment.
Your home can build wealth. But it is not the same as an investment property.
A large owner-occupied mortgage means after-tax dollars servicing non-deductible debt, no rental income helping with repayments, and less borrowing capacity for future investments.
So rather than argue about it, let’s run the numbers.
Here is a quick overview -
after tax dollars going into a non-tax deductible mortgage,
the growth may come but also might not, all those interest repayments gone to the bank basically negates the PPOR Capital Gains Tax Exemption which is the biggest gripe I have with this advice,
future borrowing can be compromised, and finally
The interest repayments all lost to the banks
The Repayments Nobody Thinks About
Say you stretch to a $2.5 million home. With a 20% deposit, that is a $2 million loan. At 6% principal and interest over 30 years, that works out to roughly $12,000 a month, just under $144,000 a year. In year one, about $120,000 of that is interest. Not principal. Interest.
Now compare a $700,000 home with the same structure. A $560,000 loan costs around $3,360 a month, roughly $40,000 a year, with about $33,500 of that being interest.
That is over $100,000 a year in extra cash going out the door. Before rates move, before insurance, before maintenance, and before you count what that extra deposit could have earned sitting somewhere else.
Consider the lifestyle with maxing out your borrowing capacity
Is Tax-Free Growth Actually Free?
Sell your own home and the capital gain is tax-free, thanks to the main residence exemption. That part is true, and it is a real benefit.
Here is what gets left out: none of that $120,000 in annual interest is tax-deductible. You are paying it entirely out of after-tax income, with nothing coming back to offset it.
An investment property works differently. The interest is deductible, and there is rental income landing every month. Worth flagging here: the rules tightened in 2026. For an established investment property bought since Budget night, losses can now only be offset against rental income or a future capital gain, not your salary. Full negative gearing is still available for new builds, and for anything bought before the change.
Say that investment property gains $500,000 over ten years. Under the new rules, that gain gets taxed at a flat 30% minimum rate, applied after adjusting the cost base for inflation, rather than the old 50% discount. As a round figure, call it $150,000 in tax. That still leaves $350,000 in after-tax growth, on top of the rental income and deductions collected the whole time you held it.
Your own home gets the full $500,000 tax-free. But you paid for it entirely out of pocket, with no rent and no deductions, the whole way through. The tax-free part is not free. You had already paid for it in interest to the bank over those ten years.
What Gets Skipped: Your Future Borrowing Capacity
This is the one that matters most to me as a broker. What that extra debt does to your future borrowing capacity is almost never part of the conversation when someone is standing at an auction.
The $500,000 deposit on the $2.5 million home is $360,000 more than the $140,000 you would put down on the $700,000 home. That $360,000 could have gone toward a deposit on an investment property instead. Possibly two, depending on the market.
And it is not just the deposit. Lenders assess your capacity to borrow again based on the repayments you are already carrying. $144,000 a year on your own home eats directly into how much a bank will lend you for anything else. $40,000 a year still affects it, but to a lesser extent. If the plan was ever to build past the family home, the expensive principal place of residence makes that harder, right when you would want the flexibility most.
Personal Story: I maxed out my own borrowing capacity.
If I had stayed living in my first home, I would have kept making repayments with no rental income helping me service the debt, and I would have remained constrained by borrowing capacity.
When I moved out and turned it into an investment property, the position changed. The property began producing rental income, which helped with repayments and improved my ability to purchase another investment property.
That experience shaped how I look at owner-occupied debt today. I still got to live the lifestyle I wanted, but I stopped expecting my home alone to do all the financial heavy lifting.
Should You Buy a Cheaper Home and Invest the Difference?
To be fair to the other side: one part of the buy-big argument does hold up. A tax-free 5% gain on a $2.5 million home is a bigger dollar figure than 5% on a $700,000 one. Most people would not invest the difference if it was just sitting in their account. But when you see the numbers breakdown below, I hope you think differently about this.
So this is not an argument against buying a good home. It is an argument against stretching to the absolute limit of what you can borrow because someone told you it counts as an investment strategy. It's a buy, hope, hold and pray investment strategy, which is not even investing in property in my opinion.
I know what I would rather do: invest now, and buy the nicer home later with a bigger deposit and passive income from my investments already working for me. Right now I choose to rent while that plays out. The flexibility is worth more to me than owning an place to live in. But my goals are different to yours. Just make it a deliberate choice, not a default one because some numpty told you it was a good idea.
How Do the Numbers Look Side by Side?
Here is the cleanest version of the comparison: instead of one $2.5 million home, five investment properties at $500,000 each. Same total price, same $500,000 deposit, same $2 million in debt. The only thing that changes is how it is structured by your broker, your individual tax implications and the rental income you receive.
Same assumptions throughout: 20% deposit, 6% principal and interest over 30 years, 5% annual capital growth applied equally to both sides, and a 5% gross rental yield on the investment properties, with roughly 70% of that landing as net income after property management, maintenance, insurance and the odd vacancy.
Deposit and repayments, year one
Deposit: $500,000 on both sides
Total loans: $2,000,000 on both sides
Year 1 repayments: $143,900 on both sides
Year 1 net rental income (Investment portfolio only): $87,500
Year 1 net cash shortfall, owner-occupied: $143,900
Year 1 net cash shortfall, portfolio: $56,400
Same deposit. Same debt. Same repayments. The only difference in year one is $87,500 of rent landing in your account to help with mortgage repayments.
Ten years timeline below
Net cash committed, owner-occupied: $1,938,900
Net cash committed, property portfolio: $1,063,900
Property value after 10 years: approximately $4,072,200 on both sides
Remaining loan balance: $1,673,700 on both sides
Gross equity (value minus loan): $2,398,500 on both sides
Tax on the gain, owner-occupied: $0 (main residence exemption)
Tax on the gain, portfolio: approximately $471,700
After-tax net wealth gain, owner-occupied: ONLY $459,600
After-tax net wealth gain, investment portfolio: $862,900
Same growth. Same equity. Even after allowing roughly $472,000 for tax on the investment gains, the portfolio still finishes around $403,000 ahead, because over those 10 years, the tenants have contributed $875,000 toward your holding costs.
$875,000 additional rental income − $471,700 assumed CGT = $403,300 advantage to the portfolio.
Structure and rental income make the difference. Nothing else changes.
What Should You Actually Do?
The point is not that everyone should buy a cheaper home. The point is that maximum borrowing capacity should not automatically become your housing budget.
I would rather invest first, build assets and income, and buy the nicer home later with a larger deposit and more flexibility. That is why I currently choose to rent.
Your goals may be different. Run the numbers before treating a bigger home as an investment strategy.
If you want to talk through what your numbers actually looks like whichever strategy you choose, feel free to reach out.
General information only, not financial, credit, tax or investment advice. Figures are illustrative and based on assumed interest rates, rental income, property growth, costs and tax treatment. Actual outcomes will vary. Speak with a licensed mortgage broker and registered tax professional, and consider your own financial circumstances before making any property or lending decision.