Why Paying Tax Is Quietly A Good Thing For Property Investors

Most investors hate tax. Experienced investors hate it even more.

Yet the truth is simple. If you are paying tax on a property portfolio, you have made money.

In this episode of The Property Nerds, Arjun, Adrian, and Jack from 4acre Financial walk through three real client scenarios. Each shows how:

Tax is often the ticket to the next stage of growth or income
Structure, not just “more property”, decides whether you scale or stall
Doing the right thing is rarely the fastest or easiest, but it is where the real wealth sits

If you are an experienced investor who feels stuck, scared of tax, or loyal to one bank, this is your playbook.

What Happened

The discussion focused on experienced investors, not beginners. These are clients who already own multiple properties and feel capped out.

Case Study 1 – Two resi, one commercial, “tapped out” with the wrong structure

Two residential properties in personal names

One commercial property, also in a personal name

Another broker suggested pushing for a 700k to 800k commercial property in personal names with a third tier lender

On the surface, that was the “easy” next step

Instead, the team:

Used an SMSF to buy the commercial property from the clients at market value

Accepted stamp duty and capital gains tax on the transfer

Freed up 700k to 800k of personal debt and released hundreds of thousands in cash

Used that position to pursue a larger commercial deal closer to 2 million in a trust, plus room for another residential property in a separate trust

The property count at the end was similar, but:

Investor with a large residential portfolio, most in personal names
Goal was clear: passive income and the ability to retire or cut back work
Emotion and “never sell” thinking held them back
Previous bad experience with a low quality commercial asset that sat vacant for almost two years

After a hard mindset discussion:

They accepted that tax reduces paper wealth, but converts it into real, usable money
They sold assets and shifted into a commercial property over 5 million
The asset had a multi year lease to a national plumbing company
Cash flow and stability dramatically improved
They were now on track to live on the portfolio, not just look wealthy on paper

And one in an SMSF
Considered selling a personal name asset to replace it with two better placed assets
Preserved their current lifestyle while rebuilding future scalability

Across all three scenarios, a pattern emerged. The right move was rarely the easiest. It often involved selling, paying tax, and restructuring. But it opened the door to more income, better risk management, and a scalable portfolio.

Key Findings

1. Tax means you made money

Investors often look at their net position as:

Total property value minus debt equals “my wealth”.

That ignores tax. When they sell, the apparent wealth drops after capital gains tax and costs. It feels like a loss. In reality, that “lost” amount never truly belonged to them.

The portfolio only becomes real wealth when:

You accept there will be tax
You convert equity into a structure that produces usable income

Tax is the price of profit, not a penalty for success.

2. Structure can be more powerful than “one more property”

Adding another purchase in the wrong structure can:

Reduce future borrowing capacity
Tie your fate to one lender
Trap growth assets where they are tax heavy and income light

Shifting assets into:

Trusts for better separation of risk and flexible income distribution
SMSFs for lower tax rates on income and gains
can do more for long term wealth than simply buying another median house.

3. The “never sell” mantra can quietly destroy lifestyle

“Never sell” has emotional appeal. You feel loyal to assets you have held for decades.

But the podcast highlighted:

Elderly owners in Sydney’s inner west with fully paid homes worth 2 to 4 million
Very little super
No additional assets
Relying on pension payments to survive

On paper they are wealthy. In practice they are cash poor.

For many, a well planned downsize or sale:

Maintains a comfortable home
Releases large amounts of tax efficient capital
Creates an income base that supports a better lifestyle and reduces reliance on pensions

4. Banks are built for efficiency, not for investor scale

Banks:

Optimise for their own balance sheet
Prefer cross collateralisation for control
Often push P&I to extend capacity but restrict long term strategy
Rarely talk about trusts, SMSFs, or multi lender roadmaps

A good broker with the right values:

Accepts that their own payday might be delayed
Coordinates with accountants and lawyers
Builds a plan for the next five to ten years, not the next single loan

5. Two extra properties can be the difference between “almost there” and “done”

The team shared a simple example. Clients aiming for 100k passive income by a target age:

With three properties, they projected 60k to 75k
With five, they could reach 100k

The gap of two extra quality assets, in the right structures, is often the difference between:

Partial financial freedom
Full financial freedom

Action Steps

Audit your current structure
- List every property, owner type, debt type, and lender
- Identify what sits in personal names, what sits in trusts, and what sits in super
Model a “post tax” position, not just a balance sheet
- Work with your adviser to:
  - Estimate capital gains tax if you sold each asset
  - Estimate selling costs
  - Compare your current net wealth on paper with your net wealth after tax
Define your primary goal for the next decade
- Growth focused
- Income focused
- Or a planned transition period from growth to income
Test scenarios that involve selling, not just buying
- If you sold one under performing or poorly structured asset, what could it become:
  - One high quality commercial asset in super or a trust
  - Two replacement properties with better cash flow and better tax outcomes
Get a true multi lender finance strategy
- Engage a broker who:
  - Works with multiple banks and non bank lenders
  - Understands trusts and SMSFs
  - Will coordinate with your accountant rather than just “get the next loan done”
Prepare mentally to pay tax and move forward anyway
- Decide what level of tax you are willing to accept to reach:
  - A higher income
  - Better liquidity
  - A simpler, more robust portfolio
Share the strategy with your family
- Talk openly with partners and adult children about:
  - Why “never sell” can be harmful
  - How and when you may downsize or restructure
  - What outcomes you want for the next generation

Ready To Turn Tax Into A Tool, Not A Fear?

If you feel “tapped out” by your bank, anxious about selling, or unsure how to use trusts and SMSFs, you do not have a property problem. You have a strategy and finance problem.

The right plan can:

Accept tax as the cost of success
Replace one constrained property with two or more scalable ones
Shift you from paper wealth to real, spendable income

If you want to see how this can apply to your own portfolio, book a free discovery call with the InvestorKit team.

Bring your current loans, your properties, and your goals. Walk away with a clear, data backed plan to restructure, grow, and eventually live on your portfolio with confidence.