Rentvesting is a property strategy where you rent a home in the area where you want to live (typically close to work, family, or lifestyle amenities) while simultaneously owning an investment property in a more affordable location. It is a growing trend among young Australians who are priced out of buying in their preferred suburb but still want to get into the property market.
The concept challenges the traditional Australian dream of buying your own home first. Instead of stretching your budget to buy a modest property in an expensive area, or moving to a cheaper suburb that does not suit your lifestyle, rentvesting splits the two: you live where you want and invest where the numbers work.
For example, a young professional working in inner Melbourne might rent a one-bedroom apartment in Fitzroy for $450 per week while owning a three-bedroom house in Geelong that they purchased for $550,000. The Geelong property is rented out to tenants, generating income to help cover the mortgage, and the owner benefits from both capital growth and tax deductions while living in their preferred location.
The financial mechanics of rentvesting are simple but require careful budgeting. You have two main housing costs: the rent you pay for your home and the mortgage on your investment property. The rental income from your investment property offsets some or all of the mortgage cost, and any shortfall (known as negative gearing) may be tax-deductible.
| Financial Element | Rentvesting | Traditional Home Purchase |
|---|---|---|
| Housing cost | Rent + net mortgage shortfall | Full mortgage repayment |
| Tax deductions | Yes: interest, depreciation, expenses | No deductions on owner-occupied home |
| Capital gains tax | Payable on sale (with 50% discount if held 12+ months) | Exempt (main residence exemption) |
| FHOG eligibility | Not available (not living in property) | Available for eligible buyers |
| Stamp duty concessions | Not available for investors | Available for first home buyers |
One of the most compelling advantages of rentvesting is the ability to claim tax deductions on your investment property. Because the property is not your principal place of residence, all legitimate expenses associated with earning rental income are tax-deductible. These deductions can significantly reduce your after-tax cost of holding the property.
Mortgage interest is typically the largest deduction. If you pay $30,000 in annual mortgage interest and your marginal tax rate is 32.5%, the tax saving is approximately $9,750 per year. Other deductible expenses include property management fees, council and water rates, insurance, maintenance and repairs, land tax, body corporate fees (if applicable), and advertising for tenants.
Depreciation is another significant tax benefit for rentvesters who purchase newer properties. A quantity surveyor can prepare a tax depreciation schedule that identifies all depreciable items within the property, from the building structure itself to fixtures, fittings, and appliances. For a new property, depreciation deductions can be worth $10,000 to $20,000 per year in the early years, providing substantial non-cash tax deductions that reduce your taxable income without any out-of-pocket cost.
If your investment property is negatively geared (meaning the expenses exceed the rental income), the resulting loss can be offset against your other income, including your salary. This reduces your overall taxable income and, consequently, the amount of tax you pay. While negative gearing should not be the sole reason for investing, it can significantly improve the after-tax affordability of holding an investment property.
Australian property investors under 35 are estimated to be rentvesters, according to industry surveys, reflecting the growing popularity of this strategy among younger buyers
While rentvesting offers clear benefits, it is not without risks and drawbacks that need careful consideration before committing to this strategy.
No main residence CGT exemption. When you eventually sell your investment property, you will pay capital gains tax on the profit. The main residence exemption that eliminates CGT on your family home does not apply because you have not lived in the property. While the 50% CGT discount applies if you hold for more than 12 months, the tax on a significant capital gain can be substantial.
Rental insecurity. As a renter, you are subject to the terms of your lease and the decisions of your landlord. Rent increases, lease non-renewals, and property sales can force you to move, which can be disruptive and stressful, particularly if you have children in local schools or strong community ties.
Dual cost exposure. You must manage both rent payments and investment property costs simultaneously. If your tenant vacates and the property sits empty for several weeks, you are still paying rent on your home plus the full mortgage and expenses on the investment property with no rental income to offset them. Having a financial buffer of three to six months’ expenses is essential.
Missing first home buyer benefits. By purchasing an investment property first rather than an owner-occupied home, you forgo access to the First Home Owner Grant, stamp duty concessions, and government guarantee schemes such as the First Home Guarantee that allows purchases with as little as 5% deposit without LMI.
Sophie, a 28-year-old marketing manager, wanted to live in inner Melbourne but could not afford to buy there on her $95,000 salary. Instead, she purchased a two-bedroom unit in Geelong for $430,000 with a 10% deposit, renting it out for $380 per week. She continued renting a share house in Collingwood for $250 per week. After tax deductions on the investment property (including mortgage interest, depreciation, and expenses), her net annual cost of owning the investment property was approximately $8,500, less than $170 per week on top of her rent. Within three years, the Geelong unit had appreciated by over $60,000, building equity she could later use toward a home purchase.
Selecting the right investment property is critical to a successful rentvesting strategy. Unlike buying a home to live in, where personal preferences and lifestyle factors dominate, choosing an investment property should be driven primarily by financial fundamentals: rental yield, capital growth potential, vacancy rates, and tenant demand.
Rental yield measures the annual rental income as a percentage of the property’s value. A higher yield means more rental income relative to the purchase price, which reduces your out-of-pocket holding costs. Properties in regional centres like Geelong, Ballarat, and Bendigo often offer higher rental yields than equivalent properties in inner Melbourne, making them attractive for rentvesters looking to minimise their cash flow gap.
Capital growth potential is equally important for long-term wealth building. Look for areas with strong population growth, infrastructure investment, employment opportunities, and limited land supply. Properties near planned transport upgrades, new hospitals, universities, or major employment hubs tend to outperform over time. Your broker or a buyer’s agent can help identify areas with strong growth fundamentals.
Tenant demand determines how quickly you can find and retain quality tenants. Low vacancy rates (below 2%) indicate strong demand, meaning your property is unlikely to sit empty for extended periods. Check vacancy rate data from your state’s real estate institute and speak with local property managers about the strength of the rental market in your target area.
Applying for an investment loan as a rentvester is slightly different from a standard owner-occupier application. Lenders will assess your income, existing debts, living expenses (including rent), and the expected rental income from the investment property. Some key differences to be aware of include higher interest rates on investment loans (typically 0.25% to 0.50% above owner-occupier rates), stricter serviceability buffers, and potentially higher deposit requirements.
Most lenders will only count 80% of the expected rental income when assessing serviceability, to account for vacancy periods and expenses. This means you need sufficient personal income to cover the gap between 80% of the rent and the full loan repayment, plus your own rent and living expenses. A broker can model this calculation across different lenders to find the one that maximises your borrowing capacity.
Consider whether you might want to move into your investment property in the future. If you live in the property as your main residence for a period, you can establish a partial main residence CGT exemption that reduces the capital gains tax payable when you eventually sell. Some rentvesters plan to move into their investment property after a few years, converting it to their primary residence and later purchasing another investment.
The decision between rentvesting and buying your first home comes down to your priorities, financial situation, and long-term goals. Both strategies have merit, and the right choice depends on your individual circumstances. Let us examine a detailed comparison to help clarify the decision.
Consider a buyer with a $70,000 deposit and a $90,000 salary. If they buy a $450,000 investment property in Geelong while renting in Melbourne for $350 per week, their investment property might rent for $400 per week. After accounting for mortgage repayments, property expenses, and tax deductions, their net weekly housing cost (rent plus investment shortfall after tax) might be approximately $450 to $500. Meanwhile, if they stretched to buy a $600,000 owner-occupied property in outer Melbourne with the same deposit, their weekly mortgage repayment alone would be approximately $850 to $900.
In this scenario, the rentvester has lower weekly costs, lives in a more desirable location, and builds equity through the investment property, but they miss out on the FHOG, stamp duty concessions, and the CGT-free main residence exemption. The home buyer has higher costs and a less central location, but owns the home they live in and benefits from government incentives. Neither option is inherently better; the right choice depends on which trade-offs matter most to you.
Rentvesting is not necessarily a permanent strategy. Many rentvesters plan to transition to homeownership eventually, using the equity built in their investment property to facilitate the move. Understanding your potential exit strategies helps you plan from the outset.
Move into your investment property. If your circumstances change (for example, you start a family and want to leave the city), moving into your investment property converts it from an investment to your main residence. You would lose the tax deductions but gain the main residence CGT exemption going forward (partially, based on how long you lived there versus how long it was rented).
Sell the investment and buy a home. After several years of capital growth, the equity in your investment property may be sufficient to fund a deposit on a home in your preferred area. Selling triggers CGT, but the after-tax proceeds plus your savings may be enough to enter the owner-occupier market in a stronger position than when you started.
Keep the investment and buy a home too. If your income has grown sufficiently, you may be able to retain the investment property and purchase a home using equity from the investment as a deposit. This requires strong serviceability across both loans, but it builds a two-property portfolio that can accelerate your wealth over time. A mortgage broker can model whether this approach is feasible based on your current financial position.
A mortgage broker helps rentvesters by working through the complexities of investment lending, identifying lenders with the most favourable policies for rentvesting borrowers, and structuring loans to maximise flexibility for future moves. At Mortgage & Finance Advisory, we help clients across Geelong, Melbourne, and regional Victoria build property portfolios through smart strategies like rentvesting. Call us on 03 9020 2699 to discuss whether rentvesting is right for you.
Generally no. The FHOG requires you to live in the property as your principal place of residence for a continuous period (usually 12 months in Victoria). If you purchase an investment property and rent it out while living elsewhere, you do not meet this requirement. However, if you later purchase a property to live in and have never received the FHOG, you may still be eligible at that time, provided the property meets the relevant criteria.
There is no single answer. Rentvesting can be better if buying in your preferred area is unaffordable, if you value lifestyle flexibility, or if the tax benefits improve your overall financial position. Buying your own home first may be better if you prioritise housing security, want the CGT-free main residence exemption, or qualify for first home buyer incentives. A financial adviser or mortgage broker can model both scenarios based on your specific circumstances.
For an investment property, most lenders require a minimum 10% deposit, with 20% being ideal to avoid LMI. Some lenders offer investment loans at up to 90% LVR with LMI, but the premiums are higher than for owner-occupier loans. Your deposit plus purchasing costs (stamp duty, legal fees, inspections) should be factored into your savings target. A broker can calculate the exact amount you need based on your target purchase price and preferred lender.
No. The First Home Super Saver Scheme (FHSSS) only applies to properties you intend to occupy as your first home. You cannot withdraw voluntary super contributions under this scheme to purchase an investment property. Similarly, SMSF property investment has strict rules about personal use and typically requires a much larger balance to be viable. Rentvesting deposits must come from personal savings, gifts, or other non-super sources.
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Director & Senior Finance Broker
With years of experience in mortgage broking and finance, Melanie helps clients across Geelong, the Surf Coast, Melbourne and regional Victoria navigate the complexities of home loans and business finance. Contact our team on 03 9020 2699.
