Rentvesting means renting in the suburb you want to live in, while owning an investment property somewhere you can actually afford. It gets people into the market years earlier. It also costs you things that are easy to overlook until later.
Why people do it
The suburb you want to live in and the suburb where the numbers work are often not the same place. Close to work, close to family, close to the schools — those areas are expensive precisely because everyone wants them.
Rentvesting separates the two decisions. You rent where life is good, and put your money into a property that a tenant helps pay for. You are in the market and building equity while you keep the lifestyle.
How lenders assess it
Differently from an owner-occupied purchase, and mostly not in your favour:
- Investment loans are usually priced above owner-occupied. Small gap, real money over thirty years.
- Only part of the rent counts. Lenders discount rental income for vacancy, management fees and maintenance. The proportion varies between lenders, which is one of the bigger swing factors in what you can borrow.
- Your own rent is an expense. The rent you pay to live where you live is counted against you. This is the piece rentvesting explainers usually skip, and it is why capacity is often tighter than people expect.
- Deposit expectations are generally higher than owner-occupied.
What you give up
Be clear-eyed about this before you commit.
First home buyer benefits. The grants and stamp duty concessions are for homes you live in. Buy an investment first and in most cases you have used up your first-home status without collecting anything for it. Under the federal 5% deposit scheme the property must be one you live in — so rentvesting means paying LMI or finding a 20% deposit. What LMI costs.
Security of tenure. You own a house and you can still be asked to move out of the one you live in.
The capital gains exemption. Your own home is generally exempt from capital gains tax. An investment property is not. Over a long hold that difference can be very large — an accountant’s question, and worth asking before you buy rather than after.
Who it genuinely suits
- People whose work or life keeps them in an expensive area they cannot buy in
- People who move often enough that buying where they live makes little sense
- People comfortable being a landlord — because that is what you become, with the tenant calls and the maintenance bills that go with it
It suits less well if you want the settled feeling of your own home, or if the numbers only work on the assumption that the investment property rises steadily. It might. Plan for the case where it does not.
Run both scenarios properly
Put rentvesting and buying-to-live side by side with real figures: rate difference, rent received minus costs, the rent you pay, the benefits foregone, and the tax position on eventual sale. It is not a philosophy question, it is arithmetic — and the answer differs a lot depending on where you are and what you earn.
How investment lending is assessed · What you would be giving up · Book a consultation
General information only — it does not take your objectives, financial situation or needs into account, and is not credit assistance, financial product advice or taxation advice. Obtain independent advice before acting. Nothing here is a guarantee of approval or of investment returns. Easy Loan Finance is a Credit Representative (CRN 568863) of Beagle Finance Pty Ltd, Australian Credit Licence 383640.
