Top tips to use rentvesting for property ownership

Rentvesting allows you to own an investment property while renting where you choose to live.

For many people based in Kew, buying into the local market presents a significant financial hurdle. The suburb's tree-lined streets, proximity to the CBD, and established school zones contribute to property values that often exceed what first-time buyers or young professionals can comfortably afford. Rentvesting addresses this by separating where you invest from where you live. You purchase a property in a more affordable location, rent it to tenants, and continue renting in an area that suits your lifestyle or career.

This approach enables property ownership without compromising on location or stretching your finances beyond a manageable level. The rental income from your investment property offsets most or all of the loan repayments, while you build equity in an asset that may appreciate over time. Meanwhile, you maintain the flexibility to rent closer to work, family, or preferred amenities.

How rentvesting differs from traditional home ownership

When you apply for a home loan as a rentvestor, lenders assess your application as an investment loan rather than an owner-occupied loan. Investment loans typically attract slightly higher interest rates and may require a larger deposit. Lenders also calculate your borrowing capacity differently. They assess the rental income from the property you intend to purchase, but they only count a portion of that income, usually around 80%, to account for vacancy periods and maintenance costs.

Your own rental payments are treated as an ongoing expense, which reduces the amount you can borrow. This means your borrowing capacity as a rentvestor may be lower than it would be if you were purchasing a property to live in. However, the offset is that you're purchasing in a more affordable area, so the lower borrowing limit often still allows you to proceed.

Structuring your loan for rental income and tax outcomes

Most rentvestors use a principal and interest loan structure. This approach builds equity steadily and ensures you're reducing the debt over time. Some investors consider interest-only loans to minimise their monthly repayments, which can be helpful if rental income doesn't fully cover the loan costs. However, interest-only periods are typically limited to five years, after which the loan reverts to principal and interest repayments at a higher amount.

The interest on an investment loan is tax-deductible, as are other property-related expenses such as property management fees, council rates, insurance, and maintenance. These deductions reduce your taxable income, which can make rentvesting more financially viable. You should speak with a tax adviser to understand how negative gearing or depreciation schedules apply to your situation, as these factors influence your after-tax position.

Choosing the right property type and location for rentvesting

The property you purchase should appeal to tenants and be located in an area with strong rental demand. Consider a buyer who works in Kew and rents locally but purchases a two-bedroom apartment in Heidelberg. The property costs less than half of what a comparable unit would cost in Kew. The rental yield is higher because the purchase price is lower relative to the weekly rent tenants are willing to pay. The suburb is serviced by public transport, close to local shops, and attracts a steady tenant base of young professionals and small families. The buyer continues renting in Kew, walking distance from their office, while the Heidelberg property generates rental income that covers the majority of the loan repayments.

Properties that suit rentvesting are typically those with broad tenant appeal. Units near transport, schools, or employment hubs tend to have lower vacancy rates. Established suburbs with consistent rental demand reduce the risk of extended periods without tenants. Avoid properties that require significant renovation or have high body corporate fees, as these costs erode your rental return and increase the financial pressure.

Loan features that support a rentvesting strategy

An offset account linked to your investment loan can be useful if you accumulate savings over time. The balance in the offset reduces the interest charged on your loan, which lowers your repayments without affecting the tax-deductibility of the interest. This feature provides flexibility if your financial situation changes or if you decide to redirect funds toward another property purchase.

A portable loan allows you to transfer the same loan to a different property if you sell the original investment and purchase another. This avoids discharge fees and the need to reapply for a new loan. Some lenders also offer the ability to split your loan into fixed and variable portions. A split loan structure can provide partial certainty around repayments if you fix a portion of the loan, while retaining flexibility on the variable portion to make extra repayments or access redraw facilities.

When rentvesting makes sense and when it doesn't

Rentvesting works when the cost of renting where you want to live is lower than the cost of buying there, and when you can purchase an investment property that generates rental income without requiring ongoing top-ups beyond what you can afford. It also suits people who value location flexibility and are not emotionally attached to owning the home they live in.

It may not be suitable if you have stable long-term plans to remain in a specific area and can afford to buy there. Owner-occupied loans typically have lower interest rates and require smaller deposits, so if buying where you want to live is within reach, that option may be more financially efficient. Rentvesting also introduces landlord responsibilities, tenant management, and the need to maintain a property you don't occupy. If those factors don't align with your circumstances, a traditional first home buyers approach may be more appropriate.

Managing two properties and planning your next move

Once you own an investment property and are renting elsewhere, your next property purchase becomes more complex. Lenders assess your ability to service both the existing investment loan and a new loan. The rental income from your investment property will be considered, but as mentioned earlier, only a portion of it counts toward your borrowing capacity. Your rental expense will also be factored in.

If you decide to purchase a property to live in while retaining the investment, you may need to refinance or restructure your loans to ensure the investment loan remains at the most suitable rate and structure. You can explore your home loan options through a broker who can compare rates and loan features across multiple lenders. Some buyers choose to sell their investment property and use the equity to fund a larger deposit for an owner-occupied home. Others retain the investment and continue building a portfolio.

Planning this transition early ensures you're not caught off guard by changes in interest rates, rental income, or lending criteria. A loan health check can clarify whether your current loan structure still supports your goals or whether adjustments are needed.

Call one of our team or book an appointment at a time that works for you to discuss how rentvesting could fit your financial situation.

Frequently Asked Questions