Here’s how to enter the property ladder with rentvesting.
Hoping to break into the property market, but can’t afford to buy where you currently live? Rentvesting might be the answer.
What is rentvesting?
With inner-city prices soaring, the choice for first home buyers can be stark: move further out of the city and away from your friends, or resign yourself to renting forever.
However, you may be able to get your foot on the property ladder another way.
Rentvesting is a strategy where you purchase or build an investment property and rent it out—while continuing to rent in your preferred location or live at home. It allows you to start building equity and grow your wealth without compromising your lifestyle.
In many major cities, such as Melbourne, it’s often more affordable to rent than to buy in inner suburbs. Meanwhile, outer suburbs and regional areas may offer rental returns that exceed mortgage repayments. You can read more about the cost comparison between renting and buying here.
By choosing the right location, it’s possible to secure a property with a neutral or even positive yield—where rental income covers most or all of your ownership costs. In the meantime, you’re paying down a mortgage while still enjoying lower personal living costs.
Rentvesting can be a smart option if:
- You’re single, sharing a rental with a friend, and not yet ready to manage a full mortgage on your own.
- You’re living at home and have savings you’d like to invest for the future.
- You can afford to buy in outer suburbs, but your lifestyle is better suited to inner-city living.
You travel often for work but plan to settle down in your home city in the next few years.
How can it help you get into your dream home?
Rentvesting can be a smart strategy—but will it actually lead you to owning a home you can truly call your own? For many, the ultimate goal is to have a place where you can decorate freely, hang artwork, or design the garden just the way you like it—without needing anyone’s approval.
Like any approach, rentvesting comes with its own set of pros and cons. Whether it’s the right fit depends entirely on your personal goals, lifestyle, and financial situation.
Pros
Tax benefit
You can claim certain expenses related to your investment property to reduce your taxable income—a strategy known as negative gearing. If the cost of owning the property exceeds the rental income you receive, the shortfall can be deducted from your taxable income. For higher earners, this can lead to considerable tax savings.
One of the biggest advantages comes from depreciation. This refers to the natural wear and tear of the components in your home—everything from carpets and curtains to roofing and balconies. The ATO allows you to claim this loss in value each year as a tax deduction.
Importantly, depreciation benefits are more generous for brand-new homes than for older properties. That’s why building a new home can be the most effective way to maximise these deductions.
Building equity
The rental income from your investment property helps pay down your mortgage, while the property itself may increase in value—building equity over time. If your goal is to eventually move into your own home, you have a few smart options:
- Sell the investment and use the profit as a sizable deposit on your future home.
- Move into the property yourself, with the flexibility to refinance and potentially reduce your repayments.
- Hold onto the investment and use the equity you’ve built to help fund the purchase of your next home.
If your investment becomes positively geared—meaning the rental income exceeds your ongoing expenses—you can even use the surplus to help pay down your future mortgage.
Cons
No entitlement to the First Home Owner Grant or stamp duty concessions
The Victorian Government offers a $10,000 First Home Owner Grant to eligible buyers purchasing their first home, provided the property:
Is valued at $750,000 or less, and
Will be used as your primary place of residence (PPR) for at least 12 months after settlement.
In addition, first home buyers who plan to live in the property may be eligible for a stamp duty exemption or concession. However, if you’re purchasing the property as an investment, you’ll be required to pay the full stamp duty amount.
Capital gains
Your primary place of residence (PPR) is exempt from capital gains tax (CGT), but investment properties are not. If you’re planning to sell an investment property to help fund your future home, keep in mind that any profit from the sale may be subject to tax.
However, if you’ve owned the property for more than 12 months, you may be eligible for a 50% CGT discount—meaning you’ll only be taxed on half of the capital gain.
To estimate how much CGT you might owe, you can use the ATO’s Capital Gains Tax Calculator here.
