The Pros and Cons of Rentvesting

Rentvesting means buying an investment property while continuing to rent where you want to live.

The appeal is obvious if you're priced out of Mont Albert but not out of the property market entirely. You could buy a unit in a suburb with stronger rental yields, claim tax deductions on the investment loan, and keep living near the trams, cafes and walking distance to the station. The trade-off is that you're managing a tenant, paying non-deductible rent yourself, and delaying the move into your own place.

Whether rentvesting makes sense depends on how long you're willing to wait, what the rental yield looks like, and whether the property you buy will actually grow enough to justify the complexity.

Who Rentvesting Actually Suits

Rentvesting works when your income supports an investment loan but your deposit won't stretch to the suburb you want to live in.

Consider a buyer who earns around $95,000 and has saved $80,000. That deposit might not be enough to buy a two-bedroom apartment in Mont Albert without Lenders Mortgage Insurance pushing costs too high. But it could be enough to buy a one-bedroom unit in a suburb with lower entry prices and solid rental demand. They continue renting in Mont Albert, claim the interest and property costs as tax deductions, and wait for the investment to build equity before upgrading.

The tax benefit is real but modest. If you're paying $28,000 in interest and holding costs annually, and you're in the 32.5% tax bracket, you're getting back around $9,100 at tax time. That helps, but it doesn't turn a loss-making property into a profitable one. The actual return comes from capital growth, and that takes years.

The Lending Structure You'll Be Assessed On

You'll apply for an investment loan, and lenders will assess your borrowing capacity differently than they would for an owner-occupied purchase.

Lenders typically apply a rental income shading of 80%, meaning if the property generates $450 per week in rent, they'll only count $360 toward your serviceability. They'll also assess the loan at a buffer rate, usually 3% above the actual interest rate, to make sure you can still afford repayments if rates rise. Your current rent will be included as an ongoing expense, which reduces how much you can borrow compared to someone buying a home to live in.

If you're planning to buy the investment property and then rent somewhere expensive, that rent figure will work against you. Lenders won't ignore it just because you're choosing to rent. The structure assumes you'll keep paying that rent for the life of the loan, so the higher it is, the less you can borrow. This is where rentvesting in Mont Albert while owning elsewhere can become difficult to sustain on a single income.

The Tax Position and What It Actually Delivers

Interest on an investment loan is tax-deductible, along with property management fees, council rates, insurance, and depreciation.

That deduction reduces your taxable income, which means you pay less tax overall. But it doesn't mean the property is cashflow positive. In most cases, rental income won't cover all your costs, especially in the early years of the loan when interest repayments are highest. You'll be negatively geared, which is fine if the property is growing in value, but it does mean you're funding the shortfall each month out of your after-tax income.

Some buyers expect the tax refund to cover the gap. It rarely does. If your property is costing you $150 per week more than it's earning in rent, that's $7,800 a year. Your tax deduction might return $2,500 to $3,000 depending on your income, which helps but doesn't eliminate the cost. You're still carrying the difference, and you'll continue to do so until rents rise, the loan balance drops, or you sell.

When Rentvesting Stops Making Sense

Rentvesting becomes harder to justify when you want to upgrade into your own home and the investment property is holding you back.

Lenders will assess your borrowing capacity based on all your existing debts, including the investment loan. Even though the property generates income, that income is shaded and your repayments are assessed in full. If you're already stretched, you might not be able to borrow enough to buy a home in Mont Albert while still holding the investment. You'd need to sell the investment first, which could trigger capital gains tax depending on how long you've held it and how much it's grown.

The other issue is timing. If you bought in a suburb that hasn't grown as expected, or if you need to sell during a flat market, you could end up with less equity than you were counting on. Selling costs, agent fees, and capital gains tax all reduce your net position. If you've only held the property for two or three years, the growth might not be enough to cover those costs and leave you with a meaningful deposit for your next purchase.

The Alternative Worth Considering

If your goal is to eventually live in Mont Albert, buying a smaller property in the suburb and upgrading later could make more sense than rentvesting elsewhere.

You'd benefit from the First Home Buyer stamp duty concessions if eligible, avoid paying non-deductible rent, and start building equity in the area you actually want to live in. Owner-occupied loans are also assessed more favourably than investment loans, which means you can borrow more on the same income. The trade-off is that you won't get the tax deductions, and you'll need to accept a smaller property or an older building to make the numbers work.

For buyers serious about staying in the area long-term, that trade-off usually wins. You're not managing tenants, you're not carrying the complexity of two properties, and you're not waiting for an external market to deliver the growth you need before you can move into the home you want.

If rentvesting still feels like the right structure for your situation, we can walk through the borrowing capacity, the loan features that suit investment lending, and how the tax position works in your specific case. Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions