What is Rentvesting?

For many Australians, the gap between where they want to live and where they can afford to buy has never been wider. Plenty of younger couples and first-time buyers will know the struggle of wanting to live near the city but only being able to purchase a property out in woop woop. Rentvesting has emerged as one way to bridge that gap, and it's catching on fast.

Westpac's 2025 Home Ownership Report found that more than half of first home buyers are now considering rentvesting. ABS data also reported that investor loans by first home buyers increased by 7.0% in the December Quarter of 2025, albeit the segment remains small at just 5.4% of all first home buyer finance. So, how does it work and is it right for you?

What is rentvesting?

Rentvesting is a property investment strategy where you buy an investment property in a more affordable location (and/or one with a high rate of value growth) while renting in the area you want to live. Rather than compromising on lifestyle to buy where you can afford or waiting years to save a deposit large enough for your preferred suburb, rentvesting lets you enter the property market sooner while keeping your living arrangements intact.

The investment property generates rental income, which helps cover the mortgage, while you continue renting where you want to be. Over time, the goal is to build equity in the investment property that can eventually be put towards buying a home to live in.

Case study: Rentvesting to maximise future home deposit

Sarah is an architect who rents a one-bedroom apartment in Fitzroy, Victoria for $600 per week. She earns $100,000 a year and has saved a $60,000 deposit, which isn't enough to buy in the area but is sufficient to purchase an investment property in Melbourne's outer suburbs.

She buys a three-bedroom house in Melton for $480,000, putting down her $60,000 deposit (12.5% LVR) and taking out a $420,000 loan at 6.00% p.a. over 30 years. Her weekly mortgage repayments come to around $581.

Sarah rents her Melton property out for $450 per week, meaning she contributes around $131 per week out of pocket to cover the shortfall between the rent she receives and her mortgage repayment, before factoring in tax deductions on interest and property management fees.

Over five years, assuming modest annual property value growth of 5%, here's how Sarah's position changes:

	Now	After five years
Property value	$480,000	$612,615
Loan balance	$420,000	$390,884
Equity	$60,000	$221,731
Calculations are for illustrative purposes only.

In five years, Sarah's equity has grown from $60,000 to almost $222,000. That equity could then be used as a deposit to purchase a home to live in, or to fund a second investment property. In the meantime, she’s continued living in Fitzroy, not compromising on her preferred location.

Rentvesting tax benefits

One of the more compelling reasons many Australians consider rentvesting is the tax advantages that come with owning an investment property. As a rentvestor, a range of home-owning costs are tax-deductible. These include:

• Loan interest: the interest portion of your mortgage repayments is deductible, which can significantly reduce your taxable income.
• Property management fees: if you use a property manager, their fees are fully claimable.
• Repairs and maintenance: the cost of maintaining the property in its current condition is generally deductible in the year the expense is incurred.
• Depreciation: you can claim depreciation on the building itself (capital works) and on eligible assets within the property, such as appliances and fixtures, through a depreciation schedule.
• Other expenses: landlord insurance, council rates, water charges and advertising for tenants are all generally deductible.

If your property’s running costs exceed your rental income, your property is negatively geared, meaning you can offset that loss against your other income and reduce your overall tax bill. However, recent reforms announced by the Australian Government in the May 2026 Federal Budget will limit negative gearing to new builds from 1 July 2027 (though existing rules will apply to all investment properties held before the night of 12 May 2026).

Rentvesting and the six-year rule

The six-year rule is a useful provision for rentvestors under Australian tax law. Ordinarily, when you sell an investment property, you're liable for capital gains tax (CGT) on any profit made.

However, if you previously lived in the property as your main residence, you may be able to treat it as your primary residence for CGT purposes for up to six years after you moved out, even while it's being rented out.

For rentvestors who plan to eventually move into their investment property, this can be a significant tax saving. It's worth noting that the six-year rule can only apply to one property at a time, and the rules can be complex depending on your situation, so it's worth speaking with a tax professional before making any decisions based on this concession.

What to consider before rentvesting

• Can you manage two lots of housing costs?

  You'll be paying rent on the property you live in while also covering any shortfall between your mortgage repayments and your investment property's rental income. Before committing, make sure your budget can comfortably absorb both, including the unexpected costs that come with being a landlord, like vacancy periods and maintenance.

• Where you buy matters as much as what you buy

  The success of a rentvesting strategy hinges on choosing a location with strong rental demand and solid prospects for capital growth. Research vacancy rates, infrastructure investment, population growth and median price trends in any area you're considering before making a decision.

• Consider what you're giving up

  Purchasing an investment property first means forfeiting first home buyer incentives in most states. It's worth running the numbers on whether the long-term benefits of rentvesting outweigh the upfront incentives you'd receive by buying a home to live in first.

• Get your borrowing capacity assessed early

  Investment property loans are assessed differently to owner-occupier loans, and lenders typically apply stricter criteria. Understanding your borrowing capacity before you start looking gives you a realistic budget and helps you avoid falling in love with a property you can't afford.

• Think about your long-term plan

  Rentvesting works best when it's part of a broader property strategy, rather than an open-ended arrangement. Having a clear picture of what you're working towards, whether that's moving into the investment property eventually, using the equity to buy elsewhere or building a portfolio, will help you make better decisions along the way.

Rentvesting vs buying: which is better?

Whether rentvesting or buying is better for you ultimately comes down to your situation and preferences as a borrower.

Buying a home to live in offers stability, the ability to access first home buyer incentives and the satisfaction of owning the roof over your head. If you can afford to buy in an area you're happy living in and the numbers stack up, it’s a no-brainer. You won’t get the benefit of a tenant helping with your mortgage or any of the tax deductions associated with rental property, though.

Rentvesting, on the other hand, may make more sense when there's a significant gap between where you want to live and what you can afford to buy. If purchasing in your preferred area would stretch you to the point of financial stress or require years of additional saving, rentvesting lets you start building equity sooner without impacting your current location.

While rentvesting comes with the benefits of both renting and owning a home, it also comes with their drawbacks. You’ll feel less certain renting a place compared to living in one you own, while there are risks related to vacancies and potential decreases to your property’s value.

Is rentvesting a good idea for me?

Here are some situations where rentvesting may be suitable for you:

• You live in an expensive city where buying locally is out of reach. If the gap between renting and buying in your preferred area is significant, rentvesting lets you stay put while still getting into the market.
• You have a stable income but a limited deposit. A smaller deposit goes further in an affordable suburb or regional area, making it easier to get started sooner.
• You value lifestyle flexibility. If you're not ready to commit to a location long-term, whether due to work, relationships or simply wanting to keep your options open, rentvesting lets you invest without being tied to where you live.

On the flip side, here are some cases where it may not be the best move:

• You can afford to buy in your preferred area. If you've found the part of town you want to put down roots in and have the money to make it happen, taking out a standard home loan will be the simpler path to home ownership.
• Your income or employment is uncertain. Carrying two lots of housing costs requires a reliable income. If your financial situation is unpredictable, the added exposure of an investment property could put you under unnecessary pressure.
• You're risk-averse. Property markets fluctuate, tenants come and go and unexpected costs arise. If the uncertainty of investment property ownership would cause you significant stress, rentvesting may not suit your temperament.