Rentvesting
Rent where you want to live, buy where you can afford
What is Rentvesting?
Rentvesting means renting your home in a location you prefer (often expensive inner-city), while owning investment properties in more affordable locations with better rental yields. You get the lifestyle you want without sacrificing your path to property ownership.
How it works
- 1You rent a home where you want to live: suburb, lifestyle, proximity to work
- 2Simultaneously, you purchase investment property in a suburb with strong rental yield and/or growth prospects
- 3Investment property rent helps service the mortgage
- 4You claim all investment property expenses as tax deductions
- 5Over time, capital growth builds equity, which can eventually fund a home purchase
Worked example
You earn $110,000 and rent in an inner-Sydney suburb for $850 a week; buying there is out of reach on that income. Instead you buy a 3-bedroom house in Geelong for $580,000, with a $464,000 loan. Repayments at 6.5% over 30 years (principal and interest): $2,933 a month. Geelong rent: $490 a week = $2,123 a month. Shortfall: $810 a month, before rates, insurance and management. Only the interest and costs are tax deductible, not the principal; the negative gearing calculator works out the after-tax figure. You live where you rent and own an investment property elsewhere.
Pros
- Get into property market sooner by buying where affordable rather than where you want to live
- Lifestyle, live in expensive areas without the cost of buying there
- Tax deductions on investment property reduce annual cost
- Portfolio diversification, investment property in different market to where you live
Cons
- No principal place of residence (PPOR) CGT exemption on the investment property
- Rent where you live is not a deductible expense, pure cost
- Some people feel less "secure" renting than owning their home
- Two sets of decisions to manage: where you rent vs where your investment is
Risks
- Landlord can end your tenancy. You may need to move without having a home to fall back on
- Investment property growth may not match the suburb you want to eventually buy in
- If you later want to move into the investment property as your PPOR, CGT applies on the growth while it was an IP
Tax treatment
Investment property: all deductions available (interest, depreciation, PM fees, rates). No PPOR CGT exemption: full capital gain applies on sale, with 50% discount if held 12+ months. Your rental residence has no tax implications (rent is not deductible for individuals). Consider CGT implications if you later move into the investment property.
Official references
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General Advice Warning
The information on this site is general in nature and does not consider your personal circumstances, financial situation, or needs. Before acting on any information, you should consider its appropriateness having regard to your own situation and seek professional advice from a licensed financial adviser, mortgage broker, accountant, or solicitor.