Rentvesting: A Guide for First-time Investors

Rentvesting is a strategy that more and more Australians are using to jump into the property market quickly. In this article, we explain what rentvesting is, how it works, and the pros and cons of pursuing it as a property acquisition method.

What Is Rentvesting?

Rentvesting is a portmanteau of ‘rent’ and ‘vesting’ – it’s a wealth creation strategy that involves purchasing an investment property while continuing to live in a rental property.

At first, rentvesting can seem illogical. Why would anyone want to waste money on rent if they could afford to buy their own home? Done correctly, though, rentvesting can help you pay off your mortgage faster and more comfortably than a traditional owner-occupier approach. 

How Does Rentvesting Work?

The process for rentvesting is more or less the same as buying a normal home.

Start by saving for a house deposit. Although 20% of a property’s value is an ideal deposit size, your mortgage broker may also be able to help you secure a loan with less (although you may have to pay LMI and face less favourable loan conditions).

Once you’ve accrued a reasonable deposit (think $40,000–$60,000), talk to your broker about your options. They’ll be able to help you set up the best loan structure for your situation, and can also direct you to other relevant professionals, like buyer’s advocates. 

Remember: don’t romanticise your first property purchase. Buying a house is an incredibly exciting step in your financial journey, but this isn’t your dream home – take emotion out of the equation and instead focus on finding a property that represents good value for money and is likely to appreciate. Broaden your search beyond local markets, too. Even if your home city seems unaffordable, there might be opportunities in other states.

Once you’ve secured a mortgage for your new investment property, you can use a property management agency to find tenants. Ideally, the rent you charge for the property should be more than what you’re paying in rent. That way, rentvesting can help you pay off your mortgage faster than owner-occupying.

For example, let’s say you currently pay $500 per week in rent. You save up $50,000, giving you a 10% deposit on a $500,000 house, so you take out a mortgage with a term of 30 years and a rate of 5.64% per annum. 

Your principal and interest repayments would come to $599 per week – $99 more than your rent. Instead of paying that extra money as an owner-occupier, you’re passing the cost onto another renter.

Now, let’s compare rentvesting to owner-occupying over a 30-year term (we’ll ignore inflation and rate rises for now). Over 30 years, your mortgage will cost you $932,416, whereas rent will cost you just $780,000. Even without considering appreciation or home improvements, you’ve saved $152,416 – enough for three additional mortgage deposits at $50,000.

Rentvesting does have some detriments, which we’ll talk more about shortly, but, from a purely financial perspective, it can be an extremely effective strategy.

How Does Rentvesting Work?


  • Earlier property market entry
  • Earlier property market entry
  • Flexibility in lifestyle and location
  • Appreciation of your property


  • CGT liability when you sell
  • No use of First Home Owners’ Grant
  • Lifestyle compromises with renting
  • Property costs like repairs, rates and insurance

Rentvesting Pros

Earlier Market Entry

One of the biggest reasons to consider rentvesting is that it allows you to step onto the property ladder sooner than owner-occupation.

When you’re purchasing an investment property, you don’t need to worry about location constraints. While you might need to live in Melbourne CBD for the foreseeable future, for example, you might choose to buy a much more affordable property in Perth, giving you earlier access to capital gains.

You also don’t need to worry as much about affordability. Even if you couldn’t afford to step up from $500 a week to $599 a week in the example we gave earlier, rentvesting allows you to enter the market while still maintaining your current expense levels (excluding, of course, property-related costs, which come with both investment and owner-occupied properties).

Tax Deductions

Expenses incurred by investment properties are, unlike those for owner-occupied homes, tax-deductible. That means you can write off everything from property management fees and insurance to building improvements and rates.

The most significant deduction you can claim is the interest on your mortgage. In the example we gave earlier, your home loan interest would come to around $16,080.50 per year, which means, at a tax rate of 37%, you’d save $5,949.785 per year in tax. 

Property sales staff submit land mortgage contract documents to home buyers for sign.


Rentvesting also affords you huge flexibility. Rather than staying tied down to a specific location or home, you can experiment with different lifestyles in different suburbs and change jobs more easily.

Alternatively, if you’re lucky enough to hold a remote-work role, you can even use rentvesting as a gateway to digital nomadism, journeying across countries and continents as your investment property keeps appreciating.


When investing, there are three key wealth-building mechanisms: value storage, passive income, and appreciation.

Value storage is a way of protecting your money from inflation. By buying assets that don’t decrease in value or have their value diluted over time, you can preserve the wealth you already have.

Passive income comes in forms like rent, dividends and distributions. It’s money being generated passively (without your input) by your investment.

Appreciation is the difference in your investment asset’s value between the purchase price (combined with any improvement costs) and what it’s worth today. For example, if you bought a property in 2020 for $700,000 and it was worth $1.05 million today, it would have appreciated by $350,000 (50%). Appreciation is only realised when you sell the asset. 

Investment properties leverage all three mechanisms to help you build your wealth, but you can make the most money through appreciation. Rentvesting allows you to get into the market earlier, which, in turn, means you’ll likely earn more through appreciation.

Property markets do move in peak-and-trough cycles, but, over the past sixty years, Australian property prices have been steadily moving away from CPI inflation, indicating that demand for housing has increased and that house prices will keep going up – and, with an ever-growing world population, there’s no reason for that trend not to continue.

Rentvesting Cons

CGT Liability

Under Australian law, the property that is your main residence is exempt from capital gains tax (CGT) when you sell it. CGT exemptions are granted under a few conditions:

  1. The property must have been the home of you, your partner, and other dependents for the whole period you have owned it.
  2. The property can’t have been used to produce income (for example, via house-flipping, renting, or running a business from it).
  3. The property is a block of two hectares or less (you can choose which part of your property is exempt from CGT if it is larger than two hectares).

As a rentvester, you are renting out your investment property, which means you’ll incur CGT when you sell it. CGT applies to your capital gains – the difference between how much you bought and improved the property for (the cost base) and how much you sold it for. Capital gains are taxed at your marginal tax rate (that is, added onto your income tax), but, if you owned your investment property for more than 12 months, you’re eligible for a 50% CGT discount.

Remember that the cost of any improvements to the property (such as renovations) are added to the cost base, so always keep track of any value-adding changes you make.

First Home Owners’ Grant

Rentvesting also means you can’t use the First Home Owners’ Grant to buy your investment property, a subsidy for Australians who have never owner-occupied before. Provided you didn’t own residential property before 1 July 2000, you can apply for the grant under certain conditions.

Importantly, though, rentvesting doesn’t exclude you from ever applying for the First Home Owners’ Grant. If you do decide to buy a home to live in at a later date, you can apply for a grant (assuming you meet all the relevant conditions).

Lifestyle Compromises

One of the biggest detriments to rentvesting – at least, for some people – is the lifestyle compromises that need to be made while renting. You can’t make improvements to the property without the owner’s consent, you may be limited in what you can and can’t do with the property, and you’ll have to deal with quarterly inspections and any conditions in your rental agreement.

You also could be given notice by your landlord under a number of different circumstances, leaving you with 30 to 90 days to find a new home.

Many rentvesters feel that those impositions are minor in comparison to the financial benefits rentvesting can deliver, but, if you’re someone who values home stability and freedom of choice, it’s worth weighing up the potential issues.

Extra Costs

As an investment property owner, you’ll be responsible for improvements, repairs, council rates, water rates, building insurance, landlord insurance, body corporate fees, land tax, property management fees, and maintenance costs like pest control. Although these asset costs are tax-deductible, you’ll still have to pay them up front.

You might also have to shoulder the cost of mortgage repayments if there’s ever a gap in tenancies. Australia’s rental market is incredibly hot at the moment, but it may cool once housing affordability improves and the issues facing the construction sector ease. You can minimise the risk of tenancy shortages by making your property as desirable as possible, investing in good marketing when you need new tenants, and pricing rent relative to the market.  

Leveraging Rentvesting for More Investments

The example earlier in this article showed that, by rentvesting instead of owner-occupying, an investor in that scenario could theoretically save $152,416.

One overlooked benefit to rentvesting is the use case for those extra savings. In that example, you could buy an additional three properties with deposits of $50,000 each, two more expensive properties with $75,000 each, or even look at subdividing your existing property with a development loan.

Leveraging your savings to build your investment portfolio can help you quickly accrue a suite of different properties that all benefit from the same wealth-building mechanisms: value storage, passive income, and appreciation.  

Why Do Some People Think Rentvesting Is Bad?

The argument against rentvesting is mostly an emotional one. Many Australians still view paying rent as ‘dead money’ – paying off your own mortgage can feel like a more sensible decision. CGT can also be a big deterrent. Losing up to 45% of your capital gains to the government is never fun, but, provided you hold your investment for at least 12 months, you’ll only have to pay a maximum of 22.5%.

For other people, rentvesting may not be the right pathway to building wealth. Everyone has individual circumstances that need to be factored into their financial planning, which is why discussing your options early with professionals like mortgage brokers, financial planners, and buyers’ advocates is so important.

Rentvesting vs. Owner-occupying

When you weigh up rentvesting against owner-occupying, the key consideration should always be how far you come out ahead. Leave emotion out of the picture. Get the help of your accountant and financial adviser to crunch the numbers with the input of your broker and advocate, and see which option is most likely to lead to the best financial outcomes.

You also need to take into consideration factors like work, family, and lifestyle. For some people, the lifestyle flexibility that rentvesting affords might trump any financial benefits. For others, rentvesting can be a way to get into the property market early while still living in expensive suburbs close to work. 

If you’re interested in talking through how you can use mortgages and property strategies like rentvesting to build wealth, book a free consultation with one of our industry-leading brokers. As one of the top brokerages in Australia, we’ve delivered more than $6.389 billion in loans to over 14,000 Australians. One of our principals, Mark Davis, has also been recognised as Australia’s top broker multiple times, and we’ve won dozens of awards since we opened in 2011.

Book a meeting to find out how we can help you find the right loan for your situation.


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