What is rentvesting – and should you consider it as a first home buyer?

April 8, 2021

As a young Australian, you’re probably sick of hearing the adage ‘rent money is dead money’ from well-meaning friends and family. But with property values surging, what exactly are you supposed to do when you’re increasingly priced out of the booming market?


Don’t give up on your homeownership dreams just yet.


There might be a way of having your cake and eating it too.


It’s called ‘rentvesting’ and it’s an increasingly popular strategy used by first home buyers to enter the property market while still living in an area they know and love.


What exactly is rentvesting?


Rentvesting is when you rent a property where you want to live while buying an investment property in an area you can afford. In theory, it’s a seemingly win-win solution that gives you the best of both worlds.


You don’t have to compromise on where you live but you still get a foothold on the property ladder. The rental income you receive can help pay off the mortgage and, when it’s time to sell, you can benefit from any capital gains.


Sounds great, right?


Unfortunately, rentvesting isn’t as simple as it sounds. And there’s a lot to consider before you take the plunge. To help, we’ve outlined some of the pros and cons below.


The pros of rentvesting


  • Entering the property market faster – as you’ll likely need a smaller deposit if you’re not buying your dream home
  • Getting to live where you want – as you’re not limited to where you can afford to buy
  • Making the most of any tax breaks – by claiming some of the expenses associated with your investment property as tax deductions including the interest on your mortgage
  • Benefiting from potential capital gains – if your investment property increases in value, you could profit when it’s time to sell


The cons of rentvesting


  • Paying both rent and homeownership costs – which could strain your budget, especially if your investment property is vacant for an extended period
  • Losing access to first homeowner grants and stamp duty concessions – as you have to be an owner-occupier to be eligible
  • Capital gains aren’t guaranteed – so if the investment property doesn’t grow in value, you could make a loss when you sell
  • Living in a rental property – so you’re still at the mercy of a landlord’s whims
  • Getting stung by capital gains tax – if you sell your investment property at a profit, you need to pay tax on the capital gain


Looking to buy your first home but unsure about your options? Get the advice you need by working with Newy Finance. Contact us by calling Jon Jones on 0410 699 969.