Everything you need to know about rentvesting

Rentvesting Lets You Start Building Wealth Now

Rentvesting means buying an investment property in an area you can afford while continuing to rent where you actually want to live. You get into the market, claim the interest and holding costs against your income, and skip the trade-off between location and affordability that locks most builders out for years.

It works when renting costs less than the combined mortgage, rates, insurance and maintenance on a home in your preferred suburb. You take the difference and put it toward an investment loan on a property that fits your deposit and borrowing capacity, not your lifestyle.

How the Numbers Stack Up for a Builder

An investment loan serviceability test adds a 3.0 percentage point buffer to the loan product rate. If the variable rate is 6.2 per cent, your repayments get assessed at 9.2 per cent. Lenders also reduce the rental income by 20 per cent to account for vacancy and maintenance, so if the property rents for $500 per week, the lender uses $400 per week in the serviceability calculation.

Consider a builder earning $95,000 a year buying a two-bedroom unit in a regional centre. The property costs $400,000, rental yield is 5.5 per cent, and the builder has a 10 per cent deposit plus costs. The loan amount is $400,000. Interest-only repayments at 6.2 per cent are $2,067 per month. Rental income is $423 per week before the lender discount. After the 20 per cent reduction, the lender treats it as $338 per week, or $1,465 per month. The shortfall is $602 per month, which must be serviced from the builder's income at the assessment rate, not the product rate.

The builder is already paying $1,800 per month to rent a place closer to work. Adding $602 brings the total housing cost to $2,402 per month. That compares to $3,100 per month or more to service a loan on a property in the suburb where the builder currently rents. Rentvesting brings ownership forward by two to three years in scenarios like this.

Interest-Only Versus Principal-and-Interest Repayments

Interest-only repayments reduce your monthly outgoings and maximise your tax deduction because every dollar you pay is deductible. Principal repayments are not deductible. For builders working long hours or managing irregular cash flow, interest-only terms give breathing room during the first five years.

Principal-and-interest repayments cost more each month but reduce the loan balance over time. On a $400,000 loan at 6.2 per cent, principal-and-interest repayments are $2,456 per month compared to $2,067 interest-only. The difference is $389 per month, and only the interest portion is claimable. If your goal is to pay the property down or you want the certainty of a declining balance, principal-and-interest makes sense. If your goal is to hold the property, reinvest elsewhere, or keep repayments low, interest-only works.

Lenders assess interest-only loans more conservatively under the prudential standard. A long-term interest-only loan with an LVR above 80 per cent and an interest-only period greater than five years is classified as non-standard, which attracts a higher risk weight and may reduce your borrowing capacity. Most interest-only periods are capped at five years, after which the loan converts to principal-and-interest unless you apply to extend.

What You Can Claim and What You Cannot

Interest on the investment loan is fully deductible for every day the property is rented or genuinely available for rent. Council rates, insurance, property management fees, water charges, body corporate fees and repairs are also deductible. Depreciation on the building and fixtures adds another deduction without any cash leaving your account.

You cannot claim interest on the portion of your borrowing used for private purposes. If you refinance and pull out equity to buy a car, only the interest on the portion used to purchase or hold the investment property remains deductible. The portion used for the car is not, even though the security is the same property. Stamp duty on the property purchase is not deductible as an expense but is added to the cost base for capital gains tax purposes when you sell. Loan establishment fees are deductible over five years or the loan term, whichever is shorter.

Negative Gearing Rules From the 2027-28 Income Year

If you bought your investment property before 7:30pm AEST on 12 May 2026, or it was under contract at that time, you can still deduct losses against your building income indefinitely. That includes salary, business income and capital gains from any source.

For established properties purchased after that date, losses are only deductible against income from residential property from the 2027-28 income year onward. That means rental income from this property or others, and capital gains when you eventually sell. Excess losses carry forward to future years. The change does not affect new builds where the dwelling was constructed on vacant land or the number of dwellings on the site increased. A new build continues to qualify for full negative gearing against all income, and the buyer can choose between the 50 per cent capital gains tax discount or cost base indexation and the 30 per cent minimum rate when they sell.

A knock-down rebuild that does not increase dwelling numbers is not a new build for these purposes. Neither is a renovation, no matter how substantial. If you are weighing up an established unit versus a new townhouse, the difference in tax treatment may close the price gap or swing the decision.

LMI and How It Affects Your Upfront Cost

Lenders Mortgage Insurance is required when your loan-to-value ratio exceeds 80 per cent. On an investment property, LMI premiums are higher than on an owner-occupied loan at the same LVR because the lender's risk weight is higher under the prudential standard.

On a $400,000 investment loan with a 10 per cent deposit, the LVR is roughly 90 per cent after adding stamp duty and other costs to the loan. The LMI premium might be $10,000 to $13,000 depending on the lender and your postcode. You can pay it upfront or capitalise it into the loan. Capitalising it increases your loan amount and your ongoing interest cost, but it means you do not need to find the cash at settlement. Some lenders also charge stamp duty on the LMI premium, depending on the state, so check what applies before you commit.

If you have a 20 per cent deposit, you avoid LMI entirely. The upfront cost drops, the loan amount is lower, and you may also access a better interest rate because lower-LVR loans attract finer pricing. For more information on getting around this cost, see Finance for Tradies.

Vacancy Rates and How Long You Can Carry a Gap

Vacancy rate is the percentage of time a rental property sits empty. A vacancy rate below 2 per cent means strong tenant demand. A rate above 4 per cent suggests oversupply or weak demand, and you may spend weeks between tenants or accept a lower rent to fill the property.

If your property is vacant for four weeks, you lose a month's rent and still pay the mortgage, rates, insurance and body corporate fees. On a property with $500 per week rent and $2,400 per month holding costs, a four-week vacancy costs $4,400 in lost income and unrecovered outgoings. Check vacancy rates in the area before you buy, not after you settle. A high rental yield means nothing if the property sits empty for three months every year.

You can still claim interest and holding costs during a vacancy period, provided the property remains available for rent and you are taking reasonable steps to find a tenant. You cannot claim expenses if you take the property off the market or use it privately.

Should You Fix or Stay Variable

A variable rate gives you flexibility to make extra repayments, redraw funds, and refinance without break costs. A fixed rate locks your repayment for one to five years but limits your ability to pay extra or exit early without penalty.

Fixed rates suit investors who want certainty or expect rates to rise. Variable rates suit investors who want to offset rental income, pay down the loan ahead of schedule, or keep their options open if they need to sell or refinance. Splitting the loan between fixed and variable gives you a bit of both but adds complexity if you are managing multiple accounts or trying to maximise deductions. For more on refinancing options and timing, see Investment Loan Refinancing for Tradies.

Do not fix just because you are worried about rate movements. Break costs on a fixed loan can run into the tens of thousands if you need to exit early and rates have fallen. If your plans might change or you might sell within two years, variable is usually the safer option.

Finding a Property That Holds Its Value

Rentvesting works long-term if the property you buy grows in value or holds its value while you pay down debt. Buying a cheap unit in an oversupplied development because the rental yield looks high is not a shortcut to wealth if the property loses 10 per cent in the first two years.

Look for suburbs with improving infrastructure, proximity to employment and amenities, and tightly held established housing. A suburb with a single major employer or a limited economic base is riskier than a suburb with diverse industries and steady population growth. Regional properties can offer high rental yields, but capital growth is slower and vacancies are longer if the tenant pool contracts.

Do not buy in an area you would not want to own in ten years. Rentvesting is a strategy for entering the market sooner, not a reason to buy a property you will regret holding.

Call one of our team or book an appointment at a time that works for you. We will run the numbers on your income, deposit and the property you are looking at, and tell you exactly what your repayments and tax position will look like. You can reach us through the contact page or book an appointment directly.

Frequently Asked Questions