Rentvesting

Understanding the rentvesting strategy

Rentvesting involves renting a property where you want to live while purchasing an investment property where you can afford to buy. This strategy allows you to maintain your preferred lifestyle location while building wealth through property investment in more affordable markets.

How rentvesting works

The strategy separates your lifestyle choices from your investment decisions, enabling you to rent in expensive, desirable areas while purchasing investment properties in markets that offer better value or higher yields.

• Rent your primary residence in preferred location (often expensive areas)
• Purchase investment property in affordable area with good prospects
• Claim tax benefits on investment property expenses
• Build wealth through property investment while maintaining lifestyle
• Flexibility to move locations without selling property

Financial advantages

Rentvesting can provide significant financial benefits compared to stretching to buy in expensive areas where you want to live.

• Access to affordable investment markets with better yields
• Maximum tax deductions on investment property expenses
• Maintain desired lifestyle without massive mortgage stress
• Build equity through property investment rather than expensive primary residence
• Preserve borrowing capacity for additional investments

Tax benefits explained

Investment property ownership provides substantial tax advantages that can improve your overall financial position and cash flow.

Deductible investment expenses:

• Interest payments on investment loan (usually largest deduction)
• Property management fees and letting costs
• Maintenance, repairs, and property improvements
• Depreciation allowances on building and fixtures
• Insurance premiums and council rates
• Advertising and tenant acquisition costs

Negative gearing benefits: When investment property expenses exceed rental income, the loss can be offset against your other taxable income, reducing your overall tax liability and potentially providing cash flow benefits.

Choosing investment locations

Successful rentvesting requires careful selection of investment locations based on economic fundamentals rather than personal preferences.

Key selection criteria:

• Strong rental yields to support loan serviceability
• Capital growth prospects based on economic indicators
• Population and employment growth trends
• Infrastructure development and government investment
• Affordability for entry and potential for value adding

Popular rentvesting markets: Regional centers, interstate capital cities with lower entry costs, established growth corridors, and areas with high rental demand often provide good rentvesting opportunities.

Risks and considerations

While rentvesting offers advantages, it involves specific risks that traditional home ownership doesn't include.

• No principal residence capital gains tax exemption on investment
• Capital gains tax liability when selling investment property
• Property management responsibilities and costs
• Market risk in investment location separate from where you live
• No emotional attachment or personal use of investment asset

Getting started with rentvesting

Implementing a rentvesting strategy requires careful planning and preparation to ensure successful execution.

Preparation steps:

1. Assess borrowing capacity and financial position thoroughly
2. Research potential investment markets and property types
3. Engage qualified buyer's agent or property manager if needed
4. Secure loan pre-approval for investment property purchase
5. Identify and purchase suitable investment property
6. Establish professional property management arrangements

Long-term strategy considerations

Rentvesting works best as part of a broader wealth-building strategy with clear long-term goals and exit planning.

Potential exit strategies:

• Sell investment property and purchase home in preferred area
• Relocate to investment property area if circumstances change
• Build portfolio of multiple investment properties over time
• Continue renting while expanding investment portfolio for greater wealth accumulation