Your Life

Rentvesting: Just a craze, or a savvy move?

- March 7, 2022 6 MIN READ
Rentvesting is a way to get into the property market

An increasing number of millennials are rentvesting to enter the property market, but is it actually a good way to get ahead?

Even if you’ve been living under a rock, you know that Australian property prices have surged lately.

Supply shortages have driven higher prices because Australians have been using their savings from the lockdowns (mostly coming from missed holidays) to buy a home more suited to their lifestyle.

Bigger homes and scenic suburbs further away from CBDs experienced the biggest jumps. After all, who doesn’t want a study or wish they could go for a walk near the water in between work calls?

The dark side of the story is that this surge in property prices is making it even harder for young people to buy their first property.

That’s why an increasing number of millennials are getting into rentvesting. It’s a way to get a foot in the door of the real estate market, without sacrificing lifestyle.

Let’s have a look at what rentvesting is and if it could be right for you.

What is rentvesting?

Let’s say you’re single and have put some money aside for a deposit, but it’s not enough to buy a place in the area where you spend most of the time with your friends.

Or maybe you have a young family and work from home most days. You want an extra room and a bigger backyard for the kids to play under your watch, but you can’t afford to buy where they go to school.

Or you could be someone who needs to move frequently for work reasons. Or likes to experience what it is like to live somewhere different.

With a rentvesting strategy, you rent where you want to live and invest in an area where you can afford to buy a property.

Perhaps you live in Sydney, Melbourne or Brisbane and purchased a property in a less expensive, or up-and-coming, neighbourhood. Alternatively, you could buy in regional areas where property prices are lower than in metro areas.

You could buy purely with an investor mindset; or buy to move into the property later down the track.

For some, rentvesting is the best way to get into the property market without overstretching their budget, or breaking the bank of Mum and Dad. But for others, it could be an expensive money mistake.

Like with everything else, there are pros and cons to it. Let’s see what they are.

Pros and cons of rentvesting



More flexibility
Less security
You get to live where you want.

You don’t have to worry about the transaction costs of buying and selling (stamp duty, solicitor’s fees,  etc).

You may have to move if the owner wants you to vacate the property.

You don’t know when your rent will increase.

You may have to make the property available for inspections.

Less responsibilities
Less freedom
As a tenant, if there are issues with the hot water or the dishwasher, your agent organises the repairs.

As a landlord, you will most likely have an agent who takes care of your investment property.

You are subject to the tenancy rules and, without landlord’s approval, you can’t make any home improvements (changing curtains, making holes in the wall to put up artwork, etc).
Low maintenance costs
Ongoing ownership costs
For the property you rent, you are usually not responsible for maintenance costs caused by wear and tear. For your investment property, you will need to pay for repairs, agent fees and advertising to rent the place out.
Close to your strategy
Far from your heart
It can be financially beneficial.

You can use your investment property income to cover mortgage and other costs (strata, council and water rates, etc).

If you purchase outright, you can use the income from the investment property to pay for your rent.

Looking at things from a spreadsheet and having to vacate if your landlord requires it, forces you to detach from the emotional attachment most people have to their home.
More asset growth
More paperwork
Real estate is highly likely to appreciate over the years.

It puts you in a more solid position when starting a family or retiring.

It also builds equity, which is highly beneficial when dealing with banks (ie. when needing another loan).

Since you are a tenant and landlord at the same time, more admin is involved.

You deal with two property agents, have to manage a mortgage, and rental incomings and outgoings (however, these often are managed by your agent or accountant).

Tax benefits
Tax liabilities
You may claim some of your investment property expenses as tax deductions, such as loan interest, insurance, depreciation and advertising. If you sell your investment property you need to pay tax (ie. capital gains tax) on the profit you make.
Potential capital gains
Potential capital loss
If in a few years the value of your investment property increases, you could sell it at a profit. If the value of your investment property decreases, and you need to sell, you might incur a loss.
A foot in the door
No First Home Owners Grant
Rentvesting offers a great opportunity to get into the real estate market with the money you have. Rentvestors can’t access the First Home Owners Grant – between $7,000 and $29,390 depending on your state and territory. More details here.

Is rentvesting for you?

It might shock you to hear this, but there are very limited circumstances when rentvesting makes true financial sense.

Here is why.

Comparing apples with apples, if you consider the renting vs buying options for the same property, rentvesting almost always leaves you worse off.

One of the fundamental differences is the Capital Gain Tax, which you have to pay when selling your investment property, but don’t have to when selling your home. In the short term, your cash flow looks better, but your long-term asset accumulation suffers – ie. you actually lose money when rentvesting.

Also, remember that purchasing an investment property today will limit your ability to buy your own home in the future, because you might not have enough funds for a deposit.

The other thing to consider is the quality of your investment.

Making a good investment means buying low and selling high. But there are other factors to consider, such as how fast your investment appreciates over time, and more.

Sometimes, rentvesting is used as a technique to sell property to Melburnians and Sydneysiders who are used to high prices. When purchasing at lower-prices, especially in Queensland, they feel they are getting a bargain.

Reality is, over the past 18 years, the real estate market in Brisbane has consistently underperformed the Sydney and (to a lesser extent) the Melbourne ones.

Of course, there are exceptions in every market, and good investments can be made.

Otherwise, you could be temporarily living away from where you want to settle, but planning to buy and move back later down the track. For example, you could be from Adelaide and enjoying the Bondi lifestyle, but planning to move back home to start a family in a few years.

In these cases, rentvesting is a better option.

How to decide if it’s right for you

To make sure rentvesting really ends up being the best and not the worst of both worlds, here are some simple questions to help you decide.

1. Should you rent or buy your home? To answer this question, see this article.

2. If you’ve decided to rent because you can’t afford to buy where you want to live, the second question you need to answer is: how will you invest the spare cash that you would have used for the deposit? Remember, there are many other investment options available besides real estate.

3. Let’s say you’ve decided to invest in property; in this case, rentvesting could be right for you. The final and most important question is: how solid is the investment you’re making?

Consider your values

Last, but not least, consider yourself.

You need to be clear on who you are and what your life goals are – as with most things related to money.Ask yourself: what type of person am I? What do I value in life? If you value stability, rentvesting might not be for you. Not having the certainty of living in the same place for long periods of time could be too stressful.

But if you love change, you should seriously consider this investment strategy. You might be one of those people who need a frequent change of scenery and consider this lifestyle choice an opportunity to always improve your living situation.

Just keep in mind that change, sometimes, might come at a time that is not convenient for you: when rent prices are high, or if you’re going through a stressful time, you’ve had a baby, or simply need stability.

The most important thing is to be honest with yourself. Whatever your answer, be ok with it. In money (and life) troubles come when we follow a path that is not our own.

Don’t get caught up in the comparison game. And even if rentvesting seems the smart choice from a financial point of view, make sure it resonates with you emotionally. Emotions are what drives us towards the achievement of our goals.

This is an edited version of an article that originally appeared on Life Sherpa and is republished here with permission. This article contains general information only. This should not be relied on as independent finance or tax advice. If you are after specific professional advice, speak to your registered tax agent/financial advisor or reach out to the team at Life Sherpa.