Is rentvesting a good idea — or a bad one?

Look up rentvesting and you will find very different opinions. Some people describe it as a smart way into the property market. Others see it as an expensive mistake. The truth depends on the property, your budget and what you want to achieve.

Why rentvesting appeals to people

The basic idea is easy to understand. You rent in the suburb where you want to live and buy a property somewhere more affordable. The tenant's rent helps with the investment loan, while you keep the location and lifestyle that suit you.

In some areas, renting a good home can also cost less each month than owning a similar home once you include the loan, council rates, insurance and maintenance.

Why rentvesting may not work

The concerns people raise are worth taking seriously because they involve real costs.

**Your own rent can keep increasing.** You still need to cover the rent where you live, even while paying the costs of an investment property.

**Investment lending can cost more.** Investment rates are often higher than owner-occupier rates, and lender policies may be tighter. Buying an investment first may also affect access to some first home buyer grants or concessions.

**The tax position is different.** Rental income is generally assessable, some costs may be deductible, and capital gains tax may apply when the property is sold. Land tax can also apply depending on the state and the property value. A suitably qualified tax professional can explain how the rules apply to you.

**Vacancies and repairs still need to be paid for.** If the property is empty or needs urgent work, you may need to cover the full loan repayment and the repair while still paying your own rent.

**A lender will still check borrowing capacity.** Expected rent may help, but lenders usually do not count all of it. They also consider the rent you pay and your other commitments.

Who might it suit?

Rentvesting may suit someone who is comfortable renting for the next few years, has reliable income and has enough room in the budget to handle repairs or a period without a tenant. The investment property also needs to make sense on its own, rather than simply being the only property within reach.

It may be less suitable if you expect to move into your own home soon, your budget would be stretched by a vacancy, or the plan only works if property prices rise quickly.

Test the idea with realistic numbers

Compare the cost of buying the home you would like to live in with the cost of renting it and buying elsewhere. Look at what each option may cost each month, what the loan balance could be and what you may own over time.

If rentvesting only looks attractive when you use very high growth or rent assumptions, that is worth knowing before you commit.

Rentvesting can be a sensible strategy for some people and a poor fit for others. This is general information only and does not take your personal circumstances into account. It is not tax, investment or credit advice, and any borrowing is subject to a lender's assessment.