What is Rentvesting? and Pros & Cons for Investors

Ever heard of rentvesting? It’s an investment strategy that more and more investors are turning to. But what is rentvesting, and why is it suddenly gaining so much attention?

What is Rentvesting?

Simply put, rentvesting strategy is when you rent a place in an area that suits your lifestyle, maybe close to your work or a family-friendly neighbourhood, but you buy an investment property in a more affordable area that offers better financial returns. 

That way, you get to live where you want and your money works harder for you in a property that has more potential for capital growth and rental income.

Sounds pretty amazing, right?

Let’s understand how the rentvesting strategy works and see if it’s right for you.

How Rentvesting Works?

Now that we’ve covered the basics, let’s get into the details and learn how rentvesting works in practice. Instead of buying your home in your dream area (which, let’s be honest, can be pretty expensive these days), you rent there while buying an investment property somewhere else. This property is usually in a more affordable location but still has greater growth potential, in value, rental income, or both.

For example, you might love living in a trendy suburb, but the property prices are out of your reach. With rentvesting, you could still rent in that suburb and invest in a property in an outer suburb where prices are lower, but the growth potential is high.

What’s the best part? You enjoy your lifestyle, while your investment property is working for you, growing value AND bringing in rental income.

In short, rentvesting lets you get into the property market sooner, enjoy the area you love, and still make a smart financial move. What more can one ask for?

Pros of Rentvesting

Now, rentvesting might not be for everyone, but it definitely has some incredible benefits. So, let’s take a look at the pros and cons of rentvesting to help you decide if it’s the right move for you.

• Flexible where to live

One of the best things about rentvesting is the flexibility it gives you. You can live in your dream location, whether it’s near the beach, in the city, or close to your workplace, without worrying about the crazy property prices in that area. Renting lets you live exactly where you want, while your investment property does the heavy lifting for you in a more affordable spot.

• Tax deductions & negative gearing

Here’s where things get interesting for investors. Rentvesting allows you to benefit from negative gearing. In simple terms, if the costs of owning your investment property (like mortgage interest, property management fees, repairs, and depreciation) exceed the rental income you’re earning, you can claim the difference as a tax deduction. 

It’s a great way to reduce your taxes while still building long-term wealth.

• Access to the property market

Rentvesting helps you get your foot into the property market a lot quicker than you might have thought possible. Even if homeownership in the neighbourhood you love is out of budget, this strategy lets you start building equity early by investing in a more affordable area. 

With rentvesting, you get to enjoy the financial benefits of property ownership, even if you’re not living in it.

• Potential extra income

When you buy an investment property, you open the door to rental income. This income can help cover your mortgage, and, if your rental yield is high enough, even leave you with a bit of extra cash. And over time, your rental income increases too, giving you more and more room to breathe financially!

• Flexibility & low maintenance

When you rent, you don’t have to worry about repairs or maintaining the property, since that’s your landlord’s responsibility. It’s one less thing to stress about! While your investment property may need some care and occasional repair, it’s often more cost-efficient than maintaining an owner-occupied home. Rentvesting gives you the freedom to focus on other priorities in life without being tied down by the responsibilities of homeownership.

Cons of Rentvesting

Now that we have talked about the many advantages of rentvesting, it’s also important to understand why rentvesting may not be suitable for everyone. 

Here are some of its potential downsides:

• Paying rent & no ownership

One of the key drawbacks of rentvesting for many is that your rent payments don’t build equity: you’re not gaining ownership in the place you live. Unlike a mortgage repayment, which gradually increases your stake in a property, rent is a sunk cost. This means you miss out on capital gains from your primary residence and may feel a lack of long-term stability.

• Dual costs

Another reason why rentvesting may not appeal to some investors is the burden of dual costs. With rentvesting, especially when your investment property doesn’t generate high enough rental income, you might find yourself paying rent on your home while also paying a mortgage on your investment property. This can add unnecessary financial pressure.

• Less control & lifestyle trade-off

While rentvesting gives you the flexibility to choose where you live, renting still comes with limitations. You’re subject to your landlord’s rules, which might restrict things like keeping pets, hanging artwork, or making changes to the space. You may also face rent increases or the risk of having to move if the landlord decides to sell. For those who value full control over their home environment, this can be a significant trade-off.

• Missed owner‑occupier grants

By purchasing an investment property without living in it first, you’ll forfeit access to government support like the First Home Owner’s Grant (FHOG). Since you’re no longer considered a first-time buyer, you won’t be eligible for the grant when you eventually purchase a home to live in. For many, missing out on this financial boost can feel like a significant disadvantage.

Key Considerations for Investors

Before you jump into rentvesting and make any big moves, there are a few things you’ll want to keep in mind. Ultimately, it all comes down to doing your research and making sure this strategy aligns with your financial goals.

1. Long-term goals:

Rentvesting can be a great way to start building wealth, but it’s not a quick fix. Before diving in, it’s important to think about your long-term investment goals: Are you looking to build a large property portfolio over time, or are you more interested in short-term gains? Would you prioritise building wealth or achieving home ownership and stability?

2. Risk tolerance:

Like any other investment strategy, rentvesting comes with its own set of risks. Market fluctuations, vacancies, and maintenance costs can all impact your investment. So, it’s important to assess your risk tolerance before committing to this strategy. It’ll help you make better decisions.

3. Property management and ongoing maintenance

Being a landlord can come with a lot of responsibilities. Yes, you’re earning rental income, but there’s also the work that goes into maintaining the property. This can include everything from routine upkeep to unexpected repairs. You also need a good property manager to look after the day-to-day stuff. Therefore, ensure that you factor this into your calculations beforehand.

Is Rentvesting Right For You?

By now, you’ve got a good understanding of what rentvesting is and how it works. But the real question is “Is rentvesting right for you”?

Take some time to think about:

• Cash‑flow analysis:

Use a rental income calculator to figure out whether the rental income from your investment property will be enough to cover an acceptable portion, if not 100%, of your mortgage and other expenses.

• Tax planning:

Talk to a financial advisor to understand the tax implications of rentvesting. It’s important to know how investment properties and tax incentives for them will affect your overall financial situation.

• Exit strategy:

Always have a clear plan for when you want to sell the property. Whether you’re holding it long-term for compound growth or aiming for a shorter-term gain, having a defined exit strategy helps you make smarter decisions along the way, from choosing the right market to planning your entire portfolio.

Conclusion

At the end of the day, rentvesting is a powerful strategy for people looking to build wealth through property while maintaining flexibility in where they live. It comes with many advantages, but there are also risks to consider. By weighing the pros and cons of rentvesting, you can make confident, informed decisions about your next investment. 

If rentvesting sounds like it could work for you, the next step is to talk to a residential buyers’ agent who can help guide you through the process and help you make smart choices. 

At InvestorKit, we do just that. With our expertise and research-backed insights, we can help you make the most of your property investments.

Whether you’re looking to rentvest or invest in properties, it’s always a good idea to talk to our experts today.