What is rentvesting?

Australians are embracing a property investment strategy known as “rentvesting” – renting a home in a location in which you want to live (often for lifestyle, work, or family reasons) whilst purchasing an investment property, typically in a more affordable or high-growth area, to build equity and with higher rental yields.

Why are Australians rentvesting?

• Affordability constraints:  many first-home buyers are priced out of their preferred suburbs but still want to enter the property market.

  
  

• Lifestyle priorities:  rentvesting allows people to live where they want (close to work, beach, or urban hubs) without the burden of an unaffordable mortgage.

  
  

• Rental income: the income gained from leasing your investment property can be used to pay down your mortgage or to pay your own home rental costs.

  
  

• Investment focus:  rather than tying up all resources into a single principal place of residence, rentvestors can build a diversified portfolio in growth areas.

  
  

• Tax advantages:  investment properties may allow deductions for interest, depreciation, and other expenses – benefits not available to owner-occupiers.

  
  

• Capital gain:  if your investment property increases in value, you could sell it at a profit later.

  
  

Considerations for rentvestors

• Due diligence:  as with any property purchase, a rentvestor must ensure proper contract review, clear title, and thorough due diligence.  This includes understanding zoning, encumbrances, easements, and compliance with building regulations.

• Landlord obligations:  by stepping into the role of a landlord, you must comply with residential tenancy legislation, including preparing compliant lease agreements, handling bonds and inspections correctly, meeting property repair and maintenance obligations, and understanding tenant rights and notice requirements.

• Structuring ownership:  the right ownership structure (eg: personal, joint, company, or trust) can affect tax efficiency, asset protection, and succession planning.  Legal and accounting advice should be sought before purchasing.

• Plan for uncertainty:  factor in inflation, interest rate changes, vacancy periods, and ongoing management and maintenance costs. 

• Capital Gains Tax:  unlike the family home, investment properties do not receive the full CGT exemption.  Knowing when and how CGT applies is essential, especially if planning to sell and reinvest.

• No government concessions:  even if it is your first property, as a rentvestor you will not be eligible to receive the First Home Owner’s Grant or rate of duty. 

• Finance and guarantor risks:  rentvestors often use investment loans, which may have different lending criteria.  If family members provide guarantees, this raises important legal considerations regarding liability and enforceability.

  
  

• Overextending financially:  be wary of paying high rent and simultaneously managing mortgage repayments on the investment property.

How We Can Help

Whether you’re a first-time buyer, a seasoned investor, or simply exploring your options, our experienced property lawyers can help you navigate the legal landscape, including:

• contract review

• contract negotiation

• legal due diligence

• settlement

• landlord compliance

• tenancy advice

• managing disputes with tenants or co-owners

For any tax or financial advice, please consult with your accountant and financial advisor.