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Many of us learned from our parents and grandparents that becoming a homeowner Down Under is the ultimate dream - the Australian Dream, if you will.
However, faced with soaring property prices in major cities, escalating living costs, and evolving lifestyle preferences, a growing number of young Aussies are embracing a strategy that allows them to live where they want while investing in more affordable properties elsewhere.
No more compromising on living standards just because affordability presents restrictions.
This strategy is known as "rentvesting". It lets investors enjoy their preferred lifestyle while building wealth through property investment.
Homeownership remains a significant milestone, but the path to achieving it is diversifying.
What is Rentvesting
Rentvesting involves renting a home in a location that suits one's preferences-often in urban centres close to key employment hubs or social amenities-where property prices are typically higher compared to other locations. Rentvestors then invest in more affordable areas. Put simply, individuals following this strategy are simultaneously renters and investors-hence, rentvestors.
The appeal of rentvesting has grown in recent years, particularly among younger generations. According to Westpac's 2025 Home Ownership Report, 54% of first home buyers are considering rentvesting-a 4% increase from the previous year.
Recent data suggests rentvesting can be a financially sound strategy. In some Australian suburbs, servicing a mortgage is more affordable than paying rent, presenting a low entry point for investors while generating positive cash flow.
The Rise of Young Property Investors
The rise of rentvesting is particularly notable among millennials and Gen Z. These groups prioritise flexibility and lifestyle, often valuing experiences over traditional homeownership. Rentvesting allows them to live in vibrant areas while building equity in high-growth, emerging markets.
As housing affordability continues to challenge traditional models of ownership, rentvesting offers a viable alternative for young Aussie investors seeking to balance lifestyle aspirations with financial growth.
Risk and Considerations
As with most things in investing, rentvesting also comes with risks and key considerations.
Property management challenges
One of the primary challenges for rentvestors is managing a property they don't live in-and may never have even seen in person. This means placing a high level of trust in property managers to screen tenants, handle maintenance, and respond to issues.
Rentvestors or those planning to become one may explore digital tools and apps that assist with property management or finding tenants.
Missing out on government grants
Rentvestors may not qualify for certain first home buyer grants and incentives-even if they are buying their first property-as these concessions are typically reserved for owner-occupiers. They may end up forfeiting thousands of dollars in government assistance by purchasing an investment property first.
Rental vacancies and market conditions
Seasoned landlords know that even in a tight rental market, vacancies do occur. If an investment property sits empty for weeks, it could result in significant financial strain-especially since rentvestors are also paying rent elsewhere.
Local rental markets are also subject to change; areas with strong returns today may become oversupplied tomorrow. A healthy financial buffer is essential.
Tax obligations
While investment properties offer tax advantages such as negative gearing and depreciation deductions, they also introduce complexity. Rentvestors must carefully track expenses, rental income, and capital improvements to comply with ATO reporting requirements. Additionally, selling an investment property can trigger capital gains tax (CGT).
Financing the Dream
For rentvestors, securing the right investment home loan is just as critical as choosing the right property. Investment loans come with different lending criteria, interest rates, and tax implications.
The IO strategy
Some rentvestors may opt for interest-only (IO) loans initially to maximise cash flow, especially during the early stages of property ownership. Lower scheduled repayments enable them to manage their budgets or save a deposit for their next property purchase.
The appeal of IO loans lies in their potential tax benefits. Since the entire repayment during the IO period is interest-and interest on investment loans is generally tax-deductible in Australia-investors can optimise their tax positions.
However, it's important to note that IO loans often come with slightly higher interest rates compared to principal and interest (P&I) loans. Another critical consideration is the transition after the IO period ends. Repayments will increase as the loan shifts to a P&I structure, potentially impacting cash flow if not anticipated.
The P&I strategy
Taking out an investment loan with principal and interest (P&I) repayments means the borrower is gradually paying off both the loan's interest and the principal amount.
This structure leads to a steady reduction in the loan balance, building equity over time. While initial repayments are higher than those on IO loans, the total interest paid over the life of the loan is typically lower.
For rentvestors focused on long-term wealth accumulation and financial stability, P&I loans offer a disciplined approach to debt reduction and equity building. However, the higher monthly repayments require careful budgeting to ensure they remain affordable.
At loans.com.au, rentvestors can choose the right investment loan that suits their long-term strategy and financial situation. Check out our website or chat with our team of lending specialists to find out the right product for you.
Image by Helena Lopes on Unsplash
