Rentvesting: Renting Where You Live, Investing Where It Makes Sense

What is Rentvesting?

Rentvesting is a strategy where you rent the property you actually live in, often somewhere you like the lifestyle but can’t afford to buy, or don’t want to be tied down to, while separately buying an investment property somewhere more affordable or with stronger growth potential.

Instead of the traditional path of buying your own home first and investing later, rentvesting flips the order, you become a property owner and an investor first, while continuing to rent your own lifestyle.

Why People Do It

Property markets don’t all move together. The suburb you’d love to live in might be expensive and slow growing, while a completely different city or region might be more affordable and better positioned for growth. Rentvesting lets you separate the emotional decision of where you want to live from the financial decision of where you want to invest.

Pros of Rentvesting

  • Keep your lifestyle. You can rent close to work, family or the lifestyle you want, without needing to save the deposit or take on the mortgage required to actually own there.
  • Get into the market sooner. Buying a more affordable investment property elsewhere is often achievable years before you could save a deposit for your dream home in your dream suburb.
  • Tax benefits an owner occupier doesn’t get. As an investment property, your interest, rates, insurance, management fees and depreciation are all potentially deductible, none of which applies to a home you live in yourself.
  • Flexibility. If your job or lifestyle needs might change (relocation, career shifts, relationship changes), renting keeps you mobile in a way owning your own home doesn’t.
  • You’re not limited to your own backyard. You can chase growth wherever the fundamentals stack up, rather than being stuck investing only in the suburb you happen to live in.

Cons of Rentvesting

  • No CGT exemption on the investment property. Unlike a main residence, any capital gain on your investment property is fully taxable when you sell (see my post on Capital Gains Tax and the 6 Year Absence Rule).
  • Less security than owning your own home. Landlords can increase rent or end a lease, and you don’t have the same certainty and control that comes with owning where you live.
  • You miss out on first home buyer support for your own living situation. Grants and stamp duty concessions generally require you to live in the property (see my posts on First Home Owner Grants and Stamp Duty Concessions), so renting where you live means you’re not accessing that support for your own home.
  • Requires discipline. Without the forced structure of paying down your own mortgage, it’s easy to let investment savings slide if you’re not deliberate about it.
  • Psychologically harder for some people. Not owning the roof over your head can feel less secure, even if the numbers stack up.

Who It’s For

Rentvesting tends to suit:

  • People living in expensive capital cities who want an established, inner city lifestyle they genuinely can’t afford to buy into yet
  • People whose job or circumstances require flexibility, needing to relocate for work, or simply not wanting to be tied to one location long term
  • Disciplined savers who will genuinely keep investing rather than let the freed up cash flow disappear into lifestyle spending
  • Younger buyers who want to get a foothold in the property market sooner, rather than spending years saving for a large deposit on their eventual forever home

Case Example

Kristine works in the CBD and loves inner city living, but buying there is well outside her budget. Instead, she rents an apartment close to work for $550 a week, and buys an investment property in a growth corridor two states away for $450,000, using her savings as a deposit and renting it out. Her tenant’s rent covers most of her mortgage repayment, she claims the investment expenses at tax time, and she gets to keep living exactly where she wants, all while building equity in a property she couldn’t otherwise justify buying to live in.

The Bottom Line

Rentvesting isn’t the right fit for everyone, particularly if security and stability in your own home matters a lot to you, but for the right person, it’s a genuinely smart way to separate lifestyle from investment strategy and get into the market sooner. Just go in with a clear plan for how you’ll stay disciplined with the extra cash flow, and understand what you’re giving up in terms of CGT exemption and first home buyer support along the way.