How to Use Rentvesting to Enter the Property Market

What Rentvesting Actually Means

Rentvesting is when you buy an investment property in an affordable area while continuing to rent in the suburb or city where you actually want to live. You build wealth through property ownership without giving up the lifestyle or location that matters to you right now.

This approach makes sense when the place you want to live is too expensive to buy into, but you still want to get started building equity. You're not locked out of the property market entirely, you're just separating where you invest from where you live.

Consider someone working in the Perth CBD who wants to stay close to the city for work and social life. They might rent in Mount Lawley or Leederville but buy an investment property in Mandurah or Armadale where purchase prices and rental yields are more favourable. They get the income from their tenant, potential capital growth over time, and tax benefits, all while keeping the flexibility to rent where it suits them.

How an Investment Loan Works for Rentvesting

An investment loan is assessed differently to an owner-occupier loan because lenders factor in rental income and treat the property as an income-producing asset. The interest rate on an investor loan is typically a bit higher than an owner-occupier rate, and lenders apply stricter serviceability tests.

Lenders will usually factor in around 80 per cent of the expected rental income when working out how much you can borrow. They also assess your ability to service the loan at an interest rate that's three percentage points above the actual rate, so there's a buffer built in.

You'll generally need at least a 10 per cent deposit, though some lenders will go as high as 95 per cent with Lenders Mortgage Insurance. The deposit can come from savings, equity in another property, or a combination of both. If your deposit is below 20 per cent, you'll pay LMI, which covers the lender's risk but gets added to your costs.

Why Rental Income Matters to Your Borrowing Power

Rental income boosts your borrowing capacity because it's treated as additional income in the serviceability assessment. A property generating $450 per week in rent adds roughly $360 per week to your usable income once the lender applies their 80 per cent shading.

That extra income can make the difference between being approved or declined, especially if you're still paying rent yourself. Lenders subtract your current rent from your living expenses, but they'll also account for the fact you'll need to cover the investment loan, property costs, and any vacancy periods.

Vacancy assumptions vary by lender but typically sit around 4 to 8 weeks per year. Properties in high-demand rental areas with low vacancy rates, like suburbs close to universities or employment hubs, tend to perform better in serviceability calculations. In Perth, areas like Bentley and Curtin near the university precinct, or suburbs along the train line such as Cockburn Central, often have strong rental demand.

Tax Benefits You Can Claim on an Investment Property

Interest on your investment loan is tax deductible, along with most other costs associated with holding the property. That includes property management fees, council rates, insurance, repairs, and depreciation on the building and fixtures.

For properties purchased after May 2026, new negative gearing rules apply from the 2027-28 financial year. Losses on these properties can only be offset against income from other residential properties, not your salary. Properties you already owned or had under contract by mid-May 2026, and newly built properties, still allow you to offset losses against all your income.

In our experience, investors who buy established properties after the rule change often focus more on neutral or positive cash flow rather than relying on large tax offsets. New builds remain attractive for those who want the full tax treatment, though they often come with higher purchase prices and slower capital growth in some markets.

Interest-Only vs Principal and Interest Repayments

An interest-only loan means you're only paying the interest portion each month, not reducing the loan balance. Repayments are lower, which improves cash flow and frees up money for other investments or living expenses. Most lenders offer interest-only periods of up to five years on investment loans.

Principal and interest repayments cost more each month but reduce your loan balance over time. You'll own the property outright sooner and pay less interest across the life of the loan. Some investors prefer this structure if they're planning to hold the property long term or want the security of building equity faster.

The right choice depends on your cash flow, tax position, and overall investment strategy. If you're negatively geared and want to maximise your deductions in the early years, interest-only can make sense. If you're focused on paying down debt and building equity, principal and interest is the way to go. You can read more about structuring your home loan to suit your situation.

Fixed Rate or Variable Rate for Investment Property

A variable rate moves with the market, so your repayments can go up or down. You get more flexibility to make extra repayments without penalty, and you can usually access features like offset accounts and redraw facilities.

A fixed rate locks in your interest rate for a set period, usually between one and five years. You know exactly what your repayments will be, which helps with budgeting, but you lose flexibility. If rates drop, you don't benefit, and if you want to break the loan early, you may face significant break costs.

Some investors split their loan between fixed and variable to get a bit of both. You lock in certainty on part of the loan and keep flexibility on the rest. There's no right answer that suits everyone, it comes down to your risk tolerance and how much certainty you want in your repayments.

How Rentvesting Compares to Waiting to Buy Where You Live

Waiting until you can afford to buy in your preferred suburb means you're not building equity during that time. Property prices can rise while you're saving, which pushes the goal further away. Renting isn't wasted money if it lets you live where you want, but it doesn't build wealth the way property ownership can.

Rentvesting lets you enter the market now and start benefiting from any capital growth, rental income, and tax deductions. You're also building a deposit history and establishing a borrowing track record, which can make it easier to borrow again later if you want to buy where you live or expand your portfolio.

As an example, someone renting in Fremantle might buy an investment property in Baldivis where entry prices are lower and rental yields are solid. Over several years, they benefit from capital growth in Baldivis and use that equity to eventually buy a home closer to Fremantle if that's still the goal. They've built wealth in the meantime rather than standing still.

What Happens When You Want to Buy a Home Later

If you already own an investment property and want to buy a home to live in, you'll be applying for an owner-occupier loan while still holding the investment loan. Lenders will assess your ability to service both loans, factoring in rental income from the investment property and your new owner-occupier repayments.

You may also need to find a deposit for the new purchase. That can come from savings or from equity in your investment property if it's increased in value. If you're planning to access equity, you'll need a valuation and enough equity buffer to avoid LMI or keep your borrowing within the lender's limits.

Some investors choose to sell the investment property and use the proceeds as a deposit for their home. Others keep the investment and continue building their portfolio. If you're holding onto the investment property, make sure your cash flow can support both loans comfortably, especially if interest rates rise or you have a vacancy period.

Choosing the Right Property and Location

Look for properties in areas with strong rental demand, low vacancy rates, and potential for capital growth. Proximity to transport, schools, shopping centres, and employment hubs tends to support rental demand. In Perth, suburbs along the train line, near universities, or in growth corridors like Byford, Ellenbrook, and Butler often perform well for investors.

Rental yield is the annual rent divided by the property's purchase price, expressed as a percentage. A higher yield means better cash flow, which can help cover your loan repayments and holding costs. Units and townhouses often deliver higher yields than houses, though houses may offer stronger long-term capital growth depending on the suburb.

Avoid overcapitalising or buying in areas with high supply and weak demand. Check recent sales data, vacancy rates, and median rents for the suburb before committing. A property that looks affordable upfront can become a liability if it sits vacant for months or requires constant repairs. You can use tools like a borrowing capacity calculator to work out what you can afford before you start looking.

Getting Your Investment Loan Application Right

Lenders want to see that you can service the loan comfortably and that the property stacks up as an investment. They'll ask for proof of income, savings, existing debts, and details about the property including a rental appraisal. If you're relying on rental income to service the loan, the appraisal needs to be realistic and supported by comparable rentals in the area.

Your credit history matters. Late payments, defaults, or too many credit applications in a short period can hurt your chances or push you toward a higher interest rate. If you've had credit issues in the past, it's worth discussing options with a broker before applying.

Some lenders are more flexible with rentvesting scenarios than others, especially if you're borrowing at a higher LVR or have a complex income structure. A broker who works across multiple lenders can position your application with the right lender from the start, which saves time and improves your approval chances. If your current loan isn't working for you, refinancing to a more suitable product might also be worth considering.

Call one of our team or book an appointment at a time that works for you. We'll walk through your situation, run the numbers, and help you work out whether rentvesting makes sense and how to structure the loan to suit your goals.

Frequently Asked Questions