Should I live in my property or consider ‘rentvesting’?

Reduce Home Loans- rentvesting

If you’re a first time buyer intimidated by the current property market, you may be tossing up between living in your first property or renting it out as an investor.

The latest Australian Bureau of Statistics Lending Indicators show that living in a property as an owner-occupier is still the most popular option for new mortgages for April 2021.

Owner-occupiers make up the lion’s share of new home loan commitments, climbing 4.3 per cent month-on-month to over $23 billion worth of new home loan commitments (seasonally adjusted) in April alone. Meanwhile, investors made up $8.094 billion of new loan commitments. This was an increase of 1.2 per cent over the month for investors.

Getting a property to live in within your ideal suburb is not always financially possible. But some first home buyers have worked out how to have their cake and eat it too.

‘Rentvesting’ is an investment strategy that a lot of first time buyers have turned to in recent years. Put simply, it is the process of purchasing a property for investment purposes in an affordable suburb and then continuing to rent and live in your ideal suburb.

If you’re tossing up between renting out a property or choosing to live in it, it’s important to weigh up the risks and benefits of both options.

Benefits of rentvesting over living in a property:

1.    Live where you want

The most obvious benefit of opting to rentvest is that you can still live where suits your lifestyle and/or career. It’s a hard ask to expect young Australians to fork out a deposit for an inner city apartment or a house near their CBD, especially in booming markets like Sydney or Melbourne.

This is where rentvesting offers a helping hand, as borrowers can still get a foot on the property ladder in a more affordable suburb, pay down their mortgage through the passive income collected in rent, and use their own income to pay rent to live in their ideal suburb.

It may be worth taking stock of rental yield trends in the suburb you’re considering purchasing in. If the rent brought in does not pay your mortgage in full or close to, you’ll have to factor this into your budget. Paying rent and a mortgage can put strain on your personal finances.

2.    Passive income

Speaking of earning money through rent, by opting to invest in property you may also earn a passive income. This is the case when the rental payments paid to you are greater than your expenses – aka the property is ‘positively geared’.

For example, if you’re paid $2,250 a month in rent, and the expenses of the property (mortgage repayments including interest) are only $1,800, then the remaining $450 would be considered a passive income.

As mentioned earlier, a major benefit of rentvesting is that you’re getting your foot on the property ladder as soon as possible and not waiting to save up for your dream home. And by doing so you’re adding an asset to your investment portfolio early. Once the mortgage is paid off, you’ll ideally be bringing a higher return. Some Australians can live off of the passive income they earn from their investment properties well into their retirement.

3.    Tax advantages

In Australia, if you lose money on your investment property (rental return less than your expenses) then you may be able to benefit from ‘negative gearing’.

This is a tax incentive in which investors can offset their net rental losses against their income for that financial year. When tax time comes around, this may help to reduce the amount of taxable income you have to pay. This can be extremely useful for investors who are facing an unexpected loss position, whether due to lengthy time between tenants, emergency repairs and maintenance, and more.

Benefits of living in a property over rentvesting:

1.    Rent money is dead money

On the other hand, there is a clear benefit of being an owner-occupier over rentvesting, and that is stopping paying rent. They say rent money is dead money, and however you feel about this statement it’s clear that paying someone else’s mortgage or providing them with passive income can be frustrating and costly.

Plus there is the added instability of being at the whim of the investor, who may decide to sell at any given moment. Depending on your financial situation and budget, the funds you’re putting into renting may be worth spending on a mortgage for a home that you get to live in.

2.    Tenants

There are always risks involved with any investment option, and for rentvesting or just being a standard property investor, your property may not always be consistently tenable. It is not uncommon for some investors to experience weeks without tenants, meaning time spent not generating rental income.

And it’s not just the cost of property vacancy that can sting if you’re still paying off your investment property mortgage. Issues with tenants can pop up from time to time, whether that means damage to your property from rowdy occupants, or just unexpected repair costs from general wear and tear.

3.    Eligible for government assistance

There are a number of first home buyer government assistance available in 2021, including stamp duty exemptions and concessions, the First Home Owners Grant, the Family Home Guarantee, First Home Loan Deposit Scheme and the First Home Super Saver Scheme to name a few.

While these may differ across each state and territory, one thing is consistent across the board: they are not available for investors. If you opt to live in the property you purchase you may be able to take advantage of these helpful assistance measures, including avoiding stamp duty or even nabbing a home loan with only a 5 per cent deposit. Those who choose an investment property will have to rely on their own deposit, savings and income moving forward to cover the cost of the mortgage.


If your ready to buy an investment give Reduce a call and speak with one of our Personal Finance Managers.

1300 733 823