Recent research by Westpac reveals that over half of first-time homebuyers are contemplating investing in property before purchasing their own homes, a trend known as “rentvesting.” This strategy allows individuals to live in desirable areas while investing in more affordable locations.
Zoe Carey, who has rented in Neutral Bay, Sydney for over 13 years, exemplifies this trend. Three years ago, she and her partner purchased an investment property in Albury, New South Wales. They opted for this approach due to the challenges of saving for a 20% deposit in Sydney’s competitive market. Carey noted, “We couldn’t get a 20 per cent deposit for a place in Sydney, and so with the savings that we had, it made sense to purchase a home.”
The appeal of rentvesting has grown markedly, with the total value of investment loan applications from first-time buyers at Westpac doubling between 2020 and 2024. This method allows buyers to benefit from rental income that can help service the investment loan and offers potential tax advantages. For example, owners of investment properties can claim deductions on mortgage interest, repairs, depreciation, and rates, which can provide substantial returns, particularly for individuals earning between $45,000 and $120,000.
However, as appealing as it may seem, it’s important for aspiring rentvesters to consult financial advisors, as everyone’s financial circumstances differ. Moreover, they need to be mindful of capital gains tax that may reduce their profits when they eventually sell their properties. As noted by Peter Koulizos, a lecturer at the University of Adelaide, rentvesting is more advantageous for those with higher incomes and tax brackets. Unlike investment properties, personal homes not subject to capital gains tax provide owners with tax-free profit upon sale.
While the rentvesting trend offers an opportunity to enter the property market, potential investors must remain vigilant about their rental costs and financial strategies. This evolving landscape of property buying could reshape the traditional pathways for first-time homebuyers, offering a pathway to financial growth amidst rising property prices.