First home buyers
Rentvesting as a first home buyer: how it works
Rentvesting first home buyer guide: how buying an investment property to rent while you keep renting works, who may qualify, the costs and the loan options.
Rentvesting as a first home buyer means buying an investment property to rent out while you keep renting the place you actually want to live in. It lets you get into the property market in an area you can afford, often a cheaper suburb or town, while you live where it suits your work and lifestyle. Whether rentvesting suits you depends on your circumstances, your goals, and lender criteria, so it is worth weighing the trade offs before you commit.
This guide is rentvesting explained for a first home buyer: what it means, who may qualify for first home buyer support, how the loan and the deposit work, what it costs to hold, and the steps to take. Figures here come from the Australian Securities and Investments Commission (ASIC) Moneysmart. Rules and eligibility change, so always check the current criteria before you decide.
What rentvesting means for a first home buyer
Rentvesting is a first home investment property strategy. Instead of buying a home to move into, you buy a property to rent out, and you keep renting somewhere else as your own home. An owner-occupier home is one you live in, while an investment property is bought to earn rental income and potential capital growth rather than to live in.
The appeal is flexibility. You might want to live near the city for work but only afford an investment property further out, so rentvesting lets you separate where you invest from where you live. You earn rental income from the property and aim for capital growth over time, while staying mobile as a renter yourself. The trade off is the first home buyer support, which is usually built around people who move into the home they buy.
Who may qualify for first home buyer support when rentvesting
Most first home buyer help is designed for owner-occupiers, the people who live in the home they buy. State and territory first home owner grants generally require you to move in and live in the home as your main home for a set period after settlement. An investment property you rent out would not usually meet that residence test, so you would generally not qualify for the grant on a property you do not live in.
The same logic usually applies to first home buyer stamp duty concessions, which are also typically tied to living in the home, and to the Australian Government 5 percent deposit scheme, which is built for buyers who will live in the home rather than for investors. The exact rules, amounts, and residence periods vary by state and territory and are reviewed over time. So the loss of these grants and concessions is one of the biggest trade offs to factor in when you compare buying first home vs investment property.
Buying an investment property first may also affect whether you can access first home buyer support on a later home you live in, depending on the scheme rules at the time. If you want a fuller picture of how buying an investment property as your first purchase changes your support, read the first home buyer investment property guide. First home buyer investment property
Grant, stamp duty concession, and government 5 percent deposit scheme rules change and vary by state and territory. Confirm the current residence requirements, amounts, and eligibility with your state or territory revenue office before you make an offer.
How the loan and the deposit work
A rentvesting purchase uses a loan in much the same way as buying a home, but lenders look closely at how you will service it alongside the rent you pay on your own home. Some lenders may accept a deposit as little as 5 percent, but a larger deposit means you borrow less so your loan costs less.
If your loan-to-value ratio is above 80 percent you may need to pay lenders mortgage insurance, a one-off fee that protects the lender if you cannot repay the loan. It does not protect you or your guarantor. A deposit of around 20 percent usually avoids lenders mortgage insurance. A smaller deposit may mean higher costs such as lenders mortgage insurance, unless you are eligible for the Australian Government 5 percent deposit scheme, which is generally limited to owner-occupiers and so may not apply to a rentvesting purchase. For a fuller explanation of how the loan-to-value ratio works, see the loan-to-value ratio guide. What is lvr first home buyer
With most loans you make principal and interest repayments, paying off the amount borrowed plus interest. With an interest-only loan your repayments only cover the interest for a period, so the amount you borrowed is not reduced. A fixed interest rate stays the same for a set period, while a variable interest rate can go up or down as the lending market changes. A comparison rate is a single figure of the cost of a loan that includes the interest rate and most fees, which helps you compare loans. To see what you might be able to borrow while you are also paying rent, try the borrowing power calculator.
Borrowing power calculator
Open the calculator to run your own numbers.
Regular saving matters here too. Saving steadily shows a lender you can budget and commit to repayments, and even small, consistent deposits into a savings account make a difference while you build your deposit.
What it costs to hold a rentvesting property
A rentvesting property has upfront and ongoing costs. Upfront costs of buying can include stamp duty, conveyancing fees, legal costs, search fees, and pest and building reports. On top of those, an investment property has ongoing expenses such as council and water rates, building insurance, landlord insurance, body corporate fees, land tax, property management fees, and repairs and maintenance.
You also keep paying rent on your own home at the same time, so your budget has to carry both the mortgage on the investment property and the rent where you live. Once you have a property in mind, compare the income you expect from rent to your outgoing expenses before you buy, so you know whether the rent covers the costs or you are topping it up from your own pocket.
There are tax points to understand as well. A positively geared investment is one where rental income is more than the expenses, and you may pay tax on that rental income. You can offset most property expenses against rental income, including interest on any loan used to buy the property. If the property increases in value, you benefit from a capital gain when you sell it, and you may have to pay capital gains tax. Tax outcomes depend on your circumstances, so it is worth speaking with a registered tax agent or accountant.
Risks to weigh up
Rentvesting is not a one-way bet. If the property value goes down you could end up owing more than the property is worth, and vacancy periods mean you cover the mortgage from your own pocket while still paying your own rent. As a first home buyer you may have a smaller deposit and less of a buffer than an established investor, so it is worth being honest about how you would manage a rate rise or a few months without a tenant.
It can also be harder to build further savings while renting somewhere yourself and paying a mortgage on an investment property at the same time. When choosing where to buy, it helps to look for areas with higher growth, higher rental yield, and low vacancy rates, but past performance is not a promise of future returns.
Rentvesting compared with buying a home to live in
The buying first home vs investment property choice comes down to what you want the property to do for you. Buying a home to live in can give you somewhere to settle and access to first home buyer grants, stamp duty concessions, and the government 5 percent deposit scheme if you are eligible. Rentvesting can let you enter the market in an area you can afford and earn rental income while you live where you want, but you generally give up the owner-occupier grants and concessions, and you take on landlord costs and risks from day one.
| Consideration | Buying a home to live in | Rentvesting |
|---|---|---|
| First home owner grant | May qualify if you meet the residence rules | Generally does not qualify |
| Stamp duty concession | May qualify as an owner-occupier | Generally does not qualify |
| Government 5 percent deposit scheme | May be eligible | Generally not eligible |
| Where you live | The home you buy | Wherever you choose to rent |
| Income | No rental income | Rental income, which may be taxable |
| Ongoing costs | Your own running costs | Landlord costs plus your own rent |
There is no single right answer. If you are still building a deposit, you may also want to read about buying with a smaller deposit before you decide. Buying with 5 percent deposit It depends on your goals, your budget, and lender criteria.
How to decide whether to rentvest
- Get clear on whether you want a home to live in, an investment to rent out, or the rentvesting mix of both.
- Check which first home buyer grants and stamp duty concessions you would qualify for, and whether rentvesting would mean losing them.
- Work out your borrowing capacity and a realistic deposit, taking in your income, your own rent, and your other commitments.
- Map the full costs, including the upfront buying costs, the ongoing landlord costs, and the rent you keep paying on your own home.
- Compare the rent you expect to earn against your expenses, then stress test your budget against a rate rise and a vacancy period.
- Get tax advice on rental income, deductions, and any future capital gain.
- Compare lenders and loan options, then get pre-approval before you make an offer.
Talk to the team at Finance Lab
If you are weighing up rentvesting as a first home buyer, the team at Finance Lab can help you compare your options, check what first home buyer support you may qualify for, and work through the numbers on holding an investment property while you rent. Get in touch and we will help you understand what may be possible for your situation.
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