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Home Loan Variable: 5.84% (5.91%*) • Home Loan Fixed: 5.48% (6.24%*) • Fixed: 5.48% (6.24%*) • Variable: 5.84% (5.91%*) • Investment IO: 5.78% (6.81%*) • Investment PI: 5.58% (6.62%*)

The capital gains of rentvesting

Rentvesting is a property ownership method whereby renters buy in an area with a high rental yield and rent the property while living elsewhere.

It’s fast becoming a tax beneficial way to overcome FOMO (fear of missing out) amid the spectre of record house prices. 

This is confirmed by Plan Your Future founder Helen Nan, who says rentvesting is about gaining access to the property market if buyers cannot initially afford to purchase their dream home.

Ms Nan adds that the concept helps investors build a long-term wealth creation plan earlier than expected. This is dependent on seizing the right opportunity when it presents itself.  

“The biggest advantage can be entering the property market earlier,” she says.

“If you want to arrive at your financial destination earlier, it’s better to start earlier.”

How it works

The rentvesting strategy works equally well for young people who might still be living with their parents while paying minimal rent. 

This essentially means that they can pay off the mortgage on their investment property faster.

It also means you can live in an area that suits your lifestyle even if you can’t afford to own property in that postcode.

“It allows you the freedom to live where you want, not just somewhere where you can afford to buy,” Ms Nan says.

As such, established properties with land are highly valued for their growth potential and lifestyle/tenancy appeal.

The tax gains of rentvesting

There are many tax benefits when you choose to rentvest. 

These include: the ability to claim any expenses, depreciation and interest on the loan for your investment property as a tax deduction.

Additionally, if you buy a property, live in it for six to 12 months, then rent it out, you don’t pay any capital gains tax on the growth in that investment for six years. 

Experts label this the six-year rule, which means you can continue treating your former home as your main residence for the purposes of capital gains tax even though you no longer live in it. 

Analysts specify that if you don’t make it your place of residence and you haven’t lived in the property, then you will have to pay capital gains tax from day one of that investment property that you’re using for your rentvesting strategy.

If you decide not to live in the property before renting it and you sell it after owning it for at least a year, half of the growth in value of that property will be counted as a capital gain.

For example, if you make $300,000 on the sale of an investment property, then $150,000 would be added to your taxable income and taxed at your marginal tax rate.

Of course, it’s important to consult your financial advisor or lender to ensure that the rent you receive, minus expenses, equals or exceeds the amount of rent you pay. 

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