What Is Rentvesting and Why Do Perth Buyers Consider It?
Rentvesting means purchasing an investment property while continuing to rent where you want to live. You buy a property you can afford, rent it out to cover the mortgage, and rent somewhere that suits your lifestyle. For buyers across Perth and WA, this approach lets you enter the market without sacrificing location, commute times, or the flexibility to move when your circumstances change.
Consider a buyer working in the Perth CBD who wants to live close to Northbridge or Mount Lawley but finds those suburbs out of reach. Rentvesting allows them to purchase a more affordable property in a growth area like Baldivis or Byford, rent it to tenants, and continue renting an apartment in the inner city. The rental income offsets the mortgage, and they start building equity in a property they can afford now rather than waiting years to save a larger deposit for their ideal location.
Mistake 1: Choosing the Wrong Property for Rental Demand
The property that appeals to you as a buyer may not be the one that tenants want. Rental demand varies significantly across Perth, and choosing a property based on personal preference rather than tenant needs can leave you with longer vacancy periods and less reliable income.
In outer suburbs like Baldivis, Byford, and Ellenbrook, families make up a large proportion of tenants. They prioritise proximity to schools, parks, and shopping centres. A three-bedroom, two-bathroom home with a small yard will attract more interest than a two-bedroom villa with no outdoor space. In contrast, suburbs closer to the CBD or major universities, such as Subiaco or Crawley, attract young professionals and students who prefer low-maintenance apartments close to public transport.
Before purchasing, research the area's tenant profile and vacancy rates. Properties that align with local demand will rent faster and hold tenants longer, reducing the risk of periods without income.
Mistake 2: Overlooking Loan Structure and Tax Treatment
Investment property loans are assessed differently to owner-occupied loans, and lenders apply stricter serviceability criteria. Rental income is factored into your borrowing capacity, but lenders typically assess only 80 per cent of the gross rent to account for vacancies and maintenance costs. This reduced income assessment can limit the amount you are approved to borrow, especially if you are also paying rent on your own residence.
Interest-only loan structures are common for rentvesting because they reduce monthly repayments and maximise the tax deduction on borrowing costs. Under current tax law, interest on an investment loan is deductible against rental income and other taxable income. If your rental expenses exceed your rental income, the loss can offset your salary, reducing your overall tax liability. This treatment applies to properties you already own or purchase before changes to negative gearing rules take effect from the 2027-28 income year.
Talk to your broker about structuring the loan to suit your tax position and cash flow needs. The right structure depends on your income, your other debts, and whether you plan to purchase an owner-occupied property later. If you are considering applying for a second loan within a few years, keeping your borrowing capacity intact now will make that process smoother. You can explore your options for investment loans to see how loan structure affects your overall position.
Ready to get started?
Book a chat with a Finance & Mortgage Broker at Rowe Finance today.
Mistake 3: Underestimating Ongoing Costs and Cash Flow Gaps
Rental income rarely covers every cost associated with owning an investment property. Even with tenants in place, you are responsible for council rates, water rates, strata fees if applicable, landlord insurance, property management fees, and maintenance. These costs add up quickly, and if the property sits vacant for even a few weeks, you will need to cover the full mortgage repayment from your own income.
Property management fees in Perth typically range from 7 to 10 per cent of the weekly rent, plus letting fees when a new tenant is secured. Landlord insurance, which covers loss of rent and damage beyond normal wear and tear, adds another few hundred dollars per year. Strata fees for apartments and townhouses can range from $500 to over $2,000 per quarter, depending on the complex and the amenities included.
Before committing to a purchase, calculate the total annual cost of ownership and compare it to the expected rental income. If there is a gap, make sure you have enough surplus income or savings to cover it. A buffer of at least three months' expenses will help you manage vacancy periods or unexpected repairs without financial stress.
Mistake 4: Ignoring Your Own Borrowing Capacity for a Future Home
When you purchase an investment property, lenders treat the debt as part of your overall liability when assessing future loan applications. Even if the rental income covers most of the mortgage, lenders will shade that income and assess the full loan repayment as an expense. This can reduce your borrowing capacity when you later apply for an owner occupied home loan.
In our experience, buyers who rentvest without considering their future plans can find themselves unable to purchase a home to live in when their circumstances change. If you plan to buy your own home within the next few years, talk to your broker about how the investment loan will affect your serviceability for a second purchase. In some cases, it makes sense to delay rentvesting until your income increases or your other debts are reduced, so you retain the capacity to borrow again when you are ready.
Your broker can model different scenarios and show you how much borrowing capacity you will have left after purchasing an investment property. This forward planning ensures that rentvesting is a step toward your long-term goals, not a barrier to them.
Mistake 5: Skipping Pre-Approval and Buying Under Pressure
Rentvesting works when you purchase the right property at the right price. Buyers who skip home loan pre-approval often find themselves making rushed decisions or discovering too late that they cannot borrow as much as they assumed. Pre-approval gives you a clear budget, confirms your borrowing capacity, and shows sellers that you are a serious buyer.
Pre-approval also allows your broker to compare loan products and find the one that offers the most flexibility for your situation. Features like offset accounts, redraw facilities, and the ability to switch between interest-only and principal-and-interest repayments can make a significant difference to your cash flow and tax position over time. These features are not standard across all lenders, and some investment loan products offer better terms than others.
Once you have pre-approval in place, you can focus on finding a property that meets your investment criteria without the pressure of arranging finance in a tight settlement period. This also gives you time to review the rental market in the area, check recent sales data, and ensure the property is priced fairly. A rushed purchase rarely delivers the returns you expect, and the cost of buying the wrong property far exceeds the time spent on proper preparation.
Rentvesting can be a practical way to enter the property market while maintaining flexibility in where you live, but it requires careful planning and the right loan structure. Call one of our team or book an appointment at a time that works for you to discuss your options and make sure your strategy aligns with your financial goals.
Frequently Asked Questions
What is rentvesting and how does it work?
Rentvesting means purchasing an investment property while continuing to rent where you want to live. You buy a property you can afford, rent it out to cover the mortgage, and rent somewhere that suits your lifestyle.
How does rentvesting affect my borrowing capacity for a future home?
When you purchase an investment property, lenders treat the debt as part of your overall liability when assessing future loan applications. Even if rental income covers most of the mortgage, lenders will shade that income and assess the full loan repayment as an expense, which can reduce your borrowing capacity for a second purchase.
What ongoing costs should I budget for when rentvesting?
Ongoing costs include council rates, water rates, strata fees if applicable, landlord insurance, property management fees (typically 7 to 10 per cent of weekly rent), and maintenance. A buffer of at least three months' expenses will help you manage vacancy periods or unexpected repairs.
Should I use an interest-only or principal-and-interest loan for rentvesting?
Interest-only loans are common for rentvesting because they reduce monthly repayments and maximise the tax deduction on borrowing costs. The right structure depends on your income, other debts, and whether you plan to purchase an owner-occupied property later.
Why is pre-approval important for rentvesting?
Pre-approval gives you a clear budget, confirms your borrowing capacity, and shows sellers you are a serious buyer. It also allows your broker to compare loan products and find the one that offers the most flexibility for your situation, including features like offset accounts and redraw facilities.
