Smart ways to approach rentvesting in Mascot

Rentvesting lets you enter the property market without having to live in what you buy.

The approach works particularly well for people who want to stay in Mascot, close to the airport, CBD access, and the area's growing hospitality and retail precinct, but who find purchase options in this inner-city suburb beyond their current deposit range. Instead of stretching to buy a one-bedroom unit in Mascot, you might purchase a two-bedroom townhouse in a more affordable outer suburb and rent it out while continuing to rent where you want to live.

How rentvesting changes the type of loan you need

When you buy as a rentvester, you apply for an investment loan rather than an owner-occupied home loan. Lenders treat these differently because the property generates rental income but also carries additional risk. Investment loan interest rates sit slightly higher than owner-occupied rates, usually by around 0.3% to 0.5%, and lenders typically require a larger deposit. Where you might access an owner-occupied loan with a 5% deposit under the Home Guarantee Scheme, most investment loans require at least 10% to avoid Lenders Mortgage Insurance, and often 20% for the most competitive rates.

The rental income from the property does count toward your borrowing capacity, but lenders don't take the full amount. Most will assess around 80% of the expected rent to account for vacancy periods and maintenance costs. If the property you're buying would rent for $500 per week, the lender will generally add $400 per week to your income when calculating what you can borrow.

Offset accounts and how they work with rental income

An offset account linked to your investment loan reduces the interest you pay by offsetting your savings balance against the loan amount. If you have a loan of $450,000 and $20,000 in your offset account, you only pay interest on $430,000.

For rentvesters, this becomes particularly useful because you can direct your rental income into the offset account. Consider someone who buys a property in Ipswich that rents for $450 per week. That income flows into the offset, reducing the interest charged each month while keeping the funds accessible for property expenses like repairs or council rates. The interest you save by using an offset is not taxable, unlike the interest you might earn in a standard savings account.

Variable versus fixed rates for investment properties

Most rentvesters choose a variable rate or split their loan between variable and fixed. A variable rate gives you access to features like an offset account and the ability to make extra repayments without penalty. Fixed rates lock in your repayment amount for a set period, usually one to five years, but they often come with restrictions on additional repayments and rarely allow a full offset account.

If rental income covers most of your repayments and you want the flexibility to pay down the loan faster when you have extra cash, a variable rate suits that approach. If you prefer certainty around what you'll pay each month regardless of rate movements, a fixed rate provides that stability. A split loan, where part of the balance is fixed and part is variable, lets you access offset benefits on the variable portion while locking in a rate on the remainder.

Interest-only repayments and when they make sense

Some rentvesters structure their loan as interest-only for the first few years, meaning they only pay the interest portion of the loan each month rather than paying down the principal. This keeps monthly repayments lower, which can help when you're managing both rent on the property you live in and a mortgage on the property you own.

An interest-only structure works when your focus is on building equity through capital growth rather than paying down the loan quickly. It also keeps more of your cash available for other purposes, like saving a deposit for a second property down the line. Most lenders offer interest-only periods of up to five years on investment loans, after which the loan converts to principal and interest repayments unless you apply to extend the interest-only term.

The trade-off is that you're not reducing the loan balance during the interest-only period, so you'll pay more interest over the life of the loan compared to a principal and interest structure from the start. Whether that trade-off makes sense depends on your financial position and what you're trying to achieve in the next few years.

Structuring your loan to keep investment debt separate

When you're rentvesting, it's important to keep your investment loan completely separate from any personal debt or future owner-occupied borrowing. The interest on an investment loan is generally tax-deductible, but only if the loan is used solely to purchase the investment property. If you later redraw funds from that loan to buy a car or pay for renovations on a home you move into, you can lose the tax deductibility on that portion of the debt.

This is why most brokers recommend setting up your investment loan with a clear structure from the start. If you think you might buy a home to live in within the next few years while keeping the investment property, you'll want the investment loan kept entirely separate so there's no confusion when claiming deductions.

Borrowing capacity when you're paying rent and a mortgage

Lenders assess your ability to service an investment loan while continuing to pay rent on the property you live in. That means both your current rent and your proposed mortgage repayments get included in the serviceability calculation, along with any other debts like car loans or credit cards.

Your rental income from the investment property helps offset the mortgage repayment, but as mentioned earlier, lenders typically only count 80% of that income. If your rent in Mascot is $650 per week and the mortgage repayment on the investment property would be $550 per week, with expected rental income of $420 per week, the lender will assess your position as though you're paying $650 rent plus $550 mortgage minus $336 rental income (80% of $420). The net position is what determines whether you can service the loan comfortably.

Tax treatment and what rentvesters can claim

Rental income is taxable, but you can claim deductions for expenses related to earning that income. This includes loan interest, property management fees, council rates, insurance, repairs, and depreciation on the building and fixtures. Many rentvesters find that their deductible expenses exceed their rental income in the early years, resulting in a tax loss that reduces their overall taxable income.

For example, if your property generates $22,000 in rent per year but you pay $18,000 in loan interest, $2,500 in property management and maintenance, $2,000 in rates and insurance, and claim $3,000 in depreciation, your total deductions are $25,500. That creates a $3,500 loss, which you can offset against your salary income, reducing the tax you pay.

This is one reason rentvesting can be more tax-effective than buying a home to live in. Owner-occupied properties don't generate rental income, so you can't claim any of those expenses. The tax benefit doesn't make rentvesting right for everyone, but it does shift the affordability calculation compared to a standard home loan.

When rentvesting suits your situation and when it doesn't

Rentvesting makes sense when you want to stay in a location where buying isn't currently feasible, but you're ready to start building equity and taking advantage of long-term property growth. It works well if you value lifestyle and location over ownership of the place you wake up in each day, and if you're comfortable with the responsibilities of being a landlord.

It's less suitable if your main goal is security of tenure or if you want full control over renovations and personalisation. Renters face the possibility of lease changes or the property being sold, and as a landlord you'll need to manage tenant requests, maintenance issues, and vacancy periods. Some people find the administrative side of rentvesting more demanding than expected, particularly if they've chosen an investment property in a location far from where they live.

Call one of our team or book an appointment at a time that works for you. We'll walk through the loan structure, deposit requirements, and borrowing capacity based on your income and the suburbs you're considering, and help you understand what your repayments and tax position would look like once the property is tenanted.

Frequently Asked Questions