Compare three paths side by side over a 5 to 20-year horizon: buying where you live, rentvesting (renting where you live while owning an investment property), and renting while investing elsewhere. The modelling includes investor income tax, negative gearing, capital gains tax discount, and Division 43 and 40 depreciation for Australian rental properties.

What is rentvesting?

Renting the suburb you want to live in while buying an investment property somewhere more affordable. Gets you onto the property ladder without overcommitting on owner-occupier debt. Popular with millennials priced out of Sydney and Melbourne.

How does negative gearing work?

When your rental expenses (interest, property management, maintenance, insurance, land tax, depreciation) exceed your rental income, the net loss offsets your other taxable income. You get a tax refund roughly equal to your loss multiplied by your marginal tax rate. Important: the refund only partially covers the out-of-pocket cash shortfall - negative gearing still costs you cash each year, it just costs less after tax.

What is depreciation and why does it matter?

Two types. Division 43 capital works: 2.5% per year for 40 years on the construction cost of the building (roughly 60% of price for established, 75% for new). Division 40 plant and equipment: fixtures, carpets, appliances etc. Since 2017 Div 40 is only claimable by the first owner of a newly built property - if you buy second-hand, Div 40 is lost. Depreciation is a non-cash deduction that reduces taxable rental income without reducing actual cash flow.

Why is the investor loan rate higher?

Investor loans are priced ~0.20-0.40% above owner-occupier P&I rates (APRA macroprudential rules + bank risk weighting). Interest-only investor loans are typically ~0.50%+ above owner-occupier P&I. We default to +0.30%.

How is CGT calculated on exit?

Sale price minus selling costs (2.5% default) minus cost base (purchase price + stamp duty + acquisition costs). If you've held the property for more than 12 months as an individual, you get a 50% discount on the gain. The discounted gain is added to your taxable income in the year of sale and taxed at your marginal rate - which can push you into a higher bracket.

Can I still be a first home buyer later?

Depends on your state. The federal FHBG and FHOG generally require you to never have owned property in Australia. If you own an investment, you are no longer a first home buyer for most federal schemes. Some state stamp duty concessions have narrower rules - check your state revenue office. If this matters, buy owner-occupier first, then convert to investment later.

Why include land tax - isn't it only for premium properties?

Land tax only applies to investment properties (no principal place of residence exemption). Thresholds vary wildly - VIC starts at $50k land value, NSW doesn't kick in until $1.075M, ACT has no threshold at all. Over 10+ years as your property grows, land tax becomes a real ongoing cost that most buyers ignore at purchase.

What does 'rent + invest' mean?

The alternative strategy: don't buy at all, rent forever, and invest your would-be deposit in an index ETF. Historically Australian equities return ~7% p.a. nominal with lower transaction costs, no land tax, no interest cost, and full liquidity. The trade-off is no leverage, no tax-advantaged depreciation, and ongoing rent exposure to the housing market.