When to Rentvest & How Investment Loans Work

Rentvesting Means Borrowing as an Investor From Day One

Rentvesting involves purchasing an investment property while continuing to rent where you live. For Kellyville residents, this typically means borrowing to buy a property in a more affordable suburb while renting locally near work, schools, or family. The lending approach differs from an owner-occupier loan from the outset. Investment loans attract higher interest rates, require larger deposits, and are assessed under stricter serviceability criteria because lenders classify rental income and investor borrowing as higher risk.

Consider a buyer renting in Kellyville who borrows to purchase a unit in a regional centre. The lender assesses rental income at around 80 per cent of market rent to account for vacancy and maintenance periods. The loan is priced at investment rates, typically 0.30 to 0.60 percentage points above owner-occupier rates at current pricing, and the deposit requirement sits at 10 to 20 per cent depending on whether the buyer is willing to pay Lenders Mortgage Insurance. Serviceability is tested at the loan rate plus a 3.0 percentage point buffer, meaning the buyer must demonstrate capacity to service the loan at a rate materially higher than the advertised product rate.

Deposit and LMI Requirements for Investor Loans

Most lenders require a minimum 10 per cent deposit for investment property finance, though some will lend at 5 per cent with LMI in limited scenarios. At loan-to-value ratios above 80 per cent, LMI becomes mandatory and the premium increases on a sliding scale as the LVR rises. The premium is calculated on the loan amount and is typically capitalised into the loan rather than paid upfront. Stamp duty is payable on the LMI premium in some states, though not in New South Wales.

A Kellyville resident purchasing an investment property at a 90 per cent LVR would pay an LMI premium that could reach several thousand dollars depending on the loan amount, and that premium is a non-refundable cost even if the loan is refinanced or repaid early. Where a buyer has access to equity in an existing property or can demonstrate sufficient genuine savings, a lower LVR reduces both the interest rate and the LMI cost. Lenders treat offset account balances as a feature that improves cash flow but do not reduce the loan amount for LVR calculation purposes under prudential standards.

How Rental Income Is Assessed in Serviceability

Lenders apply a shading factor to rental income when calculating borrowing capacity. The standard approach is to assess 80 per cent of the market rent as income, though some lenders apply a 75 per cent shading depending on the property type and location. This reduction accounts for vacancy periods, maintenance costs, and property management fees. A property generating $500 per week in rent contributes $400 per week to serviceability after shading, and that figure is then tested against the borrower's other liabilities and living expenses.

Where a buyer is rentvesting, the lender includes the borrower's own rental payments as an ongoing expense in the serviceability calculation. This creates a dual cost structure that requires higher income to support compared to an owner-occupier scenario. Debt-to-income limits introduced in February this year restrict the proportion of high-DTI lending each lender can write, and rentvesting scenarios with moderate income and dual rental costs can push a borrower closer to or beyond the six-times DTI threshold depending on the loan amount.

Interest Only Versus Principal and Interest Repayments

Investor loans are commonly structured with an interest-only period for the first one to five years, followed by a reversion to principal and interest repayments. The interest-only structure reduces the monthly repayment during the initial period, which supports cash flow and allows the borrower to maximise tax deductions on the interest component. Once the loan reverts to principal and interest, the repayment increases substantially because the remaining loan balance must be repaid over the shorter remaining term.

A Kellyville investor holding an interest-only loan should factor the repayment increase into long-term budgeting. The benefit of interest-only repayments is strongest where the investor has other uses for available cash flow, such as paying down non-deductible debt or building an offset balance to reduce interest costs without reducing the deductible loan balance. Lenders price interest-only investment loans with a small rate premium compared to principal and interest, typically 0.10 to 0.20 percentage points depending on the lender and loan features.

Fixed Rate and Variable Rate Investment Loan Products

Investment loan products are available on both variable and fixed rate terms. Variable rate loans allow offset accounts and unlimited additional repayments without penalty, while fixed rate loans lock in a rate for a specified term but typically do not permit offset accounts and may impose limits on additional repayments. Splitting the loan between fixed and variable portions is a common approach that provides partial rate certainty while retaining some flexibility.

A buyer rentvesting from Kellyville who anticipates a need to access equity or refinance in the medium term may prefer variable rate terms or a smaller fixed portion to avoid break costs. Fixed rate expiry costs can be substantial where rates have fallen since the loan was fixed, and the calculation is based on the lender's cost to unwind the hedge over the remaining fixed term. Lenders do not generally disclose the break cost formula upfront, and the figure can only be confirmed at the time the borrower requests an early exit or refinance.

Negative Gearing and Deductibility Rules for Existing Properties

For properties held at 12 May this year, including those under contract awaiting settlement at that date, investment property losses remain fully deductible against salary, wages, and other income until the property is sold. Interest on the investment loan, council rates, insurance, property management fees, and depreciation are all deductible to the extent the property is rented or genuinely available for rent. The combination of deductible expenses and rental income typically results in a net loss in the early years of ownership, and that loss reduces the investor's assessable income and tax payable.

From the income year beginning 1 July next year, losses on established residential investment properties acquired after 12 May this year can only be offset against other residential property income, including capital gains on residential property. Excess losses are carried forward. Eligible new builds remain exempt and continue to allow full deductibility against all income. A Kellyville resident considering rentvesting should confirm the acquisition date and property classification with their accountant before committing, as the tax treatment materially affects the after-tax cost of holding the property.

Eligibility for Rentvesting Where You Already Own Property

Rentvesting is not limited to first-time buyers. A Kellyville resident who owns and occupies a property can choose to retain that property as their residence while purchasing an investment property elsewhere. Alternatively, a buyer may convert their existing owner-occupied property to an investment property and rent elsewhere. The latter approach requires notifying the lender, as most home loan contracts require borrower notification and lender consent before changing the occupancy status. Lenders may reprice the loan to investment rates or require a formal refinance to an investment loan product.

Where a buyer is using equity in an existing property to fund the deposit on an investment purchase, the lender assesses the combined loan-to-value ratio across both properties and applies serviceability tests that account for both loans and the borrower's rental cost. The borrowing capacity calculation becomes more constrained as the number of properties and associated liabilities increase, and lenders apply portfolio-level assessments for borrowers with multiple investment properties.

When Rentvesting Makes Sense for Kellyville Residents

Rentvesting suits buyers who want to enter the property market but cannot afford to purchase in Kellyville or prefer to continue renting locally for lifestyle, work, or family reasons. Kellyville's proximity to employment hubs, schools, and the North West Metro Line makes it a desirable rental location for families, but median property values in the suburb place owner-occupied purchases out of reach for some buyers on moderate incomes. Buying an investment property in a suburb with lower entry prices allows the buyer to begin building equity and benefiting from capital growth and rental income while retaining flexibility in where they live.

The decision depends on the buyer's income, deposit size, and willingness to carry the cost of both a rental payment and an investment loan. Rental yields in Kellyville vary by property type, but units and townhouses in nearby growth corridors or regional centres may deliver higher gross yields than comparable property in the Hills District. Investors should account for body corporate fees, vacancy rates, and the time required to manage or oversee a property investment, particularly where the investment property is located outside the local area.

Call one of our team or book an appointment at a time that works for you. We work with Kellyville residents assessing investment loan options across a range of lenders and can structure the loan to suit your income, deposit, and property type.

Frequently Asked Questions