04 Mar 2025 Rentvesting in Melbourne: A First Home Buyer’s Guide to Smart Investing
Rentvesting in Melbourne is becoming a game-changer for first-home buyers struggling to enter the property market. Instead of stretching their budget to buy in prime locations, buyers are choosing to rent where they want to live while purchasing an investment property in a more affordable suburb.
This popular strategy offers lifestyle flexibility and helps build long-term wealth through property investment.
At EverLend, we make rentvesting easy for first-home buyers by helping them find the right home loan with competitive rates and potential tax benefits. Our expert mortgage brokers guide you through the process, ensuring your loan suits your financial goals and investment strategy.
Let’s explore how rentvesting works and why it’s an effective strategy for Melbourne’s first-time investors.
What Is Rentvesting?
Rentvesting is a property investment strategy where you rent a home in your preferred location while purchasing an investment property in a more affordable suburb. Instead of saving for years to buy in a high-priced area, you can enter the property market sooner by investing in a location with strong capital growth potential.
Rentvesting vs. Traditional Homeownership
Rentvesting:
- Buy an investment property while renting elsewhere.
- Benefit from rental income and potential tax benefits.
- Build wealth through capital gains while enjoying city lifestyle.
- More flexibility to move based on job opportunities and lifestyle preferences.
Traditional Homeownership:
- Buy a home to live in.
- No rental income or investment-related deductions.
- Build equity in a single property but may face lifestyle compromises.
- Locked into one location unless selling or refinancing.
How Does Rentvesting Work?
Many first-time buyers love the idea of owning a home but don’t want to be priced out of their preferred suburb. This is where rentvesting comes in—it allows you to start your property journey while maintaining your current lifestyle.
For example, let’s say you want to live in Richmond, where house prices are high, but you can afford to buy in Melton, an affordable, high-growth suburb.
With rentvesting, you rent a home in Richmond while purchasing an investment property in Melton. Your rental income helps cover your mortgage repayments, and over time, the property values increase, building equity growth for future investments.
Why First Home Buyers Are Turning to Rentvesting in Melbourne
For many first-home buyers, purchasing a property in Melbourne’s prime suburbs feels out of reach. As of early 2024, Melbourne’s median house price sits at $940,000, while apartments average around $614,000 (Domain).
With property prices expected to rise by 3-5% in 2025, according to ANZ’s housing market forecast, first-time buyers are increasingly turning to rentvesting as an alternative way to enter the property market. Here’s why:
- High Property Prices in Prime Locations – Suburbs like South Yarra ($1.45M median) and Richmond ($1.4M median) remain unaffordable for many first-time home buyers (Realestate.com.au).
Instead of waiting years to afford these prime locations, rentvesting allows buyers to invest in cheaper properties with strong capital growth potential while renting where they want to live.
- Lifestyle Flexibility While Building Wealth – Rentvesting lets buyers rent in lifestyle suburbs like Fitzroy or St Kilda while investing in affordable, high-growth areas such as Werribee ($600,000 median) or Cranbourne ($580,000 median) (CoreLogic).
This strategy enables first-time investors to enjoy their current lifestyle without sacrificing their financial future.
- Entering the Property Market Sooner – With Melbourne’s rental market vacancy rate at just 1.1% (SQM Research), demand for rental properties remains high, making it an attractive strategy for buyers looking to earn rental income.
Rather than waiting years to save for a larger deposit, rentvesting allows first-home buyers to start building a property portfolio now and take advantage of the strong growth potential in Melbourne’s outer suburbs.
With Melbourne’s population expected to grow by 1.8% annually, demand for housing market investment opportunities remains strong into 2025 and beyond (Australian Bureau of Statistics). This makes rentvesting a wise decision for those looking to step onto the property ladder without compromising their lifestyle priorities.
Pros and Cons of Rentvesting for First Home Buyers
Rentvesting is an attractive strategy for first-time buyers, but it’s not without its challenges. While it offers a way to enter the property market sooner, buyers must weigh the investment strategy’s benefits and risks before making a wise decision.
Pros of Rentvesting
- Enter the Property Market Sooner – Buy an investment property in an affordable suburb without waiting years to save a larger deposit for a prime location.
- Live Where You Want – Maintain your lifestyle preferences by renting in inner-city areas or near job opportunities while still building a property portfolio.
- Potential Tax Benefits – Claim investment property expenses such as mortgage repayments, property management fees, council rates, and loan fees.
- Build Wealth Through Capital Growth – Invest in a high-growth area, benefiting from capital gains over time.
Cons of Rentvesting
- Managing Mortgage and Rent Payments – Covering both rental payments and loan repayments requires careful budgeting.
- Additional Costs – Expenses like body corporate fees, land taxes, and investment property maintenance can add up.
- Capital Gains Tax (CGT) – When selling your investment home, you may be liable for capital gains tax, reducing overall profits.
- Market Risks – The real estate market fluctuates, meaning property values and rental income are not always guaranteed.
Understanding these pros and cons can help first-time home buyers determine if rentvesting aligns with their financial goals and long-term strategy.
Steps to Become a Rentvestor
Buying your first home in Melbourne can feel overwhelming, but rentvesting makes it possible to enter the property market without sacrificing your lifestyle priorities. However, it’s important to plan for both expected and extra costs to avoid financial strain. Here’s how to get started:
- Assess Your Financial Situation – Calculate your borrowing power, check your credit score, and factor in loan repayments, investment property expenses, lenders mortgage insurance (LMI), and loan fees.
- Research High-Growth Investment Suburbs – Look at affordable, high-growth areas like Werribee ($600K median) or Cranbourne ($580K median) with strong demand for housing (CoreLogic).
- Secure the Right Home Loan – Work with a mortgage broker to compare investor loans, fixed-rate loans, and interest-only loans to find a loan that suits your financial goals.
- Find the Right Investment Property – Choose an ideal property with strong rental demand, rental return, and capital growth potential while budgeting for council rates, body corporate fees, land tax, property management fees, and ongoing maintenance.
- Account for Extra Costs – Set aside funds for unexpected expenses such as rental property repairs, vacancy periods, insurance, legal fees, and property purchase stamp duty.
- Rent in Your Preferred Location – Pick a rental property that aligns with your lifestyle factors, job opportunities, and city life preferences while your investment property builds equity.
Taking these informed steps ensures a wise decision when entering the Melbourne real estate market, helping you balance property ownership and lifestyle flexibility.
Best Melbourne Suburbs for Rentvesting
Melbourne’s house prices can be daunting, but there are still affordable, high-growth suburbs that are perfect for first-time investors. These areas offer strong rental demand, capital growth potential, and lower entry costs, making them ideal for rentvesting.
Werribee
A fast-growing outer suburb with a median house price of $600K and strong rental demand, thanks to its proximity to job opportunities and public transport.
Cranbourne
With a median house price of $580K, this affordable location offers strong growth potential and easy access to Melbourne’s southeast employment hubs.
Frankston
A bayside suburb with a median house price of $710K, it is known for its lifestyle appeal and increasing real estate market interest.
Melton
One of Melbourne’s most affordable suburbs, with a median house price under $500K, offering high rental yields and strong population growth.
Sunshine
A rapidly developing inner-west suburb with a median house price of $780K, benefiting from infrastructure upgrades and strong capital growth potential.
These high-growth areas provide a smart approach to property ownership, helping first-time home buyers build wealth through rentvesting.
Chat with EverLend
Thinking about rentvesting in Melbourne but unsure where to start? At EverLend, our expert mortgage brokers help first-home buyers find the right home loan, secure competitive interest rates, and maximise potential tax benefits.
Call us today at 03 7036 3356 or visit our website, EverLend!
FAQs
What is rentvesting?
Rentvesting is a property investment strategy where you rent in your preferred location while purchasing an investment property in a more affordable suburb. This allows first-home buyers to enter the property market sooner without compromising their lifestyle preferences.
What are the downsides of rentvesting?
Rentvesting comes with extra costs, including rental payments, mortgage repayments, land tax, and property management fees. It also carries risks like property market fluctuations and the possibility of paying capital gains tax (CGT) when selling your investment home.
What is the 6-year rule for rentvesting?
The 6-year rule allows rentvestors to treat their investment property as their primary residence for tax purposes if they sell within six years of moving out. This means they may avoid capital gains tax (CGT) on the sale (ATO).
How much money do you need to rentvest?
The deposit for an investment property is usually 10-20% of the property price, plus stamp duty, lenders mortgage insurance (LMI), and legal fees. In Victoria, this means buyers need at least $50K–$100K upfront for a $500K–$600K property.
How to start investing in rental properties?
First, check your borrowing power with a mortgage broker and research high-growth suburbs with strong rental demand. Then, secure an investment home loan, choose a rental property with capital growth potential, and work with a real estate agent to manage it.
Is an apartment a good investment?
Apartments can be a good investment in areas with a strong demand for housing, but capital growth is often slower than houses. Look for apartments with low body corporate fees, high rental return, and good location near public transport and job hubs.
How much deposit do you need for a first home buyer in Victoria?
First-home buyers in Victoria typically need a 5-20% deposit, depending on the loan type. With government grants and lenders mortgage insurance (LMI) waivers, some buyers can purchase with as little as $25K–$30K for a $500K property.
Final Thoughts
Rentvesting in Melbourne is a smart way for first-home buyers to enter the property market while still enjoying their ideal lifestyle. With house prices expected to rise in 2025, this investment strategy offers a way to start building wealth through property investment without waiting years to buy in prime locations.
If you’re considering rentvesting but aren’t sure where to begin, the team at EverLend is here to help. Our expert mortgage brokers offer free consultations, guiding you through the best home loan options to match your financial goals. Call us now at 03 7036 3356, or visit EverLend to start your property journey today!