The tax perks that made rentvesting so attractive have been wound back and while the strategy still works, experts say the way you do it needs to change.
'Rentvesting' has long been one of the most creative workarounds in the Australian property landscape — buy where you can afford, rent where you want to live, and use the investment to build equity towards an eventual home of your own.
Westpac research in early 2025 found more than hald of first home buyers were considering it, but negative gearing and capital gains tax (CGT) reforms since then have significantly changed the game.
Sydney-based Mortgage Choice broker Richard Brown says he's fielding more questions than ever from clients about whether rentvesting still stacks up, with some clients switching tack altogether to buying shares or owner occupied homes instead.
"There's no doubt rentvesting has become harder because of these changes," he says.
Under the old rules, the losses you made in the early years of holding an investment property — and most investors do lose money early — could be offset directly against your income. This would then reduce the tax bill and help the investor hold the asset through the lean years.
Mortgage Choice broker, Richard Brown. Picture: Supplied
Now, negative gearing on established properties can no longer offset wages, and the 50% CGT discount is being replaced with real-gains indexation from next July.
Losses aren't eliminated entirely, but they're deferred, banked and used to offset positive cash flow later, once the property starts turning a profit.
Mr Brown says the new policy hits younger and lower-income investors hardest.
"Older and more sophisticated borrowers can probably afford to carry the losses until the property makes a gain," he says. "But many younger investors need that tax benefit straight away just to hold the property."
Younger and lower-income investors are hit hardest by the property tax overhaul, experts say. Picture: Getty
How the changes impact your bank balance
The most immediate impact of the reforms is on cash flow.
Before the changes, annual tax refunds from negative gearing helped investors bridge the gap between rental income and loan repayments — effectively subsidising the holding costs of an investment property.
For established properties, that buffer is now gone, or at least deferred, which means a property needs to stand more on its own two feet from day one.
The knock-on effect is equally significant. Even before the changes are legislated, some lenders had started factoring in the loss of negative gearing benefits when assessing borrowing capacity.
"Clients who might have been able to borrow $800,000 for a property previously have seen that come down to $500,000 or $600,000," Mr Brown notes.
"With reduced borrowing capacity, you may have to buy an investment of a lower value, which means lower quality, a less desirable area, or further from friends and family. Or you may have to buy a unit, which won't grow at the same rate as a house."
Rethink your strategy
For those living in expensive metro markets, investment expert Junge Ma at InvestorKit says the core reason for rentvesting hasn't changed: their preferred suburb is still unaffordable, the growth markets are still elsewhere, and that gap hasn't closed.
In this new tax environment without annual refunds to lean on however, she says far greater emphasis needs to be placed on the property’s own fundamentals, such as rental yield and rental growth.
The difference in asset selection can be striking. Take an $850,000 house in Adelaide, yielding 3.5% — the medians for the area, says Ms Ma. On an 80% Loan-to-Value Ratio loan at 6.5% interest-only, that leaves a roughly $22,000 annual cash shortfall with no negative gearing to soften it. Under the old rules, a high-income investor could have trimmed that to about $12,000.
Now swap that Adelaide house for a median $720,000 house in Bathurst yielding 4.3%. In the same no-negative-gearing scenario, the shortfall drops to about $14,500 and with 5% rental growth, that gap keeps closing over time.
The purpose of property investing is not to maximise tax concessions but to maximise overall returns, says Ms Ma. In short, you just need to buy better.
"Factors such as capital growth, rental growth, cash flow and portfolio construction have much greater impact on long-term wealth creation than the difference between one CGT regime and another."
Plenty of investors are unhappy with prime minister Anthony Albanese’s new tax plans. Picture: The Daily Telegraph / Martin Ollman
To new build or not to new build
New builds still qualify for negative gearing and the 50% CGT discount, but chasing them purely for the tax benefits could be a flawed approach.
Established properties tend to win on capital growth thanks to scarcity, while new builds can carry a range of hidden costs including price premiums baked in by developers, lower land value exposure, and oversupply risk.
There's also a definitional grey are, with legislation confusing on what qualifies as a new build, meaning not every property that looks new will necessarily make the cut.
There's a bigger trap lurking too. If investors pile into new-build stock en masse, prices inflate in the short term while the fundamentals weaken.
New build houses are the exception to the government's tax overhaul... if the home is indeed a new build. Picture: Getty
"That can create oversupply risks, weaker rental growth and softer long-term performance that investors were trying to avoid in the first place," says Ms Ma.
And as tenants, they may face tighter supply and rising rents in established areas as investor activity shifts away from them, she warns.
"Rentvestors could find themselves navigating greater challenges on both sides of the market."
Research and commit
Rentvesting works best as a long-term strategy, but that's not always how it plays out, says Mr Brown.
Rentvesting works better for some phases of life than others, experts agree. Picture: Getty
"Life intervenes — a partner, a baby, a sudden urge to buy your own home. People sell early, before the properties have grown in value, and the transaction costs are a killer," he adds.
The tax changes have only reinforced this point, says Ms Ma.
"The longer an asset is held, the more inflation indexation can offset the impact of losing the CGT discount."
Both experts agree rentvesting still has merit.
"If you can carry the losses, I think reinvesting is still a great way to build wealth. You just need to run the numbers first," says Mr Brown.
Ms Ma's formula for a successful portfolio today centres on three things: manageable cash flow, strong capital growth potential, and diversification across locations, so no single policy or market shift can sink you.
Above all, she says, keep your eye on the asset, not the tax treatment.
"A tax benefit can support cash flow," she says. "But it can't turn a weak asset into a strong one."
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