Rentvesting lets you live in Malvern while building wealth through property investment elsewhere.
The approach suits people who want to stay in areas like Malvern or Malvern East for lifestyle, schools or work, but find local property values beyond reach or prefer to invest in suburbs with stronger rental yields. You rent where you want to live and buy where the numbers make sense. Since mid-2026, the tax treatment of new investment purchases has changed significantly, so understanding how those rules affect your borrowing and long-term strategy matters before you apply for an investment loan.
How Rentvesting Works for Malvern Residents
You continue renting in Malvern while purchasing an investment property in a different suburb. The rental income from your investment property helps cover the loan repayments, and you claim the interest and holding costs as tax deductions. You're not locking yourself out of the Malvern lifestyle, but you're also not waiting years to enter the property market.
Consider a buyer who rents a two-bedroom apartment near Glenferrie Road and purchases a three-bedroom townhouse in a growth suburb an hour from the CBD. The townhouse generates rental income, the buyer accesses negative gearing benefits on the interest, and over time the property may appreciate while the buyer continues enjoying Malvern's cafes, proximity to Caulfield and Armadale stations, and local schools. That buyer is building equity without relocating.
The rental income you receive from your investment property is assessable income, and the interest you pay on the investment loan is deductible to the extent the property is rented or genuinely available for rent. Council rates, property management fees, insurance, repairs and depreciation are also claimable expenses. If your deductible costs exceed your rental income, you have a loss, and under the current rules for properties held before mid-May 2026, that loss can offset your salary or other income.
What Changed for Investment Property Buyers from May 2026
New tax rules apply to established residential investment properties purchased after 7:30pm AEST on 12 May 2026. From the 2027-28 income year, losses on those properties can only be offset against income from other residential properties, including capital gains. Excess losses carry forward to future years.
Properties under contract before that date and time, even if settlement occurred later, remain grandfathered under the old rules. New builds, meaning dwellings constructed on vacant land or builds that increase the number of dwellings on a site, are exempt and continue to allow negative gearing against all income.
If you're considering rentvesting now, the investment loan structure you choose and the type of property you buy directly affect your tax position and cash flow. A new townhouse development in a regional growth area qualifies for full negative gearing. An established unit in the same suburb purchased after May 2026 does not.
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Borrowing Capacity and Serviceability for Investment Loans
Lenders assess your ability to service an investment loan at an interest rate that is at least 3.0 percentage points above the actual loan product rate. That buffer has been in place since late 2021 and applies to all new borrowers at banks, credit unions and building societies.
Your rental income is included in the serviceability calculation, but lenders apply a haircut to account for vacancy periods and other costs. Most lenders shade rental income by 20 per cent, meaning they assume 80 per cent occupancy when calculating your borrowing capacity. Body corporate fees, council rates and insurance are also deducted from the income.
From February 2026, lenders can only write up to 20 per cent of new investor loans to borrowers with a total debt-to-income ratio of six times or greater. If your total borrowing across all loans, including the new investment loan, exceeds six times your gross annual income, you may find fewer lenders willing to approve the loan or you may need a larger deposit to bring the ratio down.
These settings mean your borrowing capacity for an investment property is typically lower than it would be for an owner-occupied home loan of the same size, even when rental income is factored in. A broker can model your serviceability across multiple lenders to identify which ones offer the most favourable treatment of rental income and which investment loan products align with your circumstances.
Loan Structure: Variable, Fixed, Interest Only or Principal and Interest
Most investors choose between a variable rate and a fixed rate, and between interest only repayments and principal and interest repayments. Each combination has different tax and cash flow implications.
Interest only repayments mean you're only paying the interest portion of the loan each month, not reducing the principal. Your repayments are lower, which improves cash flow, and the full interest amount remains deductible. Principal and interest repayments are higher but reduce the loan balance over time, building equity faster.
A variable rate moves with the market. A fixed rate locks in your interest cost for a set period, typically one to five years. Locking in a rate provides certainty over your deductible interest expense and repayment amount, but you lose flexibility if rates fall or if you want to make extra repayments above a capped limit.
Investors often split the loan, fixing a portion for certainty and leaving the remainder variable for flexibility. Lenders typically assess interest only loans and investment loans at higher risk weights under prudential standards, which can affect pricing. Investment loans on interest only terms at higher loan-to-value ratios may attract a rate premium compared to owner-occupied principal and interest loans at the same LVR.
Deposit Size, LVR and Lenders Mortgage Insurance
Most lenders require a minimum 10 per cent deposit for an investment property, though some will lend at higher LVRs with Lenders Mortgage Insurance. LMI is required when your loan amount exceeds 80 per cent of the property value. The premium is calculated on a sliding scale based on the loan amount and LVR, and the cost is generally added to the loan or paid upfront.
LMI protects the lender, not the borrower, but it allows you to purchase sooner with a smaller deposit. The premium itself is not tax deductible in the year it's paid, but it can be claimed as a deduction over five years or the life of the loan, depending on ATO rules at the time.
If you already own a home in another suburb or have built equity in an existing property, you may be able to use that equity as part or all of your deposit, avoiding the need for LMI. A broker can help structure the loans so your existing property secures part of the new investment loan without cross-collateralising in a way that limits future flexibility.
Tax Planning and Professional Advice
The tax treatment of investment property has become more complex since the May 2026 changes. Whether a property qualifies as a new build, how capital gains will be apportioned between the old and new tax regimes from July 2027, and how carried-forward losses interact with future property income are all questions that require input from a registered tax agent or accountant.
From July 2027, capital gains on investment properties are taxed differently depending on when the gain accrued. Gains accruing before 1 July 2027 continue to receive the 50 per cent discount. Gains accruing from 1 July 2027 are subject to cost base indexation and a 30 per cent minimum tax rate. For properties owned before and sold after that date, you'll need either a market valuation as at 1 July 2027 or an ATO apportionment formula to split the gain.
Eligible new builds offer a choice between the old 50 per cent discount and the new indexation method when you sell. That choice may significantly affect your after-tax return depending on how long you hold the property and how inflation moves.
A broker arranges the loan. A tax adviser structures the tax outcome. Both roles matter, and the earlier you involve both, the more options you have.
Applying for an Investment Loan Through a Broker
The investment loan application process involves more documentation than an owner-occupied application. Lenders want to see proof of the rental income, a copy of the lease or a rental appraisal, and evidence that you can service the loan with the rental income shaded and the interest rate buffered.
You'll also need to provide the usual income verification, living expense details, and information about your existing debts and assets. If you're using equity from another property, the lender will require a valuation of that property.
Brokers who work regularly with property investors understand which lenders offer the most favourable policy for rental income shading, which lenders allow interest only terms at higher LVRs, and which lenders are currently constrained by the debt-to-income limits and may be less competitive for high-income borrowers with large existing debts.
Access to investment loan options from banks and lenders across Australia means a broker can compare policies and pricing that aren't visible on rate comparison sites. Lender policy on how they treat losses under the new tax rules, how they assess new build status, and how they value rental income in softening markets can all vary, and those differences affect whether your application is approved and on what terms.
Rentvesting is a valid strategy for Malvern residents who want to live locally and invest elsewhere. The tax and lending rules have shifted, and understanding those shifts before you buy determines whether the investment delivers the wealth-building and tax outcomes you're expecting. Call us or book an appointment at a time that works for you.
Important: This does not constitute tax advice and it is recommended to seek advice from your Accountant or Financial Planner for your individual circumstances.
