Rentvesting means you rent the home you live in and buy an investment property somewhere else. After a divorce, it can be a way to get back into property without buying the family home or a place in a suburb you can't afford.
If you're going through a separation, you're probably weighing up a few options at once: keep the house, sell, or start fresh. This article helps you decide whether rentvesting is worth a conversation with a broker.
What Is Rentvesting and Does It Suit Someone After Divorce?
Rentvesting is renting your own home while owning an investment property elsewhere. It can suit people after a divorce who want flexibility, but it also means you carry both rent and a loan.
Some people leave a marriage wanting to live near work, family or the kids' school, in an area where buying is out of reach. Rentvesting lets you live there as a tenant while you buy a property in a more affordable area. The trade-off is that you pay rent with no ownership of your home, and your investment is exposed to vacancies, repairs and changes in value.
It is a different path from buying your first home after divorce, so it helps to know which goal matters more to you: owning the place you live in, or building an asset while keeping your lifestyle flexible. Our page on rentvesting covers the basics in more detail.
How Do Lenders Treat an Investment Loan After Separation?
Lenders assess an investment loan on your income, your debts and your living expenses. After a separation, they assess you as an individual applicant on your own income and expenses. Any joint loan or debt you remain liable for is still counted in your commitments until it is refinanced, paid out or you are released.
Your rent counts as a living expense, and any existing loans, credit cards and child support or spousal maintenance obligations are generally taken into account. Rental income from the new property may be counted by the lender, often at a reduced portion rather than in full, and the exact amount varies by lender. Your borrowing capacity can look quite different from what it was as a couple, so it is worth checking before you fall in love with a property.
If you are still part-way through the property settlement, lenders will usually want to see clarity on what you own and owe. A home loan pre-approval can show you a likely loan amount, though it is not a final offer and conditions apply.
Using Your Settlement Money for a Rentvesting Purchase
Your share of a property settlement can fund the deposit for an investment, but putting it all into one purchase leaves you with less cash for rent, bonds and emergencies.
As an example, consider a person who receives a share of equity from the sale of the family home. They want to stay in their current area, where renting suits them, and buy an investment in a lower-priced area. Their broker looks at the loan to value ratio (LVR) for the investment. A higher LVR may mean Lenders Mortgage Insurance (LMI), which adds to the upfront cost, so the person decides to keep a larger deposit and a cash buffer. They also set up a linked offset account to hold their buffer, which reduces the interest charged on the loan while keeping the money accessible.
The outcome is a smaller loan, a buffer to cover rent and loan repayments if the property sits empty for a few weeks, and a clearer view of the monthly cost. The trade-off is that a bigger deposit means less money for other goals, and offset benefits only apply while the money stays in the account.
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Book a chat with a Finance and Mortgage Brokers at Divorce Home Loans today.
Interest Only or Principal and Interest on an Investment Loan?
Interest only repayments cover just the interest for a set period, so they are lower at first, while principal and interest repayments reduce the loan balance from day one.
As an illustration at 6.75% p.a., a $400,000 loan costs about $2,250 a month in interest only repayments (400,000 x 0.0675 / 12). On a 30 year principal and interest loan at the same rate, the repayment is about $2,594 a month. The gap is roughly $344 a month, which can help cash flow when you are also paying rent.
The trade-off is that with interest only you are not paying down the debt. When the interest only period ends, the loan reverts to principal and interest over a shorter remaining term, so repayments rise. If the interest only period is five years, the repayment is then calculated over 25 years, which at 6.75% p.a. is about $2,764 a month. Rates are illustrative only, and your actual rate will depend on your lender, deposit and circumstances. Our page on interest only loans explains how they work. Ask your accountant how loan interest on an investment may be treated for tax, as outcomes depend on your situation.
Fixed, Variable or Split Rate: Which Suits a Rentvestor?
A variable rate can move up or down, a fixed rate stays the same for a set period, and a split rate lets you have some of each. The right mix depends on how much certainty you need.
When your income has just changed because of a separation, a fixed portion can make budgeting more predictable. The trade-off is that fixed loans often limit extra repayments and can carry break costs if you exit early, and you may not benefit if rates fall. Variable loans can offer features like a full offset account, but repayments can rise. A split loan balances the two, although you manage two loan accounts. If a fixed term is ending, see our guide to fixed rate expiry.
What Happens if You Still Have a Joint Loan?
If you still have a joint loan, you are both responsible for it until it is refinanced or paid out, and that can affect how much you can borrow for a new property.
Many people need to deal with the old loan first. That might mean buying out your partner by refinancing into one name, or selling the property and clearing the debt. Lenders will also look at your debts, so tidying up credit cards or personal loans can help. If you have an existing investment, investment loan refinancing may be part of the plan. The timing for refinancing or releasing a party is usually set by the settlement agreement or court orders, so get legal and broker advice before committing to a new purchase.
Rentvesting is not right for everyone. It adds ongoing costs and market risk, and it means you do not have a home of your own to live in. For some people, a more traditional purchase suits better. A broker can compare options from the lenders on their panel and show you the repayments side by side.
If you would like to talk it through with someone who understands separation and lending, call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
What is rentvesting?
Rentvesting means renting the home you live in while owning an investment property elsewhere. It can give you flexibility in where you live, but you carry rent as well as loan costs.
Can I get an investment loan after divorce?
Often yes, depending on your income, debts and living expenses. Lenders assess you as an individual applicant on your own income and expenses, but any joint loan or debt you remain liable for is still counted until it is refinanced, paid out or you are released. An unresolved property settlement can also affect what you can borrow.
Is interest only a good choice for a rentvestor?
It lowers repayments for a set period, which can help cash flow. However, you are not paying down the loan, and repayments rise when it reverts to principal and interest over a shorter remaining term.
Should I choose a fixed or variable rate?
A fixed rate gives certainty for a set period but may limit extra repayments and carry break costs. A variable rate is more flexible but can rise, and a split loan lets you combine both.
