Rentvesting is a strategy used by first home buyers to rent where you actually want to live while buying an investment property somewhere more affordable. It is a common option used as a way to build wealth over time and a strategy that has worked for plenty of Melbourne professionals over the years.
But two things have changed recently that might impact how the numbers for rentvesting stack up: Melbourne's property price cycle and the Federal Government's May 2026 Budget overhaul of negative gearing and capital gains tax.
This article is general information only and does not constitute financial, legal or tax advice. We recommend seeking advice from a qualified accountant, solicitor and licensed financial adviser before making any decisions.
Should you buy an investment property in Melbourne in 2026?
Melbourne dwelling values fell 2.8% over the 12 months to July 2026, according to Cotality's Home Value Index, with the median now sitting at $797,354.
For a rentvestor, that could be good news and a catch in the same number. Falling values lower the deposit needed to buy and make the entry point more accessible, but they only make sense to buy into if the property still earns its keep as an investment while it's soft.
That's where yield comes in. Gross rental yields on Melbourne dwellings have climbed to 3.9%, up from 3.7% a year ago. This is not because rents have surged (although they have grown, up 5.1% year-on-year), but because values have fallen. Yield is simply rental income measured against the property's value, so it rises either when rents go up or when the price comes down. In Melbourne's case, it's almost entirely the second one – values have fallen while rents have grown. This is important if you're relying on rental income to cover your home loan.
Will you actually find a tenant?
The other side of the equation is demand. No amount of yield matters if the property sits empty. A healthy, balanced market typically runs somewhere between 2% and 3% vacancy rate. Anything below that means tenants are competing for stock rather than the other way around.
SQM Research currently has Melbourne's vacancy rate at 1.6%. That's tight, and it helps explain the steady growth in rental rates over the last year.
With relatively few vacant properties on the market at any time, landlords haven't needed to compete on price or sit through long vacancy periods to secure a tenant.
Of course, this doesn't guarantee your specific property will lease quickly. Location, presentation and price are still important. But it means the broader market conditions look favourable.
Does property still build wealth long-term?
While the current sales and rental markets are important, rentvesting is typically used to build wealth over a longer period than a single price cycle, so it’s important to think long-term.
Over the past decade, Melbourne dwelling values grew 29.5%, according to Cotality. While Melbourne has been one of the weaker-performing capitals over that stretch, the fundamentals of the market haven’t changed. Victoria’s population continues to grow, both through overseas migration and natural increase. Melbourne remains the country’s fastest-growing capital, having added over 100,000 people in the 2024-25 financial year, according to the Australian Bureau of Statistics. New housing supply is constrained by high construction costs and project feasibility challenges, with pressures showing up across the country, not just Melbourne.
That combination of more people needing somewhere to live and a slower pipeline of new homes to house them in is the usual argument for property as a long-term asset, and it's still intact even though the price cycle itself has been more moderate these past few years.
What did the Budget change for rentvestors?
In 2026, the biggest structural change for rentvestors isn't price or rent – it's tax policy. From 1 July 2027, negative gearing will be limited to new residential builds. Established properties purchased after 12 May 2026 keep negative gearing rights only until 30 June 2027, but after that, any rental loss can no longer reduce your taxable salary income. It can still be carried forward against future rental income, just not against your pay cheque.
New builds sit outside all of this. A dwelling constructed on vacant land, or a knockdown rebuild that increases the number of dwellings on the site, keeps full negative gearing against salary with no expiry date. A straight house-for-house knockdown or an added granny flat doesn't qualify.
New or established?
Each option has trade-offs beyond the tax treatment. Existing properties tend to sit in more established, tightly-held suburbs, often exactly where a tenant is looking. They also come with a rental history, so you're not guessing at what the property will actually lease for. But they can also cost more, lose you the option to negatively gear the investment and will incur stamp duty on the full purchase price from day one.
New builds keep the tax benefit and typically come with higher depreciation deductions, since a new dwelling has more to depreciate than an established one. In some cases, you may also qualify for stamp duty concessions. But they tend to sit in Melbourne's outer growth corridors rather than the inner and middle-ring suburbs many tenants are looking to rent in, and there's no rental history to rely on – you might be estimating demand. Construction and settlement timelines also mean a longer wait before the property starts earning rent at all.
Does the strategy still stack up?
Beyond tax, the fundamentals still apply. Rentvesting only works if the numbers hold without negative gearing propping them up. Vacancy risk, property management costs, potential strata fees and maintenance costs all need to be stress-tested against your own income and borrowing capacity.
Whether rentvesting still makes sense depends on your income, timeframe and if you're targeting new or established stock. The numbers may have changed, but the fundamentals of Melbourne’s market remain positive in the long-term and may suit a rentvestor.
This article is general information only and does not constitute financial, legal or tax advice. We recommend seeking advice from a qualified accountant and solicitor before making any decisions.
Ready to find out more about rentvesting in Melbourne? Speak to the team at AXTON Finance. Call 03 9939 7576, email getabetterrate@axtonfinance.com.au or get in touch.
