Exploring Strategies to Boost Your Property Cash Flow

In today’s dynamic property market, homeowners are increasingly exploring ways to enhance their cash flow. Two commonly considered approaches involve either renting out a room in your Primary Place of Residence (PPOR) or opting for a rentvesting strategy by living elsewhere while renting out the entire property.

Comparing Tax Deductions and Annual Expenses

The table below outlines a comparison for a 2-bedroom apartment in Australia, illustrating the tax and expense implications of both strategies:

Expense Type	Annual Amount	Claimable if Renting 1 Room (50%)	Claimable if Rentvesting (100%)
Loan Interest	$31,252	$15,626	$31,252
Water	$1,820	$910	$1,820
Council Rates	$2,050	$1,025	$2,050
Electricity	$2,379	$1,190	$2,379
Body Corporate	$7,832	$3,916	$7,832
Depreciation	$5,000*	$2,500	$5,000
Total Deductions		$25,167	$50,333

* Depreciation is an estimate and depends on the building’s structure and fittings.

Tax Implications

Renting Out One Room in Your PPOR

You can claim 50% of the expenses for the period the room is rented out.
Rental income from the room must be declared (e.g., approximately $515 per week or $26,780 per year).
This method partially reduces the Capital Gains Tax (CGT) exemption when you decide to sell.

Rentvesting Strategy

As the property becomes fully income-producing, you can claim 100% of the expenses.
Full rental income is declared (e.g., approximately $1,030 per week or $53,560 per year).
You are liable for CGT, though you might reduce this using the six-year rule if you initially lived in the property.

Lifestyle and Cash Flow Considerations

Factor	Renting a Room in PPOR	Rentvesting
Privacy	Less privacy due to shared living space	Full autonomy as you reside elsewhere
Deduction Scale	Partial (pro-rata)	Full (100%)
CGT Impact	Partial CGT exemption	Full CGT liability (or eligibility for a six‐year exemption)
Rental Income	Approximately $26,780 per year	Approximately $53,560 per year
Tax Deductions	Approximately $25,167	Approximately $50,333

Final Considerations

Renting out a room in your PPOR provides additional income but comes with limited tax benefits and a reduction in your CGT exemption.
Rentvesting offers the potential for more significant tax deductions and higher rental income, which may lead to faster wealth accumulation, though it involves managing stricter CGT obligations and rental responsibilities.

Need help modelling your numbers? Chat with our team to compare cash flow, tax outcomes, and CGT scenarios tailored to your property.