A Changing Landscape for First-Home Buyers
The NSW property market has shifted – and with it, the options available to first-home buyers. The First Home Buyer Choice scheme now allows eligible buyers to purchase properties up to $1.5 million in metropolitan Sydney, a significant increase from the previous cap of under $1 million.
This change opens up access to better-located, higher-quality properties in Sydney’s inner and middle rings – areas with stronger transport links, better schools, and more reliable long-term capital growth. It doesn’t just affect where people can buy – it affects how they think about buying.
Rentvesting: From Workaround to Strategy
Previously, buyers who couldn’t afford to live where they wanted would rent in their preferred suburb and invest elsewhere – usually in a cheaper area with higher rental yield. But those cheaper areas often came with trade-offs: slower growth, higher tenant risk, and limited resale appeal.
Now, rentvesting can be considered more often – and more strategically. In plain terms: you can use the scheme to buy a good-quality investment property in a growth suburb, live in it for the required period (currently six months within the first twelve months), and then rent it out while continuing to live elsewhere – for example, in the Eastern Suburbs, where prices may still be out of reach.
This opens up a pathway for buyers who want two things:
- A high-quality investment property that builds equity over time
- The flexibility to live in a location that suits their lifestyle
Comparing Investment Outcomes
Let’s compare two scenarios – both with a total spend of $1.2 million.
Scenario A: Two regional properties at $600k each
- Growth rate: 4% per annum
- Yield: 6% gross
- After 10 years:
- Combined value: $1.78 million
- Capital growth: $580,000
- Total rent (unindexed): $720,000
- Estimated equity: $700,000
Scenario B: One investment-grade property in Sydney at $1.2 million
- Growth rate: 7% per annum
- Yield: 4% gross
- After 10 years:
- Value: $2.36 million
- Capital growth: $1.16 million
- Total rent (unindexed): $480,000
- Estimated equity: $1.28 million
In Scenario B, the buyer ends up with $580,000 more in equity – despite earning less rental income. That’s because capital growth compounds over time, while rental yield does not.
Why Growth Matters More Than Yield
When it comes to borrowing power, banks generally care about one thing: your debt-to-income ratio. They don’t reward you for owning multiple properties – they assess your ability to repay based on income, liabilities, and the value of your assets. A single high-growth property can do more for your financial position than several low-growth ones.
This is why chasing yield can be risky. High-yield properties may look attractive on paper, but if they don’t grow in value, they won’t help you move forward. Worse, they may be harder to rent, harder to sell, and more volatile in downturns.
The Tax Efficiency of Rentvesting
Rentvesting also offers meaningful tax benefits. Investment property owners can claim deductions for:
- Interest on the loan
- Property management fees
- Repairs and maintenance
- Depreciation on the building and fixtures
These deductions reduce taxable income, often saving thousands each year. For example, a negatively geared property with $9,000 in annual deductions could save over $3,300 in tax annually – or $33,000 over a decade.
By contrast, renters can only claim limited deductions – typically for work-related expenses like electricity, internet and equipment if working from home. Rent itself is not deductible unless the home is also a place of business, which is rare. So while renters may get some relief, the tax efficiency of owning an investment property is significantly greater.
A Strategy That Requires Discipline
With the new $1.5 million cap, buyers now have access to better assets. That means rentvesting can be a strategic move – not just a workaround. But it also means the margin for error is smaller.
If you’re considering rentvesting, here’s what I’d suggest:
- Focus on capital growth, not just rental yield
- Buy in established suburbs with strong infrastructure and limited new supply
- Treat rentvesting as a stepping stone, not a shortcut
- Use the scheme to buy a property that will still be valuable in 10 years – not just one that fits the budget today
A recent AFR article makes this point clearly – so I’ll allow it to have the last word:
“The first property you buy will decide your future. Get that wrong and the market moves on without you.”
