Want to get into the property market, but cannot afford where you want to live?
- Lenny Briffa
- Mar 2
- 5 min read
Sydney’s property market presents a familiar challenge for first home buyers: the lifestyle you want to live isn't always the lifestyle you can afford to buy into right away.
If you love living near the beaches of the Eastern Suburbs or the buzz of an inner Sydney suburb, the idea of moving an hour away just to get onto the property ladder can feel unappealing.
However, there is a strategy that can help bridge the gap.
Enter Rentvesting
Rentvesting is a strategy where you continue renting in the area you want to live, while purchasing a property in a more affordable suburb or growth corridor. Potential benefits may include:
Lifestyle Maintenance: You don't have to give up your current standard of living or proximity to work.
Earlier Market Entry: You could start building equity sooner rather than waiting to save enough to buy in your preferred suburb.
Rental Income: The rent generated by your tenants helps offset the mortgage repayments, and there may be tax benefits from negative gearing.
However, if you are a first home buyer, adopting a rentvesting strategy may come at a significant cost.
First Home Buyers Beware
The rules surrounding government support, like the NSW First Home Buyer Assistance Scheme (FHBAS) are strictly for owner-occupiers.
If you choose to rentvest from day one and never live in the property, you forfeit your upfront stamp duty savings that could otherwise have been available. What's more, because you have now purchased a residential property, you will also officially lose your "first home buyer" status for any future purchases.
For more information about the available first home buyer government support, see our First Home Buyer’s Guide To Available Government Support).
Don’t fret, it may be possible to have your cake and eat it too
It may be possible for you to buy property and not lose eligible government grants and support, by taking advantage of the 12-Month Rule.
With the 12-Month Rule, subject to eligibility requirements, you can secure your First Home Buyer stamp duty exemptions in NSW as long as you move into the property within 12 months of settlement and live in it for a continuous period of 12 months.
Case Study
To help demonstrate how this could work, consider the following simplistic first-year comparison for a first home buyer who buys a $750,000 property with a $185,000 deposit:
Details | Pure Investment (Rentvesting Day 1) | Live-In (The 12-Month Strategy) |
Purchase Price | $750,000 | $750,000 |
Stamp Duty | $28,622 | $0 |
Other Costs | $5,000 | $5,000 |
Total Upfront Cost | $783,622 | $755,000 |
Initial loan balance ($750K purchase price less $185K deposit) | $598,622 | $570,000 |
Rent Received ($700/week) | $36,400 | $0 |
Loan repayments (30 year term) | $42,108 | $39,444 |
Strata/Council/Water Rates | $6,613 | $6,613 |
Rent Paid for your own living ($700/week) | $36,400 | $0 |
Total Ongoing Cost (Year 1) | $48,721 | $46,057 |
Total Combined Cost (Upfront / Ongoing) | $832,343 | $801,057 |
Outstanding loan balance after 1 year | $590,978 | $562,517 |
What happens after 12 months?
Once you have lived in the property for the mandatory 12 continuous months, you are free to move out and start renting the property to tenants. At that point, interest and other property expenses may become tax deductible, in the same way they would have had the property initially been purchased as an investment.
But wait, there's more
Beyond securing your stamp duty exemption, the "Live-Then-Rent" strategy can also unlock a few other significant advantages:
Lower Interest Rates: Owner-occupied loans typically qualify for a lower interest rate compared to investment loans. You can see this reflected in the lower repayment figures in the table above.
The ATO 6-Year Rule: Because you lived in the property first and established it as your genuine main residence, the ATO allows you to move out, rent it to tenants, and continue treating it as your main residence for tax purposes for up to 6 years. If you sell within that window, any profit could be 100% exempt from Capital Gains Tax (provided you don't claim another property as your main residence during that time).
Determining the right approach for you
The right strategy depends on your personal goals, financial position, borrowing capacity and eligibility for government support schemes.
At Orca Home Loans, our role is to help you understand your options and structure lending in a way that aligns with your long-term property plans.
With over 26 years of experience in finance and risk, we focus on ensuring clients make informed decisions with confidence.
Contact us to find out whether a rentvesting strategy could work for you.
Things to be aware of
The figures and scenarios shown are illustrative examples only and are based on assumptions that may not reflect your personal circumstances. Government grants, stamp duty concessions and eligibility criteria are subject to change and individual qualification.
Any references to tax outcomes (including negative gearing or capital gains tax) are general in nature and depend on your financial position and applicable tax law. You should seek independent advice from a qualified accountant or financial adviser before making decisions.
This information is general in nature and does not constitute credit advice. Lending outcomes, interest rates and borrowing capacity are subject to lender assessment and approval.
Frequently Asked Questions
1. What happens if I move out before the 12 months is up?
If you fail to meet the continuous 12-month residency requirement in NSW, you will be required to repay the stamp duty exemption and/or grants you received, often with heavy penalties.
2. Can I rent out a spare room during that first 12 months?
Generally, yes. As long as the property remains your principal place of residence and you genuinely live there, renting out a spare room is usually permitted. However, you must declare this rental income to the ATO.
3. Can I use the First Home Guarantee (5% deposit scheme) with this strategy?
Yes, as long as your genuine intention at the time of purchase is to be an owner-occupier. If your circumstances change after fulfilling the residency requirements and you move out, you can keep the property, though your lender may reassess the loan and Lenders Mortgage Insurance (LMI) could become applicable depending on your equity.
4. Do I have to buy a brand-new home to get the stamp duty exemption?
No. In NSW, the First Home Buyer Assistance Scheme (stamp duty exemption/concession) applies to both new and existing homes, provided the purchase price falls within the value caps (currently up to $800,000 for a full exemption).
5. Are my property expenses tax-deductible during the 12 months that I live there?
Generally, no. While you are living in the property as your genuine main residence, expenses like your mortgage interest and strata levies are not tax-deductible. However, once you move out after the mandatory 12 months and start renting the property to tenants, those interest and property expenses may become tax-deductible, just as they would be for a standard investment property.
6. Do I need to speak to an accountant before doing this?
Absolutely. Any strategy involving property transition, negative gearing, or Capital Gains Tax is highly dependent on your personal tax position and applicable tax laws. You should always seek independent advice from a qualified accountant or financial adviser to understand exactly how these rules apply to your specific situation before making a decision.
7. How do I know if the "12-month sacrifice" is financially worth it?
This is exactly what a broker helps you model. We compare the upfront savings of the grants against the costs of temporarily moving and your future rental yields, so you can make a fully informed decision based on data, not guesswork.
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