Rentvesting vs 5% Deposit Scheme: A Long-Term Wealth Strategy for First Home Buyers

The Australian Government's expansion of the 5% deposit scheme, launched on October 1, 2025, has opened the door for more first home buyers to enter the property market. With unlimited places, no income caps, and higher property price limits, it's an enticing opportunity for Australians eager to own their first home.

But here's the question savvy investors are asking: Is buying your first home always the smartest financial move, or could rentvesting deliver superior long-term wealth outcomes, especially in high-cost markets like Brisbane and Sydney?

Understanding the 5% Deposit Scheme

The expanded scheme allows eligible first home buyers to purchase a property with just a 5% deposit without paying Lenders Mortgage Insurance, as the government guarantees up to 15% of the loan. For single parents, the threshold is even lower at 2%. This removes one of the biggest barriers to home ownership: saving a 20% deposit.

While this sounds like a dream come true, it's essential to consider whether buying where you want to live is the most strategic path to building wealth, particularly in expensive capital cities.

What Is Rentvesting?

Rentvesting is a property investment strategy where you rent a home in your preferred lifestyle location while simultaneously purchasing an investment property in a more affordable, high-growth area. This approach allows you to maintain your desired lifestyle without compromising your wealth-building potential.

For example, you might rent a modern apartment in Brisbane's inner city or Sydney's Eastern suburbs while purchasing a house in an emerging growth corridor like Ipswich, Logan, or Western Sydney where property prices are more accessible and rental yields are stronger.

The Long-Term Financial Case for Rentvesting

1. Accelerated Entry Into Multiple Properties

The most significant advantage of rentvesting is the ability to scale your property portfolio faster. By purchasing in more affordable markets, you can enter the property market sooner and potentially acquire multiple investment properties within a few years, rather than being locked into a single, expensive owner-occupied home for decades.

Consider this scenario: A Brisbane couple wants to live in New Farm or Paddington but can't afford to buy there even with the 5% deposit scheme. The median house price in these suburbs exceeds $1.5 million. Instead, they could purchase a $600,000 investment property in a growth suburb like Caboolture or Redcliffe, build equity, and use that to acquire additional properties over time.

2. Tax Benefits That Owner-Occupiers Miss Out On

Investment properties come with substantial tax advantages that simply don't exist for owner-occupied homes. Investors can claim tax deductions on loan interest, property management fees, maintenance costs, depreciation on building and fixtures for new builds, and other property-related expenses. These deductions can significantly reduce your taxable income and improve cash flow, allowing you to reinvest or accelerate debt repayment.

When you live in your own home, you're paying the mortgage with after-tax dollars and can't claim any of these deductions. Over 30 years, the tax savings from investment properties can amount to hundreds of thousands of dollars.

3. Geographic Flexibility and Lifestyle Freedom

One often-overlooked benefit of rentvesting is flexibility. As a renter, you're not tied to a specific location or property. If your career takes you to another city, you want to upsize or downsize, or you simply want a change of scenery, you can move without the hassle and expense of selling property.

Meanwhile, your investment property continues to generate rental income and appreciate in value regardless of where you choose to live. This is particularly valuable in cities like Brisbane and Sydney, where lifestyle preferences and work locations can change over time.

4. Strategic Market Selection for Maximum Growth

When you're buying an owner-occupied property, you're limited to areas where you can commute to work and want to spend your daily life. This often means expensive inner-city suburbs with lower rental yields and potentially slower capital growth due to already-high prices.

Rentvesting allows you to strategically invest in properties based purely on financial metrics such as capital growth potential, rental yield, infrastructure development, and demographic trends. You can target emerging markets on the urban fringe of Melbourne, coastal homes in Perth or outer suburbs of Brisbane or Sydney that are poised for significant growth as the cities expand.

5. Portfolio Diversification and Risk Management

By owning investment properties in different locations, you can diversify your property portfolio across various markets and economic conditions. If one market softens, your other properties may continue to perform well. This diversification is impossible when all your wealth is tied up in a single owner-occupied home in one suburb.

6. Cash Flow Optimisation

In many cases, particularly in Brisbane, the cost of renting in your preferred suburb can be significantly lower than the mortgage repayments, rates, insurance, and maintenance costs of owning in that same area. The difference in cash flow can be substantial—sometimes $500 to $800 per week or more.

This additional discretionary income can be channeled into paying down investment property debt faster, saving for additional deposits, or building an investment buffer. Over time, this cash flow advantage compounds and accelerates your wealth-building trajectory.

7. The Power of Time in the Market

One of the most fundamental principles of property investment is that time in the market beats timing the market. By entering the property market sooner through rentvesting, even if it's not your "dream home," you give your investment more time to benefit from capital growth and compound returns.

Waiting years to save a larger deposit for an expensive owner-occupied property means missing out on valuable appreciation. Historical data shows that Australian property doubles approximately every 7-10 years. Every year you delay entering the market is a year of potential growth you're forgoing.

Real-World Scenarios: Brisbane and Sydney

Brisbane Example

Traditional Path: Save for 5 years to buy a $900,000 townhouse in Paddington with the 5% deposit scheme. Monthly repayments of approximately $5,500 plus rates, insurance, and maintenance.

Rentvesting Path: Rent a similar townhouse for $750/week ($3,250/month) while purchasing a $550,000 house in Morayfield with better rental yield. Investment property generates $500/week ($2,167/month) in rent. Net monthly housing cost is approximately $3,200 (mortgage minus rental income plus your rent), similar to owning but with tax benefits and faster equity building.

After 5 years, the rentvesting scenario allows you to potentially purchase a second investment property using equity from the first, accelerating wealth creation.

Sydney Example

Traditional Path: Buy a $1.2 million apartment in Bondi with 5% deposit. Massive mortgage with monthly repayments around $7,200 plus strata fees.

Rentvesting Path: Rent in Bondi for $900/week ($3,900/month) while purchasing a $700,000 house in Campbelltown. Investment generates $600/week ($2,600/month). Net monthly position is more favorable, with tax deductions improving cash flow further.

The equity growth in the investment property, combined with tax benefits and lower overall costs, creates a stronger wealth position over 10-20 years.

Potential Drawbacks to Consider

Rentvesting isn't without challenges. You'll need to manage tenants and property maintenance, though property managers. There's no emotional satisfaction of living in your own home, and you won't have the security of knowing you can't be asked to move by a landlord.

Additionally, when you eventually sell an investment property, you'll pay capital gains tax on the profit, whereas owner-occupied properties are exempt. However, with proper tax planning and the substantial ongoing tax deductions, the overall tax position often still favors the rentvesting strategy.

The Verdict: A Strategy, Not a Life Sentence

The beauty of rentvesting is that it's not necessarily forever. Many successful rentvestors eventually transition one of their investment properties into their owner-occupied home, or they build sufficient wealth through their investment portfolio to upgrade to their dream home later while maintaining their investment properties.

The key advantage is that rentvesting gives you options and accelerates your journey to financial independence. The 5% deposit scheme is a valuable tool for getting into the market, but purchasing a cheaper investment property rather than an expensive owner-occupied home could be the smarter long-term play for building wealth.

For investors who want to maximise wealth creation while maintaining their lifestyle, rentvesting offers a compelling alternative to the traditional home ownership path. It's about thinking like an investor first and a homeowner second, using property as a vehicle for building wealth rather than just a place to live.

The question isn't whether the 5% deposit scheme is good, it absolutely is. The question is: How important is it to buy your first home now, when you can start building long-term wealth now? For many, the answer is rentvesting.

If you want to find out how you can rentvest and build a property portfolio to generate long-term wealth, enquire with PWF today.