Should First Home Buyers Buy an Investment Property Instead? Rentvesting in Perth

The traditional path says buy a home, live in it, and pay off the mortgage until you own it outright. But for many Perth first home buyers, that path is becoming a financial dead end. We have seen clients face a tough reality: the suburbs where they want to live—like Scarborough or Subiaco—are often financially out of reach, while the suburbs they can afford don’t offer the lifestyle they want.

Enter rentvesting. This strategy flips the script: you rent where you want to live (keeping your lifestyle) while buying an investment property where the numbers actually stack up.

It is a strategy gaining serious traction in Western Australia, especially as median house prices push past $850,000. But is it the right move for your financial future?

What is Rentvesting?

Rentvesting is a strategy that decouples your home from your investment. Instead of compromising on location to buy a primary residence, you:

1. Rent in your ideal lifestyle suburb (close to the beach, CBD, or work).
2. Buy an investment property in a high-growth or high-yield suburb.
3. Use rental income to cover a significant portion of the mortgage.
4. Leverage tax deductions to offset the holding costs.

This approach acknowledges a key truth about the 2026 property market: high-growth investment zones and high-lifestyle living zones are rarely the same place.

The Rentvesting Advantage in Perth

Perth’s unique geography creates a massive divide between “lifestyle value” and “investment value.”

Location Price Gaps We often see a $400,000+ difference between desirable coastal hubs and growth corridors.

• Lifestyle Hubs: Suburbs like Scarborough or Mount Lawley often command prices well over $1.1 million.
• Investment Hubs: High-demand rental corridors in the south (like Baldivis) or south-east (like Armadale) still offer quality standalone homes in the $550,000-$700,000 range.

Rental Yield Variations The yield spread in Perth is currently one of the widest in the country.

• Western Suburbs: Typical yields sit around 2.5-3.5%, meaning you pay heavily out of pocket to hold the property.
• Outer Growth Corridors: Areas like Armadale and Rockingham are seeing yields of 5.0%+, with unit markets in places like Bayswater reaching as high as 7-8%.

The “Serviceability” Factor Lenders treat rental income differently than your salary. Most banks will “shade” rental income, counting only 80% (or sometimes 90% with aggressive lenders) of it towards your borrowing capacity. However, this still boosts your serviceability compared to buying a non-income-producing home, potentially allowing you to enter the market sooner.

The Numbers: Rentvesting vs. Traditional Home Buying

Let’s look at a realistic comparison for a first home buyer with $120,000 saved in the current market.

Scenario A: Traditional Home Purchase (Scarborough Unit)

You buy a 2-bedroom unit in Scarborough to secure your beach lifestyle.

• Purchase Price: $780,000
• Deposit (20%): $156,000 (Shortfall of $36k)
• Stamp Duty (Owner Occupier): ~$26,000
• Monthly Repayments (6.2%): ~$3,800
• Strata & Rates: ~$400/month

Result: You are likely priced out or paying Mortgage Lenders Insurance (LMI), with zero tax benefits to help with the heavy cash flow.

Scenario B: Rentvesting (Baldivis House)

You buy a 4-bedroom house in Baldivis and rent a similar unit in Scarborough.

Feature	Investment (Baldivis)	Lifestyle (Scarborough Rent)
Property Value	$620,000	N/A
Upfront Cash	$124,000 (20% Deposit)	$2,400 (Bond)
Stamp Duty	~$23,000 (Investment Rate)	$0
Monthly Cost	$3,050 (Mortgage)	$2,600 (Rent)
Income/Benefit	+$2,400 (Rent) + Tax Refunds	N/A
Net Monthly Cost	~$650 (after rent/tax)	$2,600

Total Monthly Housing Cost: ~$3,250 (Rent + Net Investment Cost)

Result: You live in Scarborough for less than the cost of buying there, while controlling a $620,000 asset that is fully tax-deductible.

Tax Benefits of Rentvesting

One of the primary drivers for rentvesting is the ability to claim deductions that owner-occupiers cannot access.

Immediate Deductions You can claim interest on your loan, which is typically your biggest expense.

• Management Fees: 100% deductible.
• Maintenance: Repairs, insurance, and council rates are deductible.
• Interest: If you pay $35,000 in interest, that entire amount reduces your taxable income.

Non-Cash Deductions (Depreciation) This is the “ghost” deduction that improves your cash flow without you spending extra money.

• Division 43 (Capital Works): You can claim 2.5% of the construction cost per year for 40 years on homes built after September 1987.
• Division 40 (Plant & Equipment): Fixtures like carpets, blinds, and ovens depreciate faster, though legislation limits this for second-hand properties purchased after 2017.

2026 Tax Context

With the Stage 3 tax cuts now in effect, most tax brackets have shifted (e.g., the 30% bracket for incomes between $45,000 and $135,000). While this slightly reduces the percentage you get back from negative gearing, the deductions still play a massive role in making the property affordable to hold.

The “Hidden Cost”: Losing First Home Buyer Benefits

This is the single biggest downside of rentvesting in WA that most blogs gloss over.

Stamp Duty Exemption Loss As of 2025/2026, WA offers a full stamp duty exemption for first home buyers on established homes up to $500,000.

• If you live in it: You pay $0 stamp duty on a $500k home.
• If you rentvest: You pay roughly $17,765 in stamp duty on that same $500k home.

First Home Owner Grant (FHOG) The $10,000 grant is strictly for buying or building a new home as your principal place of residence. Rentvestors forfeit this cash injection entirely.

When Rentvesting Makes Sense

Rentvesting is not a magic bullet; it is a strategic choice for specific circumstances.

You Are Priced Out of Your “Forever” Suburb If living in Cottesloe is non-negotiable but your budget is $600,000, rentvesting is the only bridge that allows you to build equity without leaving your postcode.

You Have Strong Cash Flow but Low Deposit High-income earners often benefit most because they can handle the dual cash flow of rent plus a mortgage shortfall, and they maximize the tax benefits of negative gearing.

You Prioritize Flexibility Mobile professionals who might move to London or Melbourne in two years shouldn’t be tied to a PPOR (Principal Place of Residence). An investment property is location-agnostic; your home is not.

When Traditional Home Buying Makes Sense

Sometimes, the old ways are still the best ways.

You Want the Tax-Free Capital Gain Your main residence is exempt from Capital Gains Tax (CGT). If your home doubles in value, you keep every cent of profit tax-free. Investors lose roughly 50% of that gain to tax (after the 50% CGT discount).

Borrowing Capacity is Tight New APRA rules coming into effect in February 2026 place a cap on high Debt-to-Income (DTI) lending. If you have a modest income, holding both a lease and a mortgage might drastically reduce your borrowing power compared to just holding a mortgage.

You Hate Inspections Never underestimate the emotional value of not having a property manager inspect your bedroom every three months.

The Hybrid Approach: The “6-Year Rule” Hack

Smart buyers in Perth often combine both strategies to minimize tax and maximize lifestyle.

1. Buy a high-growth property in an affordable suburb (e.g., Willagee or Padbury).
2. Live in it for at least 6-12 months immediately after settlement. This establishes it as your main residence for tax purposes and secures your stamp duty concessions.
3. Move out and rent where you actually want to live (e.g., Fremantle).
4. Rent out your property.

Why this works: Under Section 118-145 of the Income Tax Assessment Act (The 6-Year Rule), you can treat that property as your main residence for up to six years while it is rented out.

• You pay no Capital Gains Tax if you sell within 6 years.
• You claim all the tax deductions of an investor.
• You got the stamp duty concession upfront.

Perth Suburbs: Where Rentvestors Are Buying

We are currently tracking specific corridors that offer the yield required to make rentvesting viable in 2026.

High-Yield Investment Zones

• Armadale / Camillo: Still offering yields near 5.5% despite recent price growth.
• Orelia / Medina: Strong industrial employment drivers and affordable entry points under $600k.
• Cannington: Excellent transport infrastructure and retail amenities keeping vacancy rates near 0.5%.

Unit Market Opportunities

• Bayswater / Maylands: Older style units here are achieving 7%+ yields, outperforming many house markets.

Making the Decision: A 5-Point Checklist

Before you sign a lease or an offer, run through this list.

1. The “Sleep at Night” Test: Can you handle paying rent and a mortgage if the property sits vacant for two weeks?
2. The Break-Even Analysis: Have you calculated the post-tax cost? Don’t just look at rent vs. mortgage; factor in the 30% or 37% tax refund you might get.
3. The Stamp Duty Reality: Are you willing to pay ~$18k-$25k extra in government fees just to start as an investor?
4. Future Borrowing Power: With the 3% serviceability buffer still in place, will this investment property stop you from buying a family home in 5 years?
5. Market Cycle Position: Are you buying in a suburb that has already grown 40% in two years, or one that is just starting its run?

How a Buyers Agent Helps Rentvestors

Rentvesting requires a higher level of due diligence than buying a home to live in.

For Rentvestors We analyze data, not paint colors. Our team looks for:

• Vacancy Rates: We target suburbs under 1% to ensure tenant competition.
• Yield vs. Growth: Balancing cash flow to cover your rent while ensuring the asset grows.
• Off-Market Access: Finding investment-grade stock before it hits the open market.

For Hybrid Buyers We help you identify properties that are “livable” enough for your 12-month stay but possess the “rentability” factors needed for the long term.

The Verdict: It Depends

Rentvesting is sophisticated leverage. It allows you to live a champagne lifestyle on a beer budget—but only if the numbers work.

If you value flexibility and wealth creation over the security of four walls, it is a powerful tool. If you value stability and tax-free gains, buying a home first might be the better play.

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Considering your options? Our buyers agents work with both first home buyers and investors. We can help you analyze both paths and find the right property for your situation.

Book a free consultation to discuss your first property purchase strategy.