For first home buyers one big question they have is whether it is best for them to purchase a first home to live in or a first investment property to rent out. More and more first home buyers are now considering purchasing an investment property first as opposed as a home to live in. In fact, a Mortgage Choice’s investor survey in 2015 revealed that 36.6% of investors were first time home buyers. This has raised 21.1% from the year before.
The survey also found that Australians are increasingly wanting to live close to work and where the action is, places in and around city centres. But with property prices rising across most capital cities, buying property in or close to the city is becoming more and more difficult for buyers, especially first time home buyers.
This increases the appeal for younger generations to rent property’s in more desirable locations where they cannot afford to buy, and to buy an investment property in locations where they can afford to buy but don’t want to live.
This trend suits the lifestyle of many young home buyers, allowing them more flexibility to live where they wish as well as allowing them to grow their wealth and giving them the opportunity to travel at the same time if they want to.
With buying an investment property becoming a more viable option for many young Australians, there are many things to consider when it comes to understanding if investing in a first home is the right choice. Buying an investment property first may have some benefits for you:
You can buy a cheaper place. When buying an investment property, it doesn’t need to tick all the boxes of your ideal home. This means you can potentially get it at a cheaper price.
It makes things more flexible. If you’re not ready to settle down in the suburbs, renting could offer you the flexibility to move around, upgrade or downgrade as your heart desires as well as travel around without being tied down to your home.
It’s not an emotional decision. Your decisions when buying an investment property should be based on the potential of the home, including rental return and capital growth. When being shown properties, it is easier to make the decisions with your head rather than your heart when you know you’re not going to be the person living in the home.
You don’t have to change your lifestyle. When purchasing an investment property, you’re still able to live the lifestyle you love in an area you love, while still building your property portfolio in another, more affordable area.
Earn Rental Income. If you’re renting out your investment property, rent money you get from your tenant will help to pay off the mortgage sooner. You’re also likely to find tax benefits that may help you manage your loan in those first few difficult years, also your loan could be paid much faster than if you were to purchase a property to live.
The cost of buying a property means that you will likely need to hold onto your investment for a considerable amount of time, so it’s also important to think about how it may affect your life plans and to make sure that you’re prepared for things such as the maintenance costs. The best way to keep these costs under control is by choosing a good property manager and good tenants, and to be careful that you’re not buying a property that’s too old or run down.
Before you decide on an investment as your first property purchase you should:
- Prepare a budget and get independent accounting and tax advice to ensure that your plan is financially achievable.
- Check your credit history. Make sure your bills and loan repayments are paid on time so you have a clean credit history.
- Make sure you are aware that states and territories have different rules about entitlement for first home buyer grants and stamp duty concessions which may not include investment properties.
- Understand that there may be some risks of property investing, such as responsibilities of being a landlord as well as recognising that property prices can go down as well as up.
- Chat with people who have already started investing to get an understanding of the financial journey.
- Make sure your investment strategy suits your personal circumstances, as well as your financial goals.