You might be at the stage of your life where you are considering either buying a home to live in or investing in a property you can rent out.

Either way, it’s worth knowing some more about both options to ensure you’re making a well-informed decision.

BUYING YOUR FIRST PROPERTY TO LIVE IN

First home buyers grant.

Depending on which state or territory you live in, a first home buyers grant could help you to finance your first home purchase. This does NOT apply to investment properties, and in some states you’ll lose your right to this grant if you buy an investment property first.

Security and stability.

You can stay in your home as long as you like, as long as you can make your home loan repayments.

Capital gains tax (CGT) exempt.

Any home that is classified as your main residence, whether it’s your first place or not, is free from CGT when you go to sell it. So this only applies to investment properties.

Things that are not tax deductible include:

Initial costs such as stamp duty and legal fees, and ongoing costs, such as water rates, building insurance and repairs. When buying an investment property you’ll also be hit with these costs, but many will be tax deductible.

 

BUYING YOUR FIRST PROPERTY AS AN INVESTMENT

It’s not a secret that housing affordability now considered a real problem in Australia, so buying an investment property to rent out has been a be a more viable option for many younger Australians.

Some things to consider when investing:

You can get a cheaper place.

An investment property doesn’t need to tick all the boxes of your ‘dream home’. This means you can potentially get it at a cheaper price.

It’s not an emotional decision.

It should be based on investment potential, including forecast rental return and capital growth. So instead of walking into a place and having to love the look of it, you can walk in with your investor’s hat on.

Earn rental income.

If you’re renting out your investment property, you’ll be getting money from someone else to contribute to your home loan, which means you could pay it off sooner. You need to bear in mind the rent may not completely cover your home loan and other costs.

Tax advantages through deductions.

Despite having to pay capital gains tax when you sell your investment property, negative gearing and other tax strategies could help you offset some of the property costs. Talk to your tax accountant or property adviser about the deductions you may be able to claim.

Prepare to pay for maintenance costs.

Be careful you don’t buy a property that is too old and run down. There’s a fine line between buying a place that can have some simple cosmetic work done to improve rental appeal and investment return, and one that needs major repairs.

 

Buying a property is a very big decision and many people who are trying to enter the real estate market are finding that where they really want to live is not where they can actually afford to buy. So whether it means choosing a place that’s smaller, further out from the city, or having less disposable income, you’ll probably have to make some trade-offs. Make sure you do your research and educate yourself. Don’t fear debt – know the difference between good debt and bad debt.

Whatever you decide to do, make sure your investment strategy suits your personal circumstances, as well as your financial goals. Think about the pros and cons of each and also other investment options too.
If you do think you’re ready to take that exciting leap and buy your first property, Wealthy & Wise is here to help and can offer you advice in this area.