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Should you buy a home or investment property first? - featured image

Should you buy a home or investment property first?

If you’ve finally achieved some financial stability in your life and you’re looking to do something positive with your savings, you may be thinking about purchasing real estate.

young-couple-dreamProperty is generally a sound investment – provided you do your research and buy a quality property in a sought-after location.

For first-timers, however, it comes a massive question: should you buy your own home to live in as a foundation for your future?

Or should you rent where you want to live, and start your real estate journey with an investment property first?

This article aims to explain the various aspects you need to consider before you make this big decision…

First: Get your financial house in order

If you’re considering either buying a home or an investment property, your access to finance will obviously be the first major factor you need to consider.

There are definitely a few differences when you’re tossing up between the two strategies: to rentvest, or buy your own home.

One main difference that could make investing a better choice is that often, it’s more financially viable to rent in the location you’d like to live, rather than to buy.

For instance, an inner-city two-bedroom apartment may be available for rent for $600 per week, but the mortgage on the same property might edge over $800.

In this instance, savvy investors may be better off purchasing an investment property elsewhere (where they can afford to buy), whilst continuing to rent in their ideal location.

This is called rentvesting, and it can be the perfect answer to the ‘buying a home versus investing’ dilemma.

Rentvesting allows you to buy an investment property in a desirable location; one that you can afford more easily than the suburb where you want to live, but that still holds appeal for renters.

The loan structure differs as well when it comes to buying a home or an investment.

interest ratesA property investor’s loan will usually be ‘interest only’ for the first few years at least, which means you only need to repay the interest.

There are also a number of tax benefits and deductions that come with an investment property, that you won’t be entitled to if you become a homeowner.

These include things like maintenance and strata fees, and council rates, which are tax-deductible for landlords.

These two factors combined – the lower cash flow requirements of an interest-only mortgage repayments, together with the raft of tax deductions that are available to investors – means that owning an investment property may not be as expensive as you’d think.

On the other hand, a loan for a homeowner will generally include both interest and principal, making repayments a significantly higher amount.

Taking emotions out of the equation

Purchasing property is quite an emotive decision, and this also plays a part in deciding whether you want to invest or buy.

Business StressThere is a certain amount of security that comes with owning your own home, but if that decision will impact your finances with a mortgage that puts pressure on your income, then it can create another level of stress.

If this is the case, it could be better to continue renting and put your money towards investing instead.

After you’ve considered the financial aspects, the other important factor to contemplate is your lifestyle.

Ask yourself:

  • Would purchasing a home put massive pressure on your income?
  • Will you need to curb your spending habits, so you can live comfortably?
  • Will you need to rent out a room to assist with paying the mortgage?
  • Do you have enough savings or income to cover ongoing expenses like council rates and repairs?

Deciding to buy a home or an investment property largely depends on your own individual circumstances, and either option can be a step in the right direction for your finances and your future wealth.

If you’re stuck on the right decision to make and you need help evaluating your options further, it’s best to get the advice of an experienced property advisor who can create a strategy that moves you closer to your home ownership goals.

If you're looking at buying your next home or investment property here's 3 ways we can help you:

MetropoleSure our property markets are improving, but correct property selection is even more important than ever, as only selected sectors of the market are likely to outperform.

Why not get the independent team of property strategists and buyers' agents at Metropole to help level the playing field for you?

We help our clients grow, protect and pass on their wealth through a range of services including:

  1. Strategic property advice. - Allow us to build a Strategic Property Plan for you and your family. Planning is bringing the future into the present so you can do something about it now! Click here to learn more
  2. Buyer's agency - As Australia's most trusted buyers’ agents we've been involved in over $3Billion worth of transactions creating wealth for our clients and we can do the same for you. Our on the ground teams in Melbourne, Sydney and Brisbane bring you years of experience and perspective - that's something money just can't buy. We'll help you find your next home or an investment grade property. Click here to learn how we can help you.
  3. Wealth Advisory - We can provide you with strategic tailored financial planning and wealth advice. Click here to learn more about we can help you.

About Brett Warren is National Director of Metropole Properties and uses his two decades of property investment experience to advise clients how to grow, protect and pass on their wealth through strategic property advice.
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