Why your first purchase should be an investment property

The dream of owning your own “castle” has changed a little, with many first homebuyers today buying an investment property first instead. book story house property dream first home learn real estate

Australians increasingly want to live close to work and where the action is, which is why most people like to live close to the capital city centres, but with prices rising across most capital cities, purchasing property near or close to the city is becoming increasingly difficult for buyers – especially first homebuyers.

The increasing appeal for younger generations to rent in desirable locations (where they can’t afford to buy) and buy an investment property where they can afford to but don’t want to live, is behind this sentiment shift to buying an investment property before their first home.

Rent-vesting

This trend, described as “rent-vesting”, suits the lifestyle of many millennials, allowing them flexibility in where they live, giving them the opportunity to travel and at the same time allowing them to grow their wealth.

Interestingly, this shift could mean the official statistics that show record low first homebuyer activity probably understate the real buying activity of young Australians, because rent-vestors purchasing investment properties wouldn’t be documented as a first homebuyer in the data.

Buying an investment property first may help you achieve your ultimate goal of owning your dream home in a number of ways:

1. Someone else pays the mortgage

Imagine you find a property you’d like to call home, but can’t quite afford to buy it right now. 

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One solution could be to initially rent it out so the tenant helps pay off your mortgage until such a time as your finances improve and you can move in yourself.

You’re likely to find tax benefits, including depreciation and negative gearing, may help you manage your loan for those first few difficult years.

By using the rent coming in, plus any regular savings, your loan could be paid down much quicker than if you moved in straight away.

Before you adopt this strategy, make sure you get tax advice as your investment property could attract capital gains tax in the future, even if it becomes your main residence.

2. The benefits of capital growth

There’s no doubt in my mind that if I had to choose between cash flow and capital growth as an investment strategy, I’d invest for capital growth every time. economy property market grow wealth house dream first home

This is because wealth from real estate is achieved through long-term capital appreciation and the ability to refinance to buy more properties.

Therefore, you should only buy in a suburb that offers high capital growth potential, and this may not be where you’d like to live in the short term.

Remember, most inner- and near-city apartments have exhibited little capital growth over the last decade, so if you’re keen to live in the centre of the big smoke, just rent there and buy your investment property in a high growth suburb elsewhere.

If your investment performs well, it could help reduce the amount you ultimately need to borrow to buy your new home.

Some other important issues to consider

Before you adopt rent-vesting, or any other investment strategy, you should:

  • Prepare a budget and get independent tax and accounting advice to ensure your approach is financially achievable.  9594656_l
  • Understand the risks as well as the rewards of property investing, such as the responsibilities of being a landlord as well as the illiquid nature of property investment.
  • Recognise that property prices can go down as well as up, so there may be some risk to this strategy.
  • Understand your eligibility for your state or territory’s first homeowner grants or stamp duty concessions if you buy an investment property first.
  • Always keep a close eye on how your investment property is tracking in terms of cash flow and capital growth, but remember that property investment is a long-term wealth creation strategy.

So, there you have it – maybe renting is the way to go after all.

If you’re looking at buying your next home or investment property here’s 4 ways we can help you:

Sure 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.
  4. Property Management – Our stress free property management services help you maximise your property returns. Click here to find out why our clients enjoy a vacancy rate considerably below the market average, our tenants stay an average of 3 years and our properties lease 10 days faster than the market average.
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Brett Warren

About

Brett Warren is Director of Metropole Properties Brisbane and uses his 13 plus years property investment experience to advise clients how to grow, protect and pass on their build their wealth through property. Visit: www.brisbanebuyersagent.com.au


'Why your first purchase should be an investment property' have 1 comment

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    December 21, 2018 Lynda Galway

    Renting is no longer for those who can’t afford to buy a home. Rent investing is a win-win for improving the availability of rental homes including affordable homes.

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