Financial Advice Blog

Should your first property be a home or an investment?

With the average Sydney house price over the $1 million mark, many first homebuyers are acquiring an investment property and continuing to rent. Read on to find out if your first property purchase should be a home to live in or an investment property.

Owning a home in a desirable area is the Australian dream. But with the average Sydney house price over the $1 million mark, a trend is emerging among first home buyers to acquire an investment property and continue to rent, rather than move out of their preferred lifestyle areas. The concept of rentvesting is buying where you can afford and utilising the generous tax advantages available to investors, while renting in your preferred lifestyle area. Should your first property purchase be a home or an investment property? Here were give you some factors to consider so you can work out which scenario might be best for you.

Buying a home rather than investment property in might be best for you if:

You’re flexible on location

If you’re currently renting or living with family, it’s possible that you’re residing in an area that you cannot afford to buy.

However if you’re flexible on where you’re willing to live, you may be able to buy a home if you move to a more affordable location.

Your life is stable

Moving home can be an expensive exercise. If you’re uncertain about your future family and work situation, renting may be more suitable for now.

But if you know where you want to live and the type of house you’re going to need in the future, then buying a home could be good for you.

You crave control

Receiving a letter stating that you have to vacate your rental property can cause a great deal of stress and anxiety. While you may be lucky enough to rent the same house for years, you ultimately don’t have control over this.

When you own your own home, you have a sense of stability and it’s up to you how long you live there.

You like to design your surrounds

For some, the ability to design your own surrounds is more important than anything. When you’re renting you cannot make any changes to the property to improve your living space. You can’t even put pictures on the walls without the landlord’s permission.

If you’d like to control the wall colours, flooring and kitchen design, then owning your own home is probably best for you.

Buying an investment property rather than a home might be best for you if:

You can’t afford to buy in the area you want to live

Many people like to reside in inner city suburbs within close proximity to cafes, shops, employment and good schools. But buying a home in locations with lots of amenities and lifestyle features often comes with a hefty price tag. With the average house price in Sydney now over $1 million, the minimum upfront deposit required can be a major hurdle for many first home buyers. Assuming a $1,000,000 purchase price, a purchaser would require at least $150,000 to cover a 10% deposit, stamp duty and conveyancing charges.

Renting may be the only option where you can afford to live and enjoy this sort of lifestyle. As a rentvestor, you have access to more affordable property options Australia wide. For example, a property costing $500,000 can be purchased with as little as a $70,000 deposit. We provide greater detail on the costs of purchasing investment property here.

You’re after a financial edge

It can often be better from a financial perspective to rent at a cost-effective level and invest your funds into investments that better suit your financial profile. Money that you would be putting into the mortgage can go towards an investment property, shares or superannuation. You can refine each transaction to give you the best bang for your buck without compromise. We share more on alternative investment options to a home here.

When you pay a mortgage, you hope to eventually own your house outright. But there’s always a risk that it won’t be worth what you’ve spent on it when you come to sell.

You want to take advantage of tax benefits

One big advantage of buying an investment property instead of a home is Australia’s generous tax benefits. When you invest in property, you can structure your affairs to potentially give you better short-term tax benefits.

With a home, you don’t pay tax on the profit but there isn’t any tax relief while you’re paying it off. With an investment property, there is instant tax relief from day one and you only pay tax on half the profit if you own it for more than a year.

Any money that you borrow for investment is tax-deductible, so your effective rate of interest is significantly lower than that of a home loan.

Further, any losses can be claimed against your personal income and you can even depreciate the building and fixtures to give you more back.

Your DIY skills are limited

If you don’t like picking up a hammer, renting may be the best option for you. When you rent, most of the maintenance and repairs is taken care of by the landlord. You also avoid costly maintenance and repair bills.

But when you own your home that’s all up to you or the tradespeople you employ.

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