Should I buy first or invest

Should You Buy An Investment Property Or Your First Home To Live In?

As property prices continue to soar, many first home buyers are being priced out of the market, but some are coming up with a solution.

Many young Aussies are now buying investment properties as their first property purchase and continuing to rent. By doing this, they still have flexibility while working towards a cheaper alternative to owning their own home. Also, their dream home in the long term may not be the same as the one they want now so the extra time is used to save for the upfront costs of buying a house, such as stamp duty, agent fees and Lender’s Mortgage Insurance (LMI).

When you’re buying property for investment purposes, don’t take your own needs into consideration. If it’s smaller than what you wanted, it’s likely to be cheaper and could help you get your foot into the property market, however, it’s important to remember that even if the property isn’t for you, you need to think how it will suit potential tenants and whether it’s got capital growth potential. A tip is to do your research and seek out locations where demand has slowly grown over time.

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Should I buy my first investment property with my partner?

We see people coming to our business who are considering or who have already undertaken this option all the time. When we ask most of them as to why they have or why they want to do a joint venture (JV) or partnership set up, it’s usually because they think it’s the only way in which they can get into the market or deep down they feel some comfort in not going it alone.

My experience in this space after meeting and advising these clients is that after five years or more, their original circumstances have now changed and anticipated benefits in most cases haven’t yet fully been realised and because of this or because they might have had a falling out with the other partner, they are keen to get out of the JV or partnership so they can move on with their ‘new’ lives.

Organisations and publications such as RP Data, Australian Property Monitors and Smart Property Investment often publish median house price movements and growth within the last year. Keep an eye out for them for your own reference, so if you’ve noticed a suburb that has been performing particularly well over the past couple of years, it could be a sign of capital growth.

During your search, it may be a good idea to attend as many auctions and open houses as you can. By doing this you can get a feel for the value of the property and get to know the real estate agents. Industry experts recommend that you need to hold a property for seven to ten years before you’ll see significant returns.

Investors also have access to a range of tax benefits allowing you to claim on deductions such as repairs, council rates, insurance and maintenance. Negative gearing can also be used to your advantage if the expenses outweigh the rental income.

If you do your research well and the property market in the area you buy in moves in your favour, you might be able to begin to build an investment portfolio of properties while you are enjoying your lifestyle renting in an area you want to live in.

Top tips for young investors

  • Focus on the long term. Start thinking about what age you want to achieve financial independence and determine whether you need a mental shift.
  • Collaborate. Talk with others who have already started investing to get an understanding of the financial journey and what type of sacrifices you might have to take.
  • Consider a guarantor. Your parents might be able to help you (but only if they want to) by helping you with a deposit using the equity from their own property.
  • Clean credit history. Ensure that your bills and loan repayments are paid on time because your creditor may lodge a default against you if payments are more than 90 days late.
  • Beware of joint investments. Although this strategy may help you break into the market sooner, your individual goals may change five years down the track. Consider that a property needs to be held for at least seven years before seeing significant returns - you need to make sure that there is a contingency plan in place.
  • Build confidence. Buying at a younger age helps you build confidence and gives you an advantage when building your portfolio.
  • Make sacrifices. Be prepared to give up social outings to cover your investment costs, depending on how much you need to save up, you may have to give up a night out once a month or once a week.
  • Professional advice. With any investment, professional advice is always recommended. Gain knowledge and learn about the market and consider joining a property investment group for support.

Debunking renting myths

  • Many of us have the belief that rent is ‘wasted money’, however this may not be the case if you have an investment strategy in place and paying rent is part of the plan.
  • Fear of debt is another concern for many people considering investing, however, it’s important to understand the difference between ‘good debt’ – which is debt that has tax benefits and can be beneficial to your overall financial position and applies to investment properties - and ‘bad debt’ – which has no tax benefits and is the type of debt that you have when you live in your home.
  • Missing out on the First Home Owners Grant (FHOG) may also be a worry for some when first considering the question of buying your home or investment property first. While this grant is a nice bonus, the amount you will receive is a relatively small figure in the long-term scheme of your investments and may not be worth holding back a well-thought strategy for.

Whether you decide to invest in your home first or an investment property first, it may be worthwhile to get your foot in the property investment door to help you build up your financial security. Having a mortgage that is within your means and not too stressful is a great motivator to continue to save and invest.

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Compare loans for property investment

Rates last updated October 20th, 2018
$
Loan purpose
Offset account
Loan type
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Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.89%
4.24%
$0
$0 p.a.
80%
Fix your rate and minimise repayments for 2 years with this interest-only investor mortgage.
3.99%
3.99%
$0
$0 p.a.
80%
Get a discounted, low-fee investor loan from a convenient online lender. 20% deposit required.
3.99%
4.13%
$0
$10 monthly ($120 p.a.)
80%
A competitive variable rate home loan with no application fee.
3.84%
3.91%
$0
$0 p.a.
80%
Get instant online approval and flexible repayment options with this fixed rate mortgage for investing.
4.08%
4.09%
$0
$0 p.a.
90%
Low-fee investor mortgage with a partial offset account. 10% deposit option available.
3.79%
3.82%
$0
$0 p.a.
80%
An essentials variable investor mortgage with a high borrowing amount so you can fund a large purchase.
3.93%
3.94%
$0
$0 p.a.
80%
This investment loan keeps fees low, has a sharp interest rate and comes with a 100% offset account.
3.99%
5.35%
$600
$0 p.a.
90%
Competitive rates for fixed for 3 years with redraw facility.
4.05%
4.22%
$0
$10 monthly ($120 p.a.)
90%
Lock in your interest rate on your investment property for 2 years. For a limited time you can earn double Velocity Frequent Flyer Points.
3.91%
3.92%
$0
$0 p.a.
80%
Investors can go from application to approval in as little as 20 minutes with this innovative online lender.
3.98%
3.98%
$0
$0 p.a.
70%
Investors can get a 100% offset account and a low rate if they have a big deposit. 100% online application process.
4.09%
4.87%
$0
$395 p.a.
90%
Buy your investment property and set your repayments for the first year. Available in QLD, NSW and ACT only.
4.24%
4.00%
$0
$0 p.a.
80%
Buy an investment property and enjoy the certainty of a 3-year fixed rate with interest-only payments.
4.09%
4.40%
$0
$0 p.a.
70%
Forget about rate rises for two years and minimise your investment repayments with this interest only mortgage. Requires a 30% deposit.
4.54%
4.56%
$0
$0 p.a.
80%
An investment loan for new Heritage Bank customers. Low fees and interest-only repayments.
3.97%
3.99%
$0
$0 p.a.
80%
Package your owner occupied loan with investment loan and receive a discounted investment rate. 100% offset account included.
4.09%
5.28%
$0
$395 p.a.
90%
Lock in a competitive investment rate and combine your loan with a credit card and transaction account for extra savings. Package fee applies.
3.99%
4.62%
$395
$0 p.a.
80%
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
4.29%
4.31%
$0
$0 p.a.
80%
Investors will pay no application or ongoing fees for this interest-only loan.
4.18%
4.18%
$0
$0 p.a.
80%
Investors get a 100% offset account and pay no application or ongoing fees on this loan from an innovative online lender.
4.90%
4.31%
$0
$0 p.a.
80%
Lock in a fixed rate for 5 years and make interest-only payments with this investment loan.
4.19%
5.49%
$600
$8 monthly ($96 p.a.)
90%
Lock in your investment repayments for 3 years with one of the big 4 banks. Available with a 5% deposit.
4.43%
4.24%
$0
$0 p.a.
90%
Interest-only loan for investment. Available with a 10% deposit and includes a partial offset account.
3.99%
3.99%
$0
$0 p.a.
70%
Investors with a 30% deposit can get this low rate loan to fund their property portfolio.
4.29%
4.31%
$0
$0 p.a.
80%
A simple, variable rate investor loan from an online lender that keeps fees to a minimum.
3.99%
4.62%
$395
$0 p.a.
80%
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
4.24%
4.68%
$0
$0 p.a.
90%
Fix your investment repayments for 1 year. You can get this loan with a 10% deposit. Available in QLD, NSW and ACT only.
4.13%
4.14%
$0
$0 p.a.
90%
Access a fee-free offset account and a special interest rate for investors.
4.14%
3.96%
$0
$0 p.a.
80%
Investors can go from application to full approval in as little as 20 minutes with this innovative online lender.
4.18%
4.19%
$0
$0 p.a.
80%
Investors can easily access their equity using BPAY, a debit Master Card or cheque book with this interest-only line of credit.
4.65%
4.69%
$600
$0 p.a.
90%
You can get this variable investment product with a 10% deposit. The loan has limited fees.
4.31%
3.95%
$0
$0 p.a.
80%
A variable interest-only loan for investors. Fast application, low fees, optional offset account. 100% online lender.
4.79%
5.44%
$0
$395 p.a.
90%
Pay off your investment knowing your exact repayments for the first 4 years. Get this loan with a 10% deposit.
4.29%
4.27%
$0
$198 p.a.
70%
Fund your property portfolio with this fixed rate mortgage which includes a 100% offset account. 30% deposit required.
3.94%
3.92%
$0
$0 p.a.
80%
Lock in your interest rate for 2 years and enjoy flexibility, an optional offset account and a fast online application process.

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Marc Terrano

Marc Terrano is a Lead Publisher at finder. He's been writing and publishing personal finance content for over five years and loves to help Australians get a better deal.

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10 Responses

  1. Default Gravatar
    SarahFebruary 16, 2015

    Hi,

    Say if your first home was an investment property, which you have never reside in before, would you then still be entitled to the First Home Owners Grant when purchasing a ‘brand new’ home to live in?

    Thanks!

    • finder Customer Care
      ShirleyFebruary 16, 2015Staff

      Hi Sarah,

      Thanks for your question.

      Generally the condition is that you have not previously owned residential property in any form in any State or Territory of Australia. This includes residential, investment property.

      Cheers,
      Shirley

  2. Default Gravatar
    LloydJanuary 12, 2015

    Hello, how might this change if say you had a 200k deposit and could either: 1) Buy a house for ~400K (with 50% deposit) and live in it or 2) Buy an apartment outright (or with a very small loan) and keep renting at around 400/wk? Do you lose the tax benefit with option 2 or is there a smarter way to go about this?

    Thanks!

    • finder Customer Care
      MarcJanuary 13, 2015Staff

      Hi Lloyd,
      thanks for the question.

      If by tax benefits you’re referring to capital gains tax exemptions, these are only given to main residences. You might want to talk to a property tax specialist for more information.

      I hope this helps,
      Marc.

  3. Default Gravatar
    EamonOctober 15, 2014

    Are there benefits of buying your first home as an investment – But also living in at the same time. (renting out spare rooms).

    Just a bit unsure about tax implications.

    thanks

    • finder Customer Care
      ShirleyOctober 15, 2014Staff

      Hi Eamon,

      Thanks for your question.

      It depends on whether you’ll be claiming this property as your main residence or not. If it’s your main residence, (so not considered as an investment property) you can generally use it to generate income for a period of up to 6 years before being liable for Capital Gains Tax (CGT).

      If it’s not going to be considered as your main residence (therefore, your investment property) then you may be liable for CGT.

      Cheers,
      Shirley

  4. Default Gravatar
    RanOctober 13, 2014

    what is the resale price of corner house

    • finder Customer Care
      ShirleyOctober 14, 2014Staff

      Hi Ran,

      Thanks for your question.

      You’ll need to speak to independent valuer, your local council or a local real estate agent for an estimate of the property.

      Cheers,
      Shirley

  5. Default Gravatar
    ParvinApril 27, 2014

    When buying a property is there any different between buying for investment or to live in for getting a home loan?

    • finder Customer Care
      MarcApril 28, 2014Staff

      Hi Parvin,
      thanks for the question.

      There aren’t too many differences between loans for investment properties and loans for owner occupiers. Most loans will offer the same features and rates, although some might allow for a higher LVR if you’re going to live in the property as opposed to using it as an investment.

      I hope this helps,
      Marc.

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