Should You Buy A Home Or An Investment Property As Your First Property Purchase?

September 2015 In General News

Gray haired middle aged man reading newspaper in cafe on weekend.

Buy-to-live, or buy-to-rent-out? It’s a question being faced by many, and as the property landscape continues to change rapidly every year, there are a lot of factors to consider when deciding whether to buy a rental property first, or a home to live in.

To help get you thinking about which might be the right option for you, we’ve put together a list of discussion questions that you can think about either by yourself, with your partner, or with the help of a mortgage broker or financial planner.


How much can you borrow?

A good first step is to sit down a speak with a bank mortgage specialist or an independent mortgage broker, and work out how much you could actually borrow, based on your current income, or combined income if you’re buying with a partner. Many banks will give you a larger loan if the intention is to rent the property out – These are special investment loans, and come with different features, and may be subject to different interest rates and fluctuations than other types of loans, so ensure you are aware of all of these before you begin any mortgage pre approval process.


What is your current living situation?

Studies have shown that many young adults are choosing to live in the family home for longer as they save up for their first property, and this can be a great financial decision if you want to buy a home to eventually live in. Many people even buy a home, rent it out for a couple of years to help pay down the mortgage, then move into it. Of course, this is a great option for those whose families don’t mind them hanging around for a little longer. For those who currently already rent, it may be difficult to maintain the mortgage on a new home as well as your own rent, as quite often the rental income won’t quite cover the mortgage, meaning you’ll have to make up the difference out of your own pocket.


Are you looking to buy a new or existing home or apartment?
This will normally affect whether or not you can access any first home buyers grants or other benefits from the government. Grants only tend to be available for those spending up to a certain amount on a property, and often only new properties (as in never before owned or lived-in. So, you may want to check to see if it’s worth it to buy your first home to live in, in order to take advantage of a discount. To find the most up to date information on first home buyers benefits for your particular particular state, visit the Australian Government’s First Home website.


Could you cover the cost of a vacant property?

Not all properties can be rented out straight away, and many properties take months to find a tenant, especially if you want to take the time to find a good one that will look after your property. With this in mind, it’s important to ensure that if there is a period where the property is vacant, that you would be able to cover the cost of it yourself. Don’t forget, there are also other added costs associated with being a landlord, such as paying your Real Estate agent’s rental management fee, as well as land tax (which is generally not applicable to owner-occupiers).


Could you actually do both?

Many first time property investors are finding a property which has dual living opportunities – that is, a structure such as a self-contained annex out the back, or a self-contained area of the house which can be separated with different entrance doors that tenants can rent, while the owner lives in the other section.  In this way, you’re able to live in part of your home, and rent out the other part, while still earning a rental income to help you pay down your mortgage quicker.

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