The Benefits of Buying an Investment Property as a First Home Buyer.

For many first home buyers, the decision whether to purchase a home to live in or an investment property can be difficult. There are many benefits and drawbacks to either option. This article seeks to explore some of the key considerations, pros and cons for buying an investment property, before buying your own home to live in.

The pros of buying an investment property

Cost of Getting into the Market

When looking at buying your first property, most people are largely restricted by budget. If you were to be buying a property to live in yourself, you will most likely need to make a number of sacrifices and concessions based on your budget.

This can have a significant impact on your overall living standard. However, when purchasing an investment property this impact is significantly less day to day. An investment property is just that, an investment and doesn’t need to tick all the of the boxes that you would ideally like if you were to live in the property yourself. As long as the property is rentable, the quality of finishing or exact layout shouldn't matter as much to you personally.

Expenses for Income

Servicing a mortgage and maintaining the upkeep of a property can be a significant financial commitment. When you choose to purchase an investment property, these expenses are largely offset by the opportunity for you to make an income from renting the property out. This makes purchasing a property an achievable goal for those First Home Buyers that don’t pay rent (ie; boarding with family…), as they are not 100% exposed to a new set of expenses including mortgage repayments, insurances, renovations and upkeep, council rates etc.

Tax Advantages

When purchasing an investment property, you are adding both taxable income and expense deductions to your overall financial position. Depending on the value of the property and the rental income earned, you may find the earned income in rent is outweighed by the expenses incurred in owning and maintaining the property. This concept also known as Negative Gearing which can be a great way to minimise your tax liabilities and redirect the additional money into your investments, as any amount you are out of pocket for your investment property is 100% tax deductible.

Low Emotional Investment

As discussed above, buying an investment property is far more clinical than purchasing a home to live in. An investment property should be purchased for the sole opportunity, it presents to either earn income on the investment or provide significant value appreciation over a course of coming years. This means that the decision-making process should be strictly financial, not emotional, which often makes it very easy to identify the right property and negotiate within the limitations of your investment plan.

Earn Rental Income

If you’re renting out your investment property, you’ll be getting money from someone else to contribute to your mortgage, which means you could pay off your loan sooner. However, bear in mind that the rent you receive may not completely cover your home loan repayments and additional costs like; Council Rate notice, Body corporate fees...

The cons of buying an investment property

Increased Time Investment for Administration

Even if you choose to have a managing agent for your investment property to take care of the day to day undertakings, you will still need to consider the amount of time it will take personally to manage your property. From marketing for tenants, through to approving maintenance requests, an investment property can be a time drain. Make sure you are not caught off guard and you understand the impact before jumping in.

Property Proximity

Depending on your investment strategy, you may choose to purchase a property that is not located close to your current work or home. Often, there are great bargains to be found in regional areas or other states. Buying an investment property means you can widen the search to include any area of the country. Remember, making an investment that not being located close to you, may cause extended travel requirements in the events that your physical attendance is needed for things like; inspections, dispute resolution or to take care of repairs or renovations…

Capital Gains Tax Applies

Remember that if you purchase an investment property and you make a profit on its sale, then you will incur capital gains tax liabilities. Whilst owning an investment can be lucrative, this fact doesn't escape the watchful eye of the tax man. On the flip side, your main residence is not subject to CGT. This liability could have significant impacts on your long-term investment project so, make sure to seek advice from your accountant to fully understand what you are getting into, and have some plans in place for appropriate exit strategy if you decide to sell your investment.

In summary, these are just a few of the pro’s and con’s when it comes to purchasing an investment property as your first home. At Easy2Mortgage we do understand the fact that there are lots of things to consider before making a decision to purchase an investment property and happy to explore further, how for some buyers purchasing an investment property can make very sound financial sense over purchasing your first property to live in. If you would like to arrange an obligation free discussion about your options, please reach out to one of our experienced lending consultants.