Homeownership remains a big bucket list item for many Australians, but the traditional path to achieving it is evolving. With shifting lifestyles, career goals, and financial circumstances, more Aussies are considering the option of buying an investment property before securing their own home.
These individuals, often dubbed ‘rentvestors,’ choose to rent in their preferred location while investing in a property that aligns with their financial goals. The question that arises is, should you buy an investment property or a home first?
In this blog post, we’ll explore the pros and cons of each option to help you make an informed decision.
Buying Your Own Home First
Purchasing your first home is a monumental milestone that many young Australians dream about. The allure of homeownership lies in the freedom it offers to personalise and renovate your space to your heart’s content. It provides you with a sense of permanence and financial security, allowing you to live there as long as you desire without the worry of a landlord suddenly asking you to vacate the premises.
There are also several financial incentives in place for first-time homebuyers. These include stamp duty reductions and government subsidies, which can significantly ease the financial burden of entering the property market. Additionally, in Australia, your primary residence is exempt from capital gains tax, meaning that any appreciation in value is not subject to taxation when you eventually decide to sell it.
However, there are potential downsides to buying your home first. Many first-time buyers often find themselves compromising on location, property size, or type due to budget constraints. The obligation of servicing a home loan can also limit your financial flexibility, potentially impacting your ability to seize opportunities like travelling, career changes, starting a business, or working overseas. Opting for homeownership right away means missing out on the tax benefits associated with maintaining an investment property.
Buying an Investment Property First
When you choose to purchase an investment property as your initial step into the property market, several advantages come into play. One of the primary benefits is that you can treat the property purely as a commercial asset. Emotional attachment is not a factor, and it doesn’t need to be located in your favourite suburb. Your focus is primarily on cash flow and long-term potential, which broadens your property choices to include different cities or even interstate locations.
With an investment property, you can leverage various tax benefits available to property investors, such as depreciation and negative gearing. Banks are generally willing to lend up to 80% or more for investment properties, allowing you to maximise your returns on the cash investment.
Rentvesting provides you with greater flexibility in terms of where you choose to live. You can rent your preferred home in your desired location, which may be an area where purchasing property is currently beyond your financial reach.
The decision of whether to buy a home or an investment property first ultimately depends on your unique circumstances and financial goals. Buying a home first offers personal satisfaction, along with certain financial incentives and tax benefits. On the other hand, purchasing an investment property first allows for greater flexibility, tax advantages, and a broader range of investment opportunities to set you up for your future.
It’s essential to carefully consider your priorities and financial situation, and seek advice from one of our experts or watch our masterclass before making this important decision. Ultimately, both paths can lead to financial success – it’s a matter of aligning your choices with your long-term objectives and lifestyle preferences.
So if you’re thinking about kickstarting your property investment journey and capitalising on these incredible opportunities to help you achieve your financial goals, book a free consultation with one of our esteemed Property Wealth Planners via the form below or check out our Masterclass!