Investment Property or Family Home?

In the past, people tended to marry young, buy a home and settle there for a few decades. Things aren’t quite as simple these days, particularly as Australian house prices have grown much faster than our incomes. This has made it increasingly difficult to enter the property market, which makes us wonder: is the great Australian dream outdated?

There are many things to consider when tossing up between buying your first family home or an investment property. Ultimately, it depends on where life is likely to lead you, so you’ll need to do some candid personal planning. Sit down and assess your goals, capabilities and restrictions, both personally and financially, to decide which path works best for you. To kick-start your contemplation, we’ve compiled a few factors to consider:

Stability vs flexibility

If you’re looking for your next adventure abroad, considering a career change or unsure of the future, the flexibility of living in a short-term rental could be your best option. Buying an investment property before your first home will allow you to maintain the flexibility to move easily and more regularly.

On the other hand, if you love your job, hope to have kids soon or are a bit of a homebody, you might not have the need or desire to move around. In this case, purchasing your own home could create the stability you’re looking for in life.

Area affordability

So you love the area you’re in, but it’s a little out of your price range, or perhaps where you want to move far exceeds your current affordability. You don’t have to forfeit starting a property portfolio until the stars align. Rent where you want to be and choose another area to invest in. Over time, that property could establish the equity you need to afford your dream location.

Investment opportunities

Even if you can afford to buy in your preferred suburb, it doesn’t mean it’s your best option overall. Consider vacancy rates, how long property is on the market for and the general perception of the area. If rental vacancies are climbing in the area, it can mean tenants are in a more favourable position. Similarly, if property is for sale for long periods, it can indicate it is overpriced, so it might be better to wait or buy elsewhere.

To reduce the risk of paying for an over-priced property or poor tenancy rates, look for a house in a sought-after area. Indications include growing demand for rentals and ‘for sale’ signs that don’t last very long.

Cash flow

Calculating potential cash flow in an investment property is important to establish if the home is a sound purchase. If the gross income is predicted to break even with or exceed your operating expenses (including mortgage, utilities, taxes and maintenance), you could be onto an excellent investment. Who wouldn’t love some passive income or, in the very least, have the rental income cover your expenses?

Tax benefits

Whether you buy a first home or an investment, it should never be determined by potential tax breaks. Nonetheless, it is something to consider when weighing up your options.

Purchasing an investment property can be hard work and costly. It will involve expenses such as insurance, bookkeeping, legal advice and agent fees. This will be on top of your general expenses as a home owner, including loan interest, council rates, land tax, strata fees, repairs and maintenance, pest control and capital gains tax.

While all of these costs may appear daunting, they can offer many tax breaks to make it a little easier on your back pocket. Building and appliance depreciation; and stationery, phone and travel costs can also contribute to tax deductions if you choose to purchase an investment property.

Remember, no decision is ever guaranteed

Life doesn’t always go to plan, and circumstances and goals will change. Your ‘forever’ home could become an investment, or after buying your first home as an investment property, you might decide it’s perfect for you! With this in mind, you could weigh up your options for years and never come to a definite conclusion.

The key is to do your research, get advice from professionals and avoid analysis paralysis by taking some form of action. Chat to your preferred property advisor or contact us at….

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