First Home first or Investment Property first – Nest or Invest

First Home first or Investment Property first – Nest or Invest

It is a question many people ask – Do I buy my own home now or keep renting and buy an investment property first. There are some points to ponder when making this big decision.

The security of living in your own home is something that most people look to as a goal, so purchasing can be an emotional decision. The question of nest or invest has a lot of factors to be taken into consideration before making any move, Lifestyle goals play a big part in this decision as does any government incentives that may be available at the time such as the ‘First Home Owners Grant’.

At the end of the day it is different strokes for different folks. Young families would probably lean toward the ‘first home first’ option. Being in your own home has many benefits not the least of which is no longer having to pack and move every 6 to 12 months. Whereas if you are single or even an older person investment property may be your choice.

There are some very compelling differences when evaluating purchasing a home against an investment property if you look at it from a purely financial perspective. The main difference is that in most cases, it is can be much more affordable to rent in your preferred area than to purchase and pay off a comparable home, particularly in a capital city. In comparison, investment property gives you the benefit of your tenant and the government assisting you in making loan repayments with rental income and tax breaks.

If you choose to live in the property you buy then you will usually have a mortgage that has repayments that cover interest and principal. On the other hand if you invest in a rental property they usually come with an interest only loan. This ensures that you are only paying off the interest of your investment (rather than the principal). The investors repayments can be quite a bit lower than those paying off their own home. This situation allows the investor more money in their pocket giving them the opportunity to further their financial position

Capital gains tax does not apply to our primary residence therefore there is a financial benefit if selling. If you decide to sell your primary residence twelve months after you purchased the property, you will not pay capital gains tax. In comparison, capital gains tax applies to all sales on investment properties.

Once you have worked out what you can comfortably borrow, you can start to determine what sort of property you can buy and the suburbs that are in your price range. There is no point starting your search before you go through the process of determining your budget, and talking with financial institutions to ascertain your buying power. Carrying out a search without financial approval will usually end in disappointment.

After carefully evaluating your options, make sure that you conduct thorough market research to ensure that you purchase wisely – after all, this is a major investment. Look for quality real estate regardless of whether you have decided to buy a home or investment property. As always, you need to evaluate all of the options and include all the information in order to make a sensible financial decision for you and your family.

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