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Whether To Invest In Your Home Or Buy An Investment Property First?

  1. bedarhasan
  2. Apr 05, 2019
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Are you buying a home or an investment property for the first time? If you are, there are a lot of factors that you should take into consideration. Whether you’re planning to invest in a property you can get rental income from, or a home that you intend to live in, there is a time when you feel that you are now ready to start the hunt for that perfect property, having saved for it over all that time. Whichever of the two you intend to buy, it is always wiser to have explored all your options. In this way, you can be sure that you made a decision that was carefully calculated based on your research. After all, this is the property business we are talking about, and here, prices can skyrocket or nosedive without any sort of prior intimation.

When buying your first property with the intention of living in it

Below are a few guidelines to consider with our tips.

Grant For First Homeowners

If you are looking at some sort of financing for the purchase of your first home, you could really be in luck. This, however, does depend on the state and territory of your residence, but a first home owner’s grant can help you finance the purchase of your first home. You must know that this grant is not available for investment properties and at instances where you buy an investment property before your home, you may have to forfeit the right to this grant.

Stability And Security

Living in your own home entails that you can live there as long as you wish, without the risk of having to move out on short notice or the hassle of switching places. This is of course as your home loan repayments are coming through.

Capital Gains Tax (CGT) Exemption

A home that can be categorized as your primary place of residence, even if it is not your first home, is exempted from CGT once you intend to sell it.

Bearing non-tax deductible expenses

When purchasing a home, there are always some initial expenses involved. This normally includes legal fees, stamp duty as well as other expenses with a recurring nature, e.g. building insurance, water rates, and periodical repairs. You will have to bear these expenses in the case of investment property as well, but depending on some situations, they can be tax deductible.

Making Sacrifices

It is often impossible to get everything as per your desire when selecting a place to live in. An ideal location might be out of your budget, you may have to settle for a smaller place or perhaps a location that is on the outskirts of the city, or have to find a new job that is closer to your new home. Eventually, you always end up making sacrifices.

When Buying Your First Property With The Intention Of Investing

Here is another checklist to go ahead with your property investment

Getting A Cheaper Place

Like your ‘dream home’ you do not need to have all the checkboxes checked in case of buying an investment property. Because this decision is not based on emotions, you can end up buying a place that is reasonably cheaper. The purchase decision is based on the investment potential, which means looking at an exponential capital growth or forecasting a nice rental income. This naturally means that rather than going for the looks and feel of a place, you should be more focused on its investment viability.

Earning Rental Income

Putting up your investment property for rent can get you a recurring rental income. This income can be directly used to pay off the mortgage you took to purchase that property, helping you settle your loan sooner than later. However, the rental income may not be enough to completely setoff your loan repayments or any additional expenditures.

Getting Tax Advantages, Or Disadvantages

Costs incurred during the purchase or related to an investment property are mostly tax deductible. Any fees and interests paid over a loan acquired to purchase an investment property, gardening, cleaning, pest control, maintenance as well as marketing costs incurred to get a tenant are all tax deductible. Having an investment property which is negatively geared – meaning that mortgage interest and other recurring expenses incurred on the property exceed the income it produces – can reduce your tax payable on your total earnings. On the other hand, if you make a profit once you sell an investment property, you will have to pay capital gains tax.

Managing And Fulfilling Obligations

If you have a busy schedule or the location of your investment property is difficult to travel to, there are still certain duties which have to be performed at your end. For these duties, you might have to appoint a property manager who could take care of things on your behalf. Moreover, depending on which state the investment property is located in Australia, landlords have to fulfil certain obligations before the tenancy, throughout the tenancy and also when ending the tenancy.

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