Many first home buyers seek to live in their new purchase. But there is another option: buying an investment property. For many reasons, it makes perfect sense to buy an investment property as your first home. Read on to find out why.
Buying an investment property first may help you achieve your ultimate goal of owning your dream home in a number of ways:
1. Buy where you can afford
Investing in real estate allows you to buy a good home in a good area that you can afford, even though it may not be the area or property type you wish to live in. It gets you a foot in the market.
2. Someone else pays the mortgage
With an interest-only home loan, your rent ought to cover - or almost cover - your loan repayments. This means you get the benefits of owning property - capital growth - while someone else (your tenant) pays for it.
3. Tax benefits
Your accountant can speak to the many tax benefits of having an investment property. Just about every expense related to the property becomes a tax deduction. Remember to get a tax depreciation schedule - no matter how old your property is.
4. Capital growth
Capital growth is the increase in the value of the home over time. Generally speaking, we can pursue either rental yield or capital growth in properties. It is not easy to find both high capital growth and high rental return in the same property. Capital growth is arguably the more important feature because wealth from real estate provides the opportunity to re-finance and buy more properties.
Cautions
1. If you're planning on renting - it's not always smooth sailing. Landlords sell. Landlords renovate. Landlords move in. For many reasons, you may not be able to renew your lease. But - if you find a great home and are in a position to rent it long term - that is brilliant.
2. Speak with your accountant who can advise on the wisdom of a "rentvesting" strategy.
3. Understand that property is not very liquid. This means it cannot easily be turned into cash, should you ever need cash fast. Property takes time to sell, and costs of selling (and purchasing) are high.
4. Appreciate that while well-chosen investment grade properties almost without exception appreciate in value, there may be periods of time along the way when the property price is actually down.