So, you have made it through the Covid_19 crisis with your income intact and financially unscathed. And now, you’re seeing all these reports on how the property prices are on the way down and you are thinking, it’s a great time to buy your first property!

Property is generally a sound investment – provided you do your research and buy a quality property in a sought-after location.

For first-timers, however, it comes a massive question: should you buy your own home to live in as a foundation for your future?

Or should you rent where you want to live, and start your real estate journey with an investment property first?

This article aims to explain the various aspects you need to consider before you make this big decision…

Get your finances in order

If you’re considering either buying a home or an investment property, access to finance will obviously be the first major factor you need to consider. This means working out how much you can borrow and no, you don’t need to waste your time with broker or bank for this step, you can simply use an online calculator. You’ll find our comprehensive calculator here.

Once you know how much you can afford to pay for a property, you need to decide whether the purpose of the property is going to be investment or residence. There are definitely a few differences when you’re tossing up between the two strategies.

One main difference that could make investing a better choice is, that it’s more financially viable to rent in the location you’d like to live, rather than to buy.

For instance, an inner-city two-bedroom apartment may be available for rent for $600 per week, but the mortgage repayment on the same property might be over $700.

In this instance, savvy investors may be better off purchasing an investment property elsewhere (where they can afford to buy), whilst continuing to rent in their ideal location.

This is called rentvesting, and it can be the perfect answer to the ‘buying a home versus investing’ dilemma.

Rentvesting allows you to buy an investment property in a desirable location; one that you can afford more easily than the suburb where you want to live, but that still holds appeal for renters.

The loan structure differs as well when it comes to buying a home or an investment.

A property investor’s loan will usually be ‘interest only’ for the first few years at least, which means you only need to repay the interest. Note, lenders policy on interest only loan can vary between banks and it will have a impact on how much you can borrow as well.

There are a number of tax benefits and deductions that comes with an investment property, that you won’t be entitled to if you become a homeowner.

These include things like maintenance and strata fees, and council rates, which are tax-deductible for landlords.

On the other hand, a loan for a homeowner will generally include both interest and principal, making repayments slightly higher but this is offset by you actually pay down the loan balance and create equity in that property.

Another important factor to keep in mind, banks will assess any rent you are paying when determining how much you can borrow for an investment property, yes, you will have rental income to help service. Unfortunately, depending on lender policy 60 – 80% may only be usable for servicing.

Taking emotions out of the equation

Purchasing property is quite an emotive decision, and this also plays a part in deciding whether you want to invest or buy.

There is a certain amount of security that comes with owning your own home, but if that decision will impact your finances with a mortgage that puts pressure on your income, then it can create another level of stress.

If this is the case, it could be better to continue renting and put your money towards investing instead.

After you’ve considered the financial aspects, the other important factor to contemplate is your lifestyle.

Ask yourself:

·           Would purchasing a home put massive pressure on your income?

·           Will you need to curb your spending habits, so you can live comfortably?

·           Will you need to rent out a room to assist with paying the mortgage?

·           Do you have enough savings or income to cover ongoing expenses like council rates and repairs?

And if you are purchasing as an investment, ask yourself;

·           Can you afford the mortgage repayment and your rent if the property becomes vacant?

·           Will having an investment loan hinder your ability to borrower for a residence if you decided to buy your own place?

·           If you buy a negatively geared property, will having to pay the difference in repayment mean you cannot accumulate any savings?

Deciding to buy a home or an investment property largely depends on your own individual circumstances, and either option can be a step in the right direction for your finances and your future wealth.

Enjoyed this article? Check if you Qualify for a mortgage and discover how much you can save on your home and investment loans by using loansHub technology as your personal mortgage manager. To read more insightful articles, click here.

 

This article via Property Update does not constitute advice; readers should seek independent and personalised counsel from a trusted adviser that specialises in property, a tax accountant and property design specialist.