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Should your first home be an investment property?

Should your first home be an investment property?

Should your first home be an investment property?

Buying a house, particularly when you are young, can be a fantastic moment in your life but it is important to consider a few things first. 

The biggest question many of us ask when buying our first home is whether your first home should become your new home or an investment property? It’s a difficult decision to make as you can either enjoy the luxury and satisfaction of living in your own home or it could be the beginning of developing your extensive property portfolio!

Whilst building your extensive portfolio is very appealing for many new home buyers, there are many advantages and disadvantages that need to be weighed up. 

Some of the reasons you should look to invest include:

  • Cash Flow - You can generate a separate income stream from your tenants paying your mortgage requirements. This is assuming your property is earning enough to cover interest payments. 
  • Pay lower repayments - Your financial lender typically lets you pay the interest off your mortgage for a number of years following the purchase off your house, allowing to hold your property without as much pressure on your budget. This is typically not the case for an owner-occupied loan.
  • Higher borrowing potential - Owning an investment property can qualify you to borrow more money from banks due to the additional cash flow from rental income.
  • Claim deductible expenses - Owning an investment property makes you eligible for a range of tax deductions which aren’t available under an owner-occupied home
  • Negative Gearing - Take advantage of negative gearing and claim these losses as tax deductions against your taxable income.

Some of the reasons you should be wary of when investing include:

  • Capital Gains Tax - Investment properties requires you to pay capital gains tax when you sell your property. CGT is in addition your other taxable income and is taxed at your highest marginal tax rate.
  • Loss of federal and state government grants - Buying an investment property disqualifies you from government grants such as the First Home Owners Buyers Grant

Overall, it is important to remember that buying a property is a long term commitment and requires careful consideration to ensure your investment adds to your personal wealth and results in greater financial gain. 

Questions? Get in touch

Posted by First Home Buyers Direct on 25 November 2016 | 0 comments

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