Finance Tips

Buying Your First Home As Owner Occupied Or As Investment?

By admin ⋅ March 25, 2008 ⋅  Email this post ⋅  Print this post ⋅ Post a comment

So you want to buy your first property and get into the real estate market?? You’re ready to fulfil the ‘Great Australian Dream’ of home ownership!! You’ve saved up enough money for a deposit and then it hits you, “I’m happy with where I’m renting, it’s not costing me too much, it’s close to work, so why do I want to purchase?” Because, buying your first property is like a natural progression through life, and although rates have risen lately it’s not all doom & gloom!!…there are bargains to be found!

think about your first home as a long term investment

So then the dilemma begins…”should I purchase an investment property or an owner occupied property first?”

Both forms of ownership definitely have their benefits but which one is right for you? If you’re a couple who want to purchase and live in your home/unit long term then that is fine! But for those who are considering a purchase for either owner occupied or investment use, you need to consider all the pros & cons associated with both forms of ownership. Especially if you’re currently renting in inner Sydney or Melbourne, as mortgage payments can be almost double what rent payments are! You may be renting in a 2 bedroom unit worth $500,000 and paying $600 per week rent ($300 per room) but mortgage payments on the same unti would be much higher! The facts are that we usually need to live relatively close to where we work, so if you work in the inner city is it best to stretch yourself with buying an owner occupied in expensive inner city or buy something more affordable further out?

It’s not an easy decision but it doesn’t mean you can’t get into the property market!!

You just need a change or shift in your way of thinking. You should think about renting where you want to live, and become a landlord in other areas where affordability is more realistic, returns are greater, and where you won’t stretch yourself too thin!! The fact is, renting is a lot cheaper! Sure, it’s great to say you own property, but not if it costs you everything you earn!!

So does this mean I should purchase an investment property first?

No, it doesn’t…although turning your property into an investment property is what you should think about doing eventually. I previously wrote a post on the First Home Owners Grant and while this is available to first home buyers it should be taken up!! It’s too big a saving for anyone to pass up!! You will need to live in your property for the first 6 months and then you are free to rent it out and turn it into an investment. So keeping with the theory of renting where you want to live and purchasing in more affordable area, you may need to travel a bit further everyday for a few months before you go back and rent where you were before and turn your property into an investment.

The benefits of buying an owner occupied first are obviously the FHOG and stamp duty concessions (in NSW). The benefits of turning your property into an investment and then renting again are that there a lot of tax deductions you can receive on an investment property.

But how can I pay for a mortgage and rent payments also?

Because your rental income will need to exceed your rent payments (which it usually will) which will also give you extra to put towards your mortgage. And on top of that there is depreciation on building, fittings, fixtures you can receive and your accountant will help you with all this to reduce your taxable income!

Utilize the Govt grant (FHOG) while it is available, but shift your mindset to that of an investor…owning your own property and living in it is a great thing, but living in the Capital cities is expensive and it may be better to make your money work for you and reduce your taxable income!! And in a few years time you’ll have equity in that property that you can use to purchase another one!!