Your First Property: Home vs Investment?

September 19, 2014
Aurelio Tenaglia

It is so very exciting when you decide you have saved up a deposit and now is the time to start house-hunting! Every Saturday is spent visiting open-houses (which you’d meticulously planned the day before) and you finally find a house that is perfect for you. You talk to the real estate agent and learn that it is likely to sell within your budget, you obtain the contract, obtain a building and pest report, re-visit the house again, re-visit the house again this time with your parents showing proudly where you would put that couch and the television! Finally, the day of the auction arrives, and with excitement and nerves brimming, you can’t wait for the auctioneer to finish his spiel about the conditions of the sale and open up the bidding. He calls for first bids… you wait, you watch the other bidders trying to ascertain if they are serious or not… and finally one of them opens the bidding at the upper limit of your budget. Your house sells to someone else for $100,000 above what you had hoped.

This is a disappointing scenario, yet sadly it occurs more often than not. To own your own home is the Australian dream, yet with increasing house prices this is getting harder to achieve. Today, the average age of first-home buyers is 31 years, up from 25 years in the 1970s, and half of all first-home buyers use more than 50% of their income to pay their mortgage.

Whilst you have missed that home, you keep looking and keep saving to increase your deposit. However, many people find that even though they are saving money whilst waiting to find a first home, house prices keep rising and they need an even greater deposit. It might feel as though you will never own your own home.

Instead of your first property purchase of your own home, an alternative intermediate step is to first purchase an investment property. The purchase of an investment property requires different decision making than buying your first home to live in. No longer will you be emotionally looking for a property in your dream-suburb with that much desired garage and pool; instead you will be seeking a property in a suburb that has a high rental yield and low vacancy rate. When your options to purchase are broadened, chances are you will find a suitable property within your budget.

Financially, the purchase of an investment property as your first property, can be a sensible decision. You are likely to purchase a property well within your budget with a potentially lower mortgage than you would otherwise have had. Importantly, by entering the property market, you have an appreciating asset which will provide additional income through rent. Costs associated with the maintenance of the property and the interest on the mortgage are both tax deductible. And, as the equity in your investment property grows, this provides a method of making further savings which will ultimately assist you in reaching your goal of owing your own home.

I acknowledge that an investment property as a first purchase is traditionally not the norm, but with increasing Australian house prices, it is a viable option to getting into the property market.

Contact me on 0438 258 888 if you’d like to learn more about purchasing an investment property as your first step onto the property ladder. 

Posted in: First home buyers

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