Entering the property market is an exciting milestone. But along with all the excitement comes a lot of big choices. In fact, before you even begin looking at properties, you’ll need to make a pretty major choice: will you live in your property or not?

While many first home buyers are looking for a place to call home, an increasing number of Australians are also opting to purchase their first property as an investment instead.

Navigating the choice between buying a first home or opting for an investment property can be a challenging task. Both offer unique advantages and drawbacks that should be carefully considered in line with your personal circumstances. Ensuring you have a solid understanding of their respective pros and cons can help you make the right choice for you, and embark on the road to homeownership with clarity and confidence.

The Differences Between Buying an Investment Property and a First Home

Before diving into the details, it’s important to understand the fundamental differences between buying an investment property and a first home. While a ‘first home’ is generally purchased with the intention of living in it, an investment property is purchased with the goal of generating rental income and potential capital gains.

Buying an investment property is a popular choice for those wanting to diversify their portfolios and build wealth through property, as well as unlock potential tax benefits.

On the other hand, purchasing and living in your first home offers new homeowners a sense of stability, a place to call their own, and the potential to build equity over time.

Factors to Consider When Deciding Between an Investment Property and a First Home

When deciding between an investment property and a first home, it’s important to consider your lifestyle priorities as well as your financial goals.

If your primary motivations for purchasing a property are to secure a place to live, put down roots, and enjoy the freedom of being a homeowner, buying a first home to live in may be the right choice.

However, if you’re looking to maximise financial returns, build long-term wealth, and feel comfortable with the responsibilities of being a landlord, an investment property could be a better fit for you.

Investment Potential

One of the primary advantages of buying an investment property is the potential for long-term financial gains. Because property values have historically increased over time, and facilitate the generation of steady cash flow via rental income, purchasing a property is widely regarded as a reliable investment choice.

Financial Considerations

While the wealth-building potential of an investment property might sway in one direction, there are some drawbacks to be aware of compared to buying a home to live in.

Before deciding to invest in property, it’s best to have a complete understanding of the various financial implications.

First Home Buyer Schemes

Many first home buyers are enticed by the First Home Buyer help schemes available across Australia. However, it’s important to note that these schemes generally don’t apply to a first home buyer investment property.

Without this help, you’ll need to assess your financial situation before making an offer on an investment property, to determine whether you have the necessary funds for a deposit as well as ongoing mortgage repayments.

Mortgage Financing

Lenders also often have different lending criteria and requirements for properties you don’t plan to live in, which can make the process of securing a home loan for an investment property more complex. In this situation, it’s best to work with a lending broker to help you navigate the various options and find the most suitable loan for your needs.

Tax Implications

Investment properties can offer a range of tax benefits, such as deductions for expenses related to the property. However, they also come with a unique set of tax requirements, making it crucial to stay on top of tax compliance to avoid any issues. Consulting with a tax professional to understand which laws apply to you can help ensure compliance and maximise the benefits of owning an investment property.

Lifestyle Considerations

When deciding between an investment property and a first home, it’s pertinent to look beyond the financial factors and consider your lifestyle priorities. Depending on your preferences and plans, these may impact the suitability of an investment property versus a first home.

For example, buying a first home enables you to choose your ideal location. This allows you to prioritise things like proximity to work or family or a preferred neighbourhood. Buying a home you plan to live in also allows you to choose a property with specific features you may want or need in the future, such as sufficient room to start a family or an outdoor entertainment space.

An investment property, on the other hand, should prioritise rental yield and potential capital growth, meaning compromises may be required in terms of location and property features.

Key Takeaways

Choosing between buying a first investment property or a first home to live in is a significant decision that requires careful consideration.

While a first home provides stability and the freedom of homeownership, an investment property offers potential long-term financial gains through property value appreciation and rental income.

Assessing your motivations, evaluating your financial situation, and seeking professional advice from a lending broker can help you to make an informed decision that aligns with your personal and financial objectives.

If you’re ready to take the first step towards home ownership, get in touch with Fox Home Loans today.

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