Buying first home as an investment property

Buying first home as an investment property
Thinking of using your first home as an investment property? Find out the pros and cons in our guide today.
Find out if you qualify
1.99%
discount-variable rate p.a.
2.71%
comparison rate p.a.
DO I QUALIFY LEARN MORE

Should you buy a first home as an investment property? 

If you want to break into the property market, but can’t afford to buy in the suburb of your dreams, you may want to consider buying a property as an investment and renting it out. This pathway to home ownership is becoming more popular for Aussies eager to break into the market, who don’t want to sacrifice where they live.

So what do you need to know before making the big decision?

Benefits of buying investment property vs first home 

How does it differ when looking for an investment property vs first home? 

When getting a loan for an investment property, lenders tend to consider these a riskier loan. This means an investment loan may carry a higher interest rate compared to an owner-occupied loan.

Compared to looking for your ideal first home, there are a few different factors to keep in mind when searching for your perfect investment property. For example, it’s important to calculate rental yield and capital growth.

The level of rent return you can expect from an investment property is impacted by:

  • Location

  • Property type

  • Economic conditions.

Having high rental yield will help you generate passive income, putting more money in your pocket, to help you pay rent where you want to be living.

You also want your property to rise in capital. Capital gain is the increasing value of the property over time. When you sell in 5, 10, 20 years, you want to sell for more than you bought it for.

Capital gain is influenced by a number of factors such as:

  • Property type

  • Facilities near the property (schools, parks, shopping precincts etc.)

  • Location

Hitting these key factors when buying an investment property will help it rise in value while you rent it out to tenants.

At loans.com.au , we have a number of low rate investment loan options with features, and a friendly and experienced team of lending specialists who are here to help you settle quickly, and make your experience as hassle free as possible.

How much can you borrow for an investment property? 

At loans.com.au , we offer investment loans with a loan-to-value-ration (LVR) up to 90%, which means you only need a 10% deposit.

However, to avoid Lenders Mortgage Insurance, you need a deposit of 20%.

It’s also important to know that the First Home Owners Grant (FHOG) is only eligible for owner-occupied loans.

Tax benefits of being a property investor? 

For investment property owners, knowing whether your property will be positively or negatively geared, as well as the tax benefits and deductions you can make are key to saving money.

If you own an investment property, you can;

  • Claim tax deductions for costs of owning a rental property, such as the interest and charges you pay on the loan, council rates, insurance, repairs and maintenance and agent fees.

  • If your property is negatively geared, this means that the income you are receiving from rent by your tenants, does not cover your loan repayments and cost of maintaining the property.

  • However negatively geared properties allow you to claim the loss by deducting from your regular wage or salary to reduce your taxable income.

  • If your property is positively geared, then that means your rental income covers your costs of owning the property, which means you’re in a surplus and can put that extra cash towards your own rent (woohoo!).

What is rentvesting? 

Rentvesting is when you buy an investment property to lease out, and then rent a property to live in. This strategy gives you the ability to maintain the lifestyle you want, while being able to start your investment portfolio.

Rentvesting gives you the opportunity to live in a neighborhood you desire, while still owning an investment property.

Wanting to buy a house/apartment doesn’t mean you have to sacrifice where you want to live, that’s the beauty of rentvesting.

What else do people looking for a first home vs investment property consider? 

1. Managing tenants, costs

It’s important to consider when you purchase an investment property, whether you will be able to manage the tenants yourself, or outsource a property manager.

Most agents charge anywhere from 6-12% of the cost of monthly rent, which you need to consider when budgeting your own finances.

If you wish to take on the responsibility yourself, it's a big time commitment, you have to consider:

  • Advertising the place when it’s up for rent

  • Screening tenants

  • Lodging the rental bond with the appropriate agency

  • Collecting rent

  • Maintaining the property.

This workload also can be stressful particularly if you have long periods of vacancy between tenants.

2. Lifestyle

It’s important to consider the lifestyle you want to live when contemplating buying an investment property or a first home.

Don’t buy above your price range, in a suburb you desire, as you may get in financial trouble down the track.

Similarly, you shouldn’t have to sacrifice where you want to live just to buy a home.

3. Paying rent and mortgage 

You also need to consider the financial prospect of having mortgage repayments for your investment property, and rent where you decide to live.

You can’t rely just on rental yield from your investment property all year round.

There may be times when your investment property is vacant, between tenants, and this can be a financial strain on you and your life.

Make sure you are prepared for this possibility, by not renting above your means.

If you are looking to buy an investment property, contact the experts at loans.com.au.

You can check out our investment loan rates. Or, if you’re ready to get started chat to our team of lending specialists today on how you could save thousands.

Do I qualify

Tags: buying an investment property | investment property

Your goal is within reach
with our loan products

Related articles

Rentvesting is investing in one property while living in another rental property yourself....

Investing in real estate offers a number of advantages. Despite this, there are still hurd...

Investing in the right property can be a good strategy to grow your wealth. Here are thing...