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Buying your first home as an investment property

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Many Australians dream of owning a home, however, the increasingly competitive real estate prices have made this goal more difficult to achieve. Buyers are finding more creative ways to dip their toes into homeownership. 

If you want to break into the property market but can’t afford your dream home just yet, you may want to consider getting a first home as an investment property. This pathway provides buyers with a great opportunity to own a home while raking in the benefits of an investment property. 

When considering buying a first home versus an investment property, you need to look at all the pros and cons. In this guide, you’ll know more about what buying a first home as an investment may entail. 

Should you buy your first home as an investment property? 

It depends on your financial situation and what you hope to achieve in the long run. Some choose to get a mortgage to rent out a property because it gets them closer to their financial goals. For them, buying an investment property before their first home is a way to fund the purchase of a more expensive home in the future. 

It’s best to think about your options before you make any final decisions. Consider your personal circumstances and your real estate goals. Think about how you’ll finance your purchase, whether it’s for a first home or an investment property, and what type of loan best suits your needs. 

First home vs investment property 

What’s the real difference between buying a first home versus an investment property? It comes down to financing and managing the property itself. Buying a first home to use as your primary residence means getting a home loan. The only expectations you’ll be managing are your own with an owner-occupied home. 

Meanwhile, buying an investment property poses unique challenges. You’ll have to opt for an investment property loan which some lenders consider to be riskier compared to the typical home loan.

At loans.com.au, we offer investment loans with a loan-to-value-ration (LVR) of up to 90%, which means you only need a 10% deposit. However, if you want to avoid Lenders Mortgage Insurance, you need a deposit of 20%. 

It’s also important to calculate rental yield and capital growth to ensure profitability. The level of rent return you can expect from an investment property is impacted by the location, property, type, and economic conditions. Owners of investment properties also undertake responsibilities like upkeep of the property and handling tenants.  

Benefits of buying your first home to rent out 

The positives of having an investment property include: 

  • Enter the housing market sooner rather than later. You don’t have to wait until you've saved enough money on your dream home. You can buy a more affordable property to start building equity. 
  • Generate passive income. This is a key advantage to owning an investment property. With the additional passive income, you can save more and fund your forever home or your next investment. 
  • You can access tax benefits. If you own an investment property, you may be able to access tax deductions for the 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. 

Disadvantages of using your first home as an investment property 

Like any investment, there are some downsides to turning your first home purchase into an investment property. Here are some cons you need to be aware of: 

  1. You may not be eligible for grants. Note that the First Home Owner Grant (FHOG) is only eligible for owner-occupied properties. If you intend to use your first home as an investment property, you may not have access to state-sponsored grants. 
  2. You’ll have to wait to buy your first residence. Buying your first property as an investment won’t guarantee immediate returns. This means you may have to wait a little longer to buy a home to call your own. 
  3. You have more responsibilities. An investment property comes with responsibilities. You need to handle tenants, manage the property, and ensure everything is above board. You may have to hire someone else to maintain the property.  

What should you consider before buying your first income property 

If you decide to purchase an investment property before your first home, keep these in mind: 

Managing tenants and property upkeep costs 

Will you be able to manage the tenants yourself or will you outsource a property manager? If you want to take on the responsibility yourself, it's a big-time commitment that includes: 

  • 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 be stressful particularly if you have long periods of vacancy between tenants. If you want to hire a property manager, it could be around 6-12% of the cost of monthly rent, which you need to consider when budgeting your own finances. 

Paying rent and mortgage  

Consider the financial prospect of having mortgage repayments for your investment property while paying rent on your current place of residence. 

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. 

Find a low rate investment loan 

At loans.com.au, we have a number of low rate investment loan options with great 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. 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.

About the article

As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.

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