Is It Better To Buy A Home Or Rental Property?

When looking to purchase property for the first time, should the default position be to buy an investment property to rent out, or is does it make more investment sense to buy your own home and pay a mortgage instead of rent?

The first obvious reason to buy a home to live in is that you’ll be paying the capital off on your own home rather than paying rent – which is paying off someone else’s mortgage.

Eligibility for the First Home Owner Grant (FHOG) may also influence your decision. The FHOG generally allows first home buyers to buy or build their first home, and the one-time, lump-sum grant can only be used to buy a home you’ll then occupy. It doesn’t apply at all to investment properties.

Whether you could buy an investment property as your first purchase and still be eligible for the FHOG on a second purchase that you’d occupy may depend on which state you apply for the loan, as the regulations vary. Finder has a summary of the state-by-state regulations, but effectively the criteria are variable and strict, and you should get professional advice on the issue.

Property Investment

There are other benefits of being a first time property investor (rather than a homeowner) – sometimes you can’t afford to buy where you can afford to rent, so you can keep renting in an area you like while buying an investment property in an area that’s more within your budget (a strategy that UNO Home Loans calls being a ‘rentvestor’.)

Obviously, another advantage is that the rental income can be used to pay off the mortgage debt, and there are some tax advantages as well, like deductions for costs associated with the investment. If you’re able to rent somewhere more cheaply yourself, it might be an option that gets you on the Monopoly board before the metaphorical hotels are all set up on Mayfair.  

Naturally there are costs to consider too, including eventual Capital Gains Tax, the time, effort and expense involved in being a landlord and managing the effects of the broader rental market over which you have little control.

Purchasing Your First Home

However, there are financial and personal benefits to making your first purchase your own home. The FGOH clearly applies in this situation. While your costs in buying and setting up your home won’t be tax deductible, you can carry on paying the mortgage and know you have a roof over your head for as long as you need to. Your own home provides stability, because nobody is going to make you leave because they’ve decided to sell, and you can put as many picture hooks in the walls as you like.

Once in your own home, you can work out your budget, tighten the belt where it suits you, and build your investment future in other ways – which may include investment properties, or turning your current home into an investment property when you upgrade to a more perfect home!

If you are thinking of buying or selling property or you are unsure of how well your property portfolio is positioned in the current changing market, contact United Global Capital today on 03 8657 7640 or email [email protected] for a no cost, no obligation consultation and learn how you can position yourself for success.