Buying your first property is a huge deal, but deciding if you’re going to live in it or use it as an investment, by renting it out, is just as big.

Even real estate rookies know there’s a world of difference between being a landlord and an owner/occupier, with pros and cons to both, especially for first-home buyers.

Fiona Conley, a RAMS Home Loan Specialist in Canning Vale, Perth, explains.

There is a financial impact of both options. If you choose to live in the property, you may get stamp duty concessions and up to $10,000 from the government; if you choose to invest, you could potentially pay less tax via negative gearing.

Fiona says buyers need to balance what is best for them financially with their desired lifestyle.

Especially with your first purchase, there are pros and cons to being a landlord vs. an owner/occupier. Picture: Getty

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Invest first, occupy later

“In the Sydney and Melbourne markets especially, first-time buyers are savvy to the idea of buying a property as an investment first up, because it’s simply too expensive for them to buy in the area they want to live in.

“Rent-vesting is the new word, where people buy a property and rent it out straight away, but rent themselves somewhere else or even still live at home, which can be a big saving. This is a great way to get into the market,” she says.

However, rent-vesting does have its downsides. Using this approach could mean forfeiting a First Home Owner Grant (FHOG) and various stamp duty concessions offered by state governments, Fiona explains, because buyers only get “one bite of the cherry”.

As an investor, buyers could be eligible for some tax concessions, depending on how their affairs are structured. It’s possible to deduct interest on a home loan as a tax deduction against other income, and pay less tax, she says.

When selling an investment property down the line, capital gains tax could also be payable, Fiona explains. Being a landlord also comes with ongoing costs, such as management and maintenance.

As an investor, buyers can be eligible for some tax concessions. Picture: realestate.com.au/buy

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The amount of money a buyer could borrow also differs, depending on which option they take, Fiona adds.

“With RAMS, an owner occupier could potentially borrow up to 95% of the purchase price, but if it’s for an investment, that figure drops to 90%, so there’s an additional 5% deposit needed upfront for an investment property,” she says. “Don’t forget Lender’s Mortgage Insurance (LMI) may need to be included in your borrowing capacity,” Fiona says.

“There are so many things to consider, so we always strongly recommend people speak with an accountant or financial adviser.”

Learn from these young gun home owners…

Jamie Moller, a 23-year-old who recently purchased a two-bedroom villa with her partner in Sydney’s Sutherland Shire, wasn’t conflicted about the choice.

Jamie, who works in real estate, and her partner, 23-year-old electrician Taylar Garrett, were committed to being owner occupiers from the get-go, but have a plan.

“It was always going to be owner occupier for us, but down the track it will definitely become an investment,” she explains.

“We see this first property as a stepping stone, as it’s certainly not our forever home, but we wanted to get into the market as soon as we could,” Jamie says.

The plan is to live in the villa for two years and in the process, build up enough equity to buy a second property, which the couple will renovate, while keeping the first.

“I think we’ll hang onto this first property for 10 to 15 years,” she says.

Information in this material is general and does not take into account your objectives, financial situation or needs and you should consider whether it is appropriate for you. You should also obtain independent professional advice relevant to your financial circumstances.

This article was originally published on
25 Jun 2018 at 5:30pm
but has been regularly updated to keep the information current.

If you’re shopping for a home, you may come across properties listed “as-is.” This means the seller isn’t making repairs or offering credits for defects and the buyer must be willing to accept the home exactly as it currently is.

In this Redfin article, we’ll cover what you need to know about buying a house “as-is,” and whether it’s the right option for you. So, whether you’re buying a home in Raleigh, NC, or a townhouse in Baltimore, MD, read on to learn about the term “as-is” in a real estate transaction.

What does “as-is” mean when buying a house?

Stephen Keighery, Founder of HomeBuyerLouisiana.com, says that “as-is” does not mean buyers ignore the condition of the property. “It means the seller knows we are not going to ask them to make repairs, renegotiate over every issue, or hold them responsible for problems after the inspection.” He explains that his team still has a general contractor complete a detailed evaluation of the roof, foundation, HVAC, electrical, plumbing, termite damage, moisture issues, and overall rehab scope. As long as the repair costs make sense, they move forward with the purchase.

When a property is listed and sold “as-is,” it means the seller will not make any repairs, nor offer any credits for potential defects of the home or grounds. Some examples of major defects that the seller doesn’t have to correct include:

• Structural problems
• Leaking or faulty roof
• Defective drywall
• Active termite infestation or damage
• Non-functioning systems (HVAC, septic system, etc.)
• Mold or mildew problems
• Presence of asbestos or other harmful materials

As a result, agreeing to purchase a property “as-is” is a serious decision for any buyer. In some instances, you may request an opportunity to inspect the property for informational purposes only, even though you’re already contractually obligated to purchase the property.

While unlikely, it’s possible that sellers may agree to a home inspection contingency, which allows the buyer to back out of the contract if the home inspection reveals major issues. Whether this is still considered an “as-is” sale depends on state law, so check with a licensed professional.

What does it mean if some parts of the home are sold “as-is”?

Sometimes sellers may identify specific aspects of a home being sold “as-is,” rather than the entire home. Common examples include:

• Fireplaces, chimneys, and flues
• Detached structures (sheds, garages, etc.)
• Household appliances (washer, dryer, refrigerator, etc.)
• Swimming pools, spas, hot tubs

In this situation, “as-is” refers to aspects of the property that may or may not be functioning which the seller will not repair or change as part of the contract of sale. Because this applies only to certain aspects of the home, it’s often less risky for buyers. However, the level of risk varies by property.

What does “as-is, where-is” mean in a listing?

With the inclusion of “where-is,” the seller indicates that the property must be accepted in its current location. In real estate terms, “where-is” effectively excuses any potential locational faults. Some examples include:

• The property is in a flood zone
• The property is not zoned for its current use
• The property is or may be scheduled to be taken by a government by eminent domain, right-of-way, easement, etc.
• The presence, or lack thereof, of restrictive deed covenants limiting what an owner may or may not do upon the property
• Inclusion, or non-inclusion, within a designated historic zone
• The property lies within an airport flyover zone
• The presence of some geological defect (inability to perc a septic system, elevated radon levels, shrink-swell soil, etc.)
• Title defects or disputes

Pros and cons of buying an “as-is” house

If you’re considering buying an “as-is” home, there are benefits and drawbacks to know.

Pros of buying a house “as-is”

• Lower purchase price: “As-is” homes are more likely to be listed and sell for a lower price. They are often in need of repairs, so sellers often account for this in the list price.
• Less competition: Buying an “as-is” house isn’t for everyone, so there’s a chance there won’t be as much competition for the home. 
• Potentially located in your preferred neighborhood: If you’re looking for a home in a specific area or on a plot of land, buying an “as-is” home may be a good option.
• Extra funds to renovate: “As-is” homes are often less expensive, meaning you may have additional funds to make needed repairs and renovate the home to your liking. 
• Faster homebuying process: There’s typically less room for negotiation between buyers and sellers, leading to a faster process. 

Cons of buying a house “as-is”

• Health hazards: One risk of buying a home “as-is” is the potential of health hazards, like lead paint, asbestos, or mold. You may face costly repairs to make the home livable. 
• Hidden problems: While a home inspection may reveal some issues with the property, it’s possible that there may be additional problems. 
• Additional expenses: As a result of hidden problems or health hazards, you may face expenses you didn’t have the budget for. 

Jonathan Cobey, CEO of CarolinaHomeCashOffer, says “one of the biggest mistakes buyers make with as-is homes is underestimating the true cost of repairs beyond what’s visible during a walkthrough. Cosmetic issues are usually manageable, but the larger risks often involve foundation problems, outdated electrical systems, plumbing issues, roof damage, HVAC systems, or hidden water intrusion.” He recommends getting a thorough inspection and walking the property with trusted contractors before committing so buyers can build a realistic repair budget upfront. 

• Inflexible sellers: Often, sellers may be inflexible when it comes to negotiating or making concessions, as they are aware that the property has problems. For example, they may be less likely to accept an offer with contingencies that allow the buyer to back out of the sale.  
• Financing hurdles: Some lenders may not agree to finance the home if there are serious problems with the home’s condition. Loans like VA or FHA may even require the repairs to be made before the sale can be completed. Buyers should confirm requirements with their lender.

Tips for buying a home “as-is”

There’s a lot to consider before buying an “as-is” property, and one of the most important factors is due diligence. Some examples of due diligence in an “as-is” sale include:

• Consulting with an attorney
• Having a title search performed
• Requesting the seller disclosure and reading it thoroughly
• Examining the deed and land records for potential red flags
• Inspecting the property prior to signing a contract
• Including a provision in the contract that allows for inspections and cancellation of the contract as a result of any inspection findings
• Commissioning a Wood Destroying Insect (termite) inspection in advance
• Having a licensed contractor examine the major structural components of the dwelling
• Consider purchasing a home warranty 

Derek R. Ballard of Inspection Gator Home Inspection advises buyers who plan to renovate an as-is property to evaluate foundation, plumbing, and structural issues before making any cosmetic improvements. Major structural or system problems can quickly consume funds that were intended for aesthetic upgrades. He recommends addressing the costly, essential repairs first before focusing on cosmetic changes.

Should I buy a home “as-is?”

Buying a house “as-is” isn’t for everyone, so it’s important to understand what you’re getting into. In many cases, you may not have the opportunity to walk away after inspection, so make sure you’re fully prepared for potential repairs and costs. At the end of the day, you’ll have to decide if the potential benefits of an “as-is” transaction outweigh the potential downsides and expenses.