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
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
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.