Buying your first home is an exciting milestone in life. But what if you could make that first purchase even more rewarding by investing in property? This guide is tailored for first home buyers considering leaping into property investment. With the assistance of LiveInvest as a finance broker, we’ll explore why more first home buyers are turning to investment properties, address common questions about affordability and grants, provide tips for purchasing while renting, and weigh the pros and cons of this decision.

Why Are First Home Buyers Buying an Investment Property as Their First Purchase?

Traditionally, purchasing a home was seen as a place to live rather than an investment opportunity. However, with rising property prices and the desire to build wealth, many first home buyers turn to investment properties as their initial purchase. Investing in property offers the potential for long-term financial growth, rental income, and tax benefits, making it an attractive option for those looking to secure their financial future.

Housing Affordability

In Australia, property prices have soared in recent years, making it increasingly challenging for first home buyers to enter the market. This has led many to explore alternative options, such as investment properties. While affordability remains a concern, investing in property can be a strategic way to enter the market and start building equity.

Can I Get the First Home Buyers Grant if I purchase an Investment Property?

The First Home Buyers Grant is a government incentive designed to help first-time buyers enter the property market. While the grant is typically reserved for those purchasing a primary residence, there may be exceptions in certain states or territories for buyers purchasing an investment property. It’s essential to check the eligibility criteria in your area and consult with the best mortgage broker, like LiveInvest, to explore your options.

Tips on Purchasing an Investment Property While Renting

Purchasing an investment property while renting can be a savvy financial move, but it requires careful planning and consideration. Here are some practical tips to help you navigate this process effectively:

1. Save for a Deposit

Start saving for a deposit while renting. Lenders typically require a larger deposit for investment properties compared to owner-occupied homes. Aim to save at least 20% of the property’s purchase price to avoid paying lenders mortgage insurance (LMI) and demonstrate financial stability to lenders.

2. Research the Market

Take the time to research the local property market thoroughly. Look for areas with strong rental demand, low vacancy rates, and potential for capital growth. Consider proximity to amenities, public transport, schools, and employment hubs. Understanding the market dynamics will help you make informed decisions and identify properties that align with your investment goals.

3. Set a Realistic Budget

Determine how much you can afford to borrow and repay comfortably. Consider all costs associated with property ownership, including mortgage repayments, property management fees, insurance, maintenance, and potential vacancies. It’s essential to set a realistic budget and stick to it to avoid financial strain in the long run.

4. Consult with Experts

Seek advice from professionals, such as the best mortgage brokers and real estate agents. A mortgage broker like LiveInvest specialising in Australian property finance can help you explore financing options tailored to your needs and assist you through the loan application process. They can also provide valuable insights into market trends, property values, and investment strategies.

5. Consider Rentvesting

Rentvesting is a strategy that involves renting in an area where you want to live while investing in property elsewhere. This approach allows you to enter the property market sooner, take advantage of investment opportunities in more affordable areas, and maintain flexibility with your living arrangements. Evaluate whether reinvesting aligns with your lifestyle and financial goals.

6. Build a Strong Financial Profile

Lenders assess your financial situation, including your income, expenses, credit history, and assets, when considering your loan application. Take steps to strengthen your financial profile by paying bills on time, reducing debt, and improving your credit score. Providing a stable financial background can increase your chances of securing financing for your investment property.

7. Plan for Contingencies

Prepare for unexpected expenses and setbacks that may arise during the purchasing process and throughout property ownership. Set aside an emergency fund to cover repairs, vacancies, and unforeseen financial challenges. Being financially prepared will help you navigate potential obstacles and protect your investment over the long term.

8. Seek Legal Advice

Before finalising any property purchase, consult with a solicitor or conveyancer to review contracts, conduct due diligence, and ensure that all legal requirements are met. They can provide valuable guidance on property laws, rights, and obligations, helping you make informed decisions and avoid potential pitfalls.

Is Buying an Investment Property Before Your First Home a Good Idea?

Buying an investment property before purchasing your first home is a decision that requires careful consideration and evaluation of your financial goals, personal circumstances, and risk tolerance. While it can be a viable strategy for some individuals, it may not suit everyone. Here are some factors to consider when weighing the pros and cons:

Pros

1. Building Equity Sooner

Investing in property early allows you to build equity and wealth at a younger age. Property has historically been a valuable asset class that appreciates over time, potentially providing long-term financial stability and growth.

2. Rental Income

Owning an investment property enables you to generate rental income, which can help offset mortgage repayments and other expenses associated with property ownership. This additional income stream can improve your financial security and help you achieve your goals faster.

3. Tax Benefits

Investment properties offer various tax advantages, such as deductions for mortgage interest, property maintenance costs, depreciation, and negative gearing. These tax benefits can help reduce your taxable income and increase your overall return on investment.

4. Diversification

Investing in property diversifies your investment portfolio and reduces your reliance on any single asset class. Diversification can help spread risk and mitigate potential losses, especially during economic downturns or market fluctuations.

Cons

1. Limited Flexibility

Owning an investment property ties up your capital and may limit your flexibility regarding lifestyle choices and housing options. You may have less freedom to relocate, travel, or upgrade to a larger home if your circumstances change.

2. Financial Commitments

Purchasing an investment property involves significant financial commitments, including mortgage repayments, property management fees, insurance, maintenance costs, and potential vacancies. It’s essential to ensure that you have sufficient cash flow and reserves to cover these expenses.

3. Risk of Market Fluctuations

Property markets can be volatile, and property values may fluctuate. Economic factors, changes in interest rates, and local market conditions can affect the performance of your investment property. It’s crucial to conduct thorough research and risk assessment before purchasing.

4. Tenant Management

Managing tenants and rental properties requires time, effort, and expertise. Dealing with tenant issues, maintenance requests, and rental arrears can be challenging and time-consuming, especially for first-time investors. Consider whether you’re willing to take on the responsibilities of property management or if you prefer to enlist the services of a professional property manager.

Ultimately, whether buying an investment property before your first home is a good idea depends on your circumstances, goals, and priorities. It’s essential to weigh the pros and cons carefully, seek advice from financial professionals, and conduct thorough research before making any decisions. Consulting with experts like LiveInvest, a first home buyer investment property specialist, can provide valuable insights and guidance to help you make informed choices that align with your financial objectives. Utilising tools like a property investment calculator can also aid in evaluating potential returns and assessing affordability.

Conclusion

Investing in property as a first home buyer can be rewarding, offering the potential for financial growth and security. With the guidance of experts like LiveInvest, you can navigate the complexities of property investment and make informed decisions that align with your goals. Whether you’re purchasing your first home or considering an investment property, remember to research thoroughly, seek professional advice, and plan for the future. Your journey to property ownership starts here.