Buying a Home vs. Buying an Investment Property

Should you buy your own home or buy an investment property? That’s a question that an increasing number of people are asking before they take their first plunge into the property market.

Both owner-occupied homes and investment properties can allow you to achieve capital growth if their values increase over time. Australian property prices have a long-term record of growth, even if there are periods where prices stagnate or fall.

However, it’s important to understand some of the key differences between the two from an investment perspective.

The key differences

If you choose to buy an investment property instead of buying your own home:

  • you’ll need to continue renting or living elsewhere.
  • you’ll need to find and manage tenants (unless you pay a property manager to do those tasks on your behalf).
  • you won’t be eligible for the First Home Owner Grant, the First Home Loan Deposit Scheme, or any stamp duty concessions offered by State and Territory governments. These are only available to eligible applicants who are buying their first home to live in.
  • you will generate rental income that must be included on your annual tax return.
  • you can claim any expenses associated with the property to reduce your taxable income. Those expenses could include:
    • Borrowing costs (including loan interest and other bank charges)
    • repairs and maintenance expenses, and
    • depreciation on appliances and furniture.

You can’t deduct any expenses on an owner-occupied home on your tax return.

Rentvesting

It’s an unfortunate fact that house prices in Australian capital cities are among the most expensive in the world. Many young Australians (Gen Y and Millennials) are convinced that entering the property market is simply beyond them, even with the help of their parents.

The maths of loan repayments just doesn’t add up like it used to. Forty years ago, the average home loan in Australia was three to four times the average annual salary for the Baby Boomer generation. Today, it is eight to thirteen times the average annual salary of the Gen Y and Millennial generations. The Sydney market is the most unaffordable in Australia.

The conclusion for many young Australians is that the great Australian dream of home ownership has evaporated. Even if they manage to save the hefty deposit to secure a home loan, the general lack of property affordability in Australian capital cities means that they are likely to have to compromise on the location, size and features of their home.

There is no definitive answer to the question of whether you’re better off buying a home to live in or buying an investment property. It depends on your individual circumstances and goals. However, an increasing number of people are choosing to both buy and rent at the same time. A term has even been coined to describe this trend: ‘rentvesting’.

Rentvesting is the process of buying an investment property in an affordable area and using the rental income to cover your loan repayments, while renting a property in another location. This strategy can help you to get your ‘foot in the property door’ without compromising your current lifestyle. The key is to find an investment property in an area you can afford and renting a home where you actually want to live.

Rentvesting can therefore give you the best of both worlds (owning and renting). It allows you to:

  • enter the property market sooner by buying a cheaper investment property that requires less deposit.
  • build your equity in your investment property and capitalise on rising property prices over time.
  • use your rental income to make your investment property loan repayments.
  • rent a better home or in a better area than you could afford as an owner-occupier.

When you rentvest, rent money isn’t all “dead money”.

How we can help

At Qi Wealth, our experienced, expert team of home loan specialists and financial advisers can help you decide whether to buy a home or an investment property. We’ll take the time to understand your individual circumstances so that we can provide you with the best possible advice.  We develop long-term, trusted relationships with our clients.

Contact us today to find out how we can help you!