Should your first prop­erty be an in­vest­ment

Shepparton News - SN Local Real Estate - - NEWS -

The dream of own­ing a home has changed a lit­tle, with many first home buy­ers to­day buy­ing an in­vest­ment prop­erty be­fore they buy a house to live in.

Aus­tralians in­creas­ingly want to live close to work and where the ac­tion is, which is why most peo­ple like to live close to the cap­i­tal city cen­tres, but with prices ris­ing across most cap­i­tal cities, pur­chas­ing prop­erty near or close to the city is be­com­ing in­creas­ingly dif­fi­cult for buy­ers – es­pe­cially first home buy­ers.

The in­creas­ing ap­peal for younger gen­er­a­tions to rent in de­sir­able lo­ca­tions where they can’t af­ford to buy, and to buy an in­vest­ment prop­erty where they can af­ford to but don’t want to live, is be­hind this sentiment shift to buy­ing an in­vest­ment prop­erty be­fore their first home.

The fol­low­ing ad­vice re­gard­ing this trend called ‘rent-vest­ing’ is from Michael Yard­ney, direc­tor of Metropole Prop­erty Strate­gists.


The trend de­scribed as ‘rent-vest­ing’ suits the life­style of many mil­len­ni­als, al­low­ing them flex­i­bil­ity in where they live, giv­ing them the op­por­tu­nity to travel and at the same time al­low­ing them to grow their wealth.

Buy­ing an in­vest­ment prop­erty first may have some ben­e­fits for you:


Rent-vest­ing is ideal for those not yet ready to set­tle down in the sub­urbs or those who do not have the job se­cu­rity needed to pur­chase in the more af­flu­ent ar­eas. Rent­ing also of­fers the flex­i­bil­ity to eas­ily move, up­grade or down­grade with­out all the costs of buy­ing a prop­erty such as stamp duty and le­gal costs.


An­other ben­e­fit is peo­ple can live the life­style they de­sire to­day, in or near the ar­eas they love, with­out hav­ing to make the long-term com­mit­ment to buy­ing a prop­erty there – and all while still grow­ing their prop­erty port­fo­lio in an­other more af­ford­able area.

Some­one else pays the mort­gage

Rent-vest­ing is also ideal for those who find a prop­erty they would like to live in but can’t quite af­ford to buy, as it al­lows them to ini­tially rent it out so the ten­ant helps pay off the mort­gage un­til the own­ers’ fi­nances im­prove and they can move in them­selves. In this case, tax ben­e­fits in­clud­ing de­pre­ci­a­tion and neg­a­tive gearing may help to man­age the home loan for those first few dif­fi­cult years.

By us­ing the rent com­ing in, plus any reg­u­lar sav­ings, the loan could be paid down much quicker than if you moved in straight away. Be­fore adopt­ing this strat­egy, make sure to get tax ad­vice as your in­vest­ment prop­erty could at­tract cap­i­tal gains tax in the fu­ture, even if it be­comes your main res­i­dence. Es­ti­mate how much you can save here.

The ben­e­fits of cap­i­tal growth

If choos­ing be­tween cash flow and cap­i­tal growth as an in­vest­ment strat­egy, cap­i­tal growth is the best op­tion. This is be­cause wealth from real es­tate is achieved through long-term cap­i­tal ap­pre­ci­a­tion and the abil­ity to re­fi­nance to buy more prop­er­ties. There­fore, you should con­sider buy­ing in a sub­urb that of­fers high cap­i­tal growth po­ten­tial, and this may not be where you’d like to live in the short term.

Other im­por­tant is­sues to con­sider

Be­fore you adopt rent-vest­ing, or any other in­vest­ment strat­egy, you should: pre­pare a bud­get and get in­de­pen­dent tax and ac­count­ing ad­vice; un­der­stand the risks as well as the re­wards of prop­erty in­vest­ing; recog­nise that prop­erty prices can go down as well as up; un­der­stand your el­i­gi­bil­ity for your state or ter­ri­tory’s first home owner grants or stamp duty con­ces­sions if you buy an in­vest­ment prop­erty first; and al­ways keep a close eye on how your in­vest­ment prop­erty is track­ing in terms of cash flow and cap­i­tal growth, but re­mem­ber that prop­erty in­vest­ment is a long-term wealth cre­ation strat­egy.

First home buyer loan ap­provals are al­ready on the rise, and agents are re­port­ing a strong in­flux of in­quiries from prospec­tive first-time buy­ers.

“Al­ready dur­ing the first two weeks of spring, visi­tors to our ‘buy’ sec­tion were up 25 per cent com­pared to the same pe­riod in June, and to­tal visi­tors were up 18 per cent site-wide,” Mr Balazs said.

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