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Should You Buy a First-home or an Investment Property?

Should You Buy a First-home or an Investment Property?


Author: Courtney Thomas

The idea of owning your own home is so attractive that some buyers may overlook the option of starting out with an investment property. In this article I’ll outline the benefits of buying your own home versus buying an investment property.

Purchasing an investment property

An investment mortgage usually attracts a higher interest rate however the interest you pay is tax deductible. For example, if you are earning an income of $80,000 per year and paying interest of $20,000, you would only pay the marginal tax rate on $60,000.
 You are able to claim depreciation and losses on the property.

You are able to rent out the property – this can help you when applying for a loan. If your income is too low, opting for an investment property may help you get in the market.

Investment debt is ‘good debt’ because you own an asset that creates income, gives you tax deductions and increases in value more than its costs. Conversely, an owner-occupier home is bad debt. It creates no income. You get no tax deductions and unless you are living in a property hot spot, your capital growth could be limited.

Remember, if you purchase a property as an investment, it doesn’t need to be an investment forever.

If you sell within six years, the allowable time you can be away from your home, and you haven’t declared a new main residence, you may still get the full capital gain exemption. Speak to an accountant for advice.

Purchasing a property to live in

A First Home Owner Grant is available if you are purchasing a new property. There will also be concessions such as stamp duty discounts. These are only available if you live in the property within twelve months of purchasing it for a consistent period of six months minimum.

If you buy your first property as a home and live there for at least twelve months, you won’t have to pay capital gains tax when you sell, no matter how much the value has increased. There are certain taxation rules to follow, but essentially, as long as you’ve lived in the property the whole time and haven’t earned any income from it, you’re entitled to a full exemption.
 By contrast, you’ll have to pay capital gains tax on an investment property when you sell.

There are reasons why buying a property to live in may make it easier to get a mortgage. The recent crackdown on investment lending may make it more difficult for investors. As a first-home-buyer, you may also get a lower interest rate, depending on your lender.

If you’re unsure what is the best option for you, call our office and we’ll be happy to help.

General Advice Disclosure: This document contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. If you decide to purchase or vary a financial product, your financial adviser, AMP Financial Planning and other companies within the AMP Group may receive fees and other benefits. The fees will be a dollar amount and/or a percentage of either the premium you pay or the value of your investment. Please contact us if you want more information.

ASCK Pty Ltd (ACN 105 450 566), trading as AMEGA Financial Solutions is an Authorised Representative and Credit Representative of AMP Financial Planning Pty Limited Australian Financial Services Licensee and Australian Credit Licensee 232 706. General advice warning: This website contains general information only. It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances.

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