Investment vs first home buy to live?

[robs132]

Hi, we're first time property buyers and thinking about getting an investment property in the next 6 months instead of buying our first home to live in.

We are thinking about purchasing the investment in maroubra sydney and looking at around $550K

What are your thoughts about this as a strategy instead of waiting to buy a 1.3m place in say two years when we are ready for that?

Pros and cons? Thoughts?

Thanks guys

 

[Greg Reid]

There is no right or wrong answer, it depends on both financial and emotional views. People entering the property market to create wealth will often not have the funds to afford to tie themselves to a large mortgage that is a non deductible debt and may not have the settlement funds or borrowing capacity to purchase a house in an area they want to live in ($1.3m).

A strategy often used is to rent where you want to live and to buy an investment property where you have a tenant (and possibly the tax man) help you pay the mortgage. This may be the $550k investment property in an area where you could expect continued capital growth for all the right reasons, scarcity, infrastructure, close to facilities etc. In possibly 2 or even 5 years, you then may have the equity (and offset savings) to then purchase your PPOR. This gets you into the property market now rather than waiting two or so years where the market may then have gone up another 5 or 10% or more.

It may come down to how important it is to you living in your own home that you own or not.

 

[robs132]

Thanks for the reply Greg, that strategy is the one that we are edging towards.

The only thing that is holding me back is the fear that really we are at the top of the market right now and in the next two years it may collapse / correct at which point we will end up with our capital tied up in An investment property that we bought for $550k but now only worth $450k, that we can't sell.

Thinking maybe it's better to just hold onto our cash for the next 12-24 months, continue saving and be ready to invest/buy ppor as the next cycle kicks in?

 

[superAndrew]

You could buy an investment property now and borrow as much as you can ( >90%) and park your funds in an offset account. When it's time to purchase your PPOR you can use your funds in the offset account for the deposit.

This will allow you to maximize your deductible debt from day one and minimize your non-deductible debt in the future when it comes to purchase your PPOR.

We can't really know what will happen in the future, just make sure you have your investment property set up with a good tenant who will pay the majority of the expenses if not all, then it will not really matter that much if the property will slightly fall in value in 2 years as long as you don't sell it. In 5 years it will be back up again

Cheers
Andrew