Should I buy my first home or an investment property first?

[nano]

Hi,

Let's say I have 100k sitting in the bank and still renting. I'm a migrant, 28, single (but a committed relationship with my partner) and making a full time salary of ~ $80k

I'm looking to buy my own first home but have heard others said that buying an investment property is a better move.

What price range should I be looking at when shopping for property?
Which path should i take?
What should I focus on when making my decisions?
What are the pros and cons of both?

Thanks.

 

[alexlee]

Too many gaps in your knowledge. Go read a few books on property investment first.

 

[Brady]

As stated, sooo many questions to ask yourself.

Where do you want to live?
Will you want to live there for an extended period?
Where you want to live, is it a good spot for captial growth?
What is your risk profile?
Are you happy renting?
Do you want to be a landlord?
How many properties do you want to own?
Are you going to be purchasing with your long term partner?

+ so many more????


Pros & Cons

Buy to live
- you own the property
- your in control
- feeling of ownership

Buy to invest
- tax deductable
- building income
- possibly having better captial growth then where you live
- usually quicker to growth wealth through investing rather then PPOR

again + so many more

 

[mumbai]

I'm looking to buy my own first home but have heard others said that buying an investment property is a better move.

What price range should I be looking at when shopping for property?
Which path should i take?
What should I focus on when making my decisions?
What are the pros and cons of both?

Thanks.

Joining this forum, you have already taken the first correct step. Skim through the experiences shared here, read as much as you can. Ask relevant questions and I am sure there are many out here to help you out.

Getting back to your question, first ask yourself why you want a PPOR (your residence) or a IP. No one can decide or answer that for you except you.

A PPOR can be any price range you can afford and you like.
An IP, on the other hand, is well.. like any other investment, to make money. You might want to spend the least and get the most out of it.
Whether you want it long term/short term will be an important factor.

Don't buy an IP, just because others say it is a better move.

 

[nano]

Thanks for the replies.

Yes, I admint I have so much to read. I'm a keen learner so that's not a problem

@Brady
1. how do i find out if an area is a good spot for capital growth? Every single agent/broker I've spoke to says the same thing, yes it will always grow bla bla bla but surely there are some concrete data that i can based my research on?

2. For me, owning my own home is way better than renting. I guess everyone will agree or else you won't be in this forum

3. For starters, i will be happy with 1 PPOR and 1 IP

4. Are you going to be purchasing with your long term partner?
NEVER really got to crack this question. I know there's a difference math and tax wise, but what's that difference? Info/advice appreciated. Again, more reading needed on my part.

=====================

@dreamzr4u
1. I wanted to own a place for myself, build equity. feels more in control being an owner rather than just renting

2. IP - long term vs short term
What metric should i focus on when deciding this? I heard of buying off the plan, hold for 2 years while the property is being developed and sell it at market price when it's built. I guess that's considered short term?

=================

For someone who is currently is still renting and dob't have my own PPOR, would it sound naive to actually buy a PPOR today and get an IP in the next 6 months? My current savings and salary are in post 1.

 

[alexlee]

2. For me, owning my own home is way better than renting. I guess everyone will agree or else you won't be in this forum

Quite the reverse, actually. Owning your PPOR is something that should happen as late as possible, especially if you're young and single. People are usually on the forum to discuss investing.

Right now, your assumptions are based on your level of knowledge. At the moment, they're more than likely to be wrong, e.g:

1. I wanted to own a place for myself, build equity. feels more in control being an owner rather than just renting

Just because you 'feel' more in control doesn't mean you are.

Who's more in control, the person with a million dollar house who has no cashflow, or the person with cashflow producing investments with equity sitting in offsets?

 

[vaughan]

Quite the reverse, actually. Owning your PPOR is something that should happen as late as possible, especially if you're young and single.

One reason being that the loan interest on an investment property is a tax deduction, whereas the loan on a PPOR is not.

 

[alexlee]

One reason being that the loan interest on an investment property is a tax deduction, whereas the loan on a PPOR is not.

Yes, but rent you pay is not generally tax deductible either.

The main thing is if you train yourself to think of property as investments (as opposed to that emotional thing called a 'home') first, you're not going to make mistakes like:

1) buy too much PPOR to start with, hammering your serviceability
2) insisting that your IPs must be places you can 'live in', limiting your choices
3) limiting yourself to one property, instead of multiple properties
4) think that owning a 'home' is somehow 'safe' as opposed to lots of cash.

 

[vaughan]

Yes, but rent you pay is not generally tax deductible either.

Well, you could probably claim a portion as a home office.

However the smart thing would be to rent a property that has less rent than the interest payments on the IP. That way you're ahead.

 

[alexlee]

However the smart thing would be to rent a property that has less rent than the interest payments on the IP. That way you're ahead.

You're getting rent and depreciation on the IP, though. The smarter thing would be to rent a cheap place, while buying MULTIPLE investments. Not necessarily just property. The point is to stop thinking 'I either buy an IP or I buy my own place'. One you start thinking in multiples, the horizons move.

 

[vaughan]

You're getting rent and depreciation on the IP, though. The smarter thing would be to rent a cheap place, while buying MULTIPLE investments. Not necessarily just property. The point is to stop thinking 'I either buy an IP or I buy my own place'. One you start thinking in multiples, the horizons move.

Depreciation isn't something to get excited about. It's an allowable tax deduction for the value that the the asset is losing over time.

 

[Brady]

Thanks for the replies.

Yes, I admint I have so much to read. I'm a keen learner so that's not a problem

@Brady
1. how do i find out if an area is a good spot for capital growth? Every single agent/broker I've spoke to says the same thing, yes it will always grow bla bla bla but surely there are some concrete data that i can based my research on?

2. For me, owning my own home is way better than renting. I guess everyone will agree or else you won't be in this forum

3. For starters, i will be happy with 1 PPOR and 1 IP

4. Are you going to be purchasing with your long term partner?
NEVER really got to crack this question. I know there's a difference math and tax wise, but what's that difference? Info/advice appreciated. Again, more reading needed on my part.

1. Start by looking at what areas previously had good growth, I dont suggest investing straight into them. Try and find why (growth drivers) you think they had good growth. Then see if you can find areas that have the similar growth drivers but havent grown yet.
Research is your friend.

2. As stated this isnt a home ownership forum, its an investment forum. Most people here try to be commercial in the discussion to purchase a property, all about numbers be it potential capital growth, cash flow and for those who select wisely both.

3. Why not start 1 IP and see how you like, might not be for you. Hopefully your like just bout everyone on this forum and love it and want more

4. there are different tax reasons, suggest speaking to an accountant about this. But there are also the unknowns, your with your partner now, but will you be in 5-10. Does your partner want to invest, willing to contribute etc..

Im also recently new to this forum and its great. Best tip is ask specific questions and you will get much better response. eg: if you're thinking of an area that you like, post why you like it, what you think is good... that way people will agree or challenge what you have posted. As a post of what do you think about XYZ SUBURB along usually doesnt get much action

goodluck enjoy

 

[nano]

Yes, but rent you pay is not generally tax deductible either.

The main thing is if you train yourself to think of property as investments (as opposed to that emotional thing called a 'home') first, you're not going to make mistakes like:

1) buy too much PPOR to start with, hammering your serviceability
2) insisting that your IPs must be places you can 'live in', limiting your choices
3) limiting yourself to one property, instead of multiple properties
4) think that owning a 'home' is somehow 'safe' as opposed to lots of cash.

VERY insightful indeed. I know, i am still a newbie...

It sounds like owning an IP and renting at the same time is a good move. I'm a contractor/freelancer that do work at home and do have my own working space. Now, surely that means i can get more tax benefits because i have a home office and rent at the same time?

There's an internal force telling me to go for PPOR and another telling me get an IP, and I can't make up my mind, yet.

I agree to all your points, but what gets to me is if I get an IP today, what are the possible worst case scenarios I might get into if I wanted to buy a PPOR in 6/12/24 months time?

 

[alexlee]

It sounds like owning an IP and renting at the same time is a good move.

Can people please stop thinking in the singular? Seriously?

I'm a contractor/freelancer that do work at home and do have my own working space. Now, surely that means i can get more tax benefits because i have a home office and rent at the same time?

Probably. However, you need to learn how much the tax benefit is, so that you can realistically assess how it'll affect your decision.

There's an internal force telling me to go for PPOR and another telling me get an IP, and I can't make up my mind, yet.

You need to learn how to assess the two sides, or understand the cost of each. (There's a theme here, I hope you'll note).

I agree to all your points, but what gets to me is if I get an IP today, what are the possible worst case scenarios I might get into if I wanted to buy a PPOR in 6/12/24 months time?

Oh, you want the worst case? You buy an IP. The tenant trashes it. Or it gets flooded. Or walls fall down. etc. Insurance doesn't cover everything, and you're out of pocket. Or the market price falls. Looters. Meteor strikes. Zombies. Vampires. Werewolves. Aliens.

You keep thinking about possible worst case scenarios, and you're better off buying guns and canned food and living in the bush. You want PROBABLE scenarios, well, that's where the knowledge comes in.

 

[nano]

Went to an inspection with an agent who presented me with a apartment unit and I'm actually quite impressed. Good area, facilities and population growth from 2011 to 2016 is expected at 6.51% pa

But thing is it's "off the plan" as completion time is 2015

2 bedroom x 2 bathroom, 1 car space + lock up storage
400k @ 10% deposit down = 40k and earn 3% interest for the 2 years
strate approx $980/yr
current rent $400/week, expected $450/week in 2015
eligible for NRAS (can choose not to, but what's the risk?)

Pros:
- (Possible) Capital growth on completion

Cons:
- It's off the plan, can't touch and see until completion
- 3% interest for 2 years (not sure if that's per year or whole 2 years) and that's seriously too LOW! no?

Doubts:
- Are expected rents to be believed at all?
- are strata fees set or rise every year?
- It seems like the agent is steering me towards NRAS, what's in it for them? From what i gather from other thread, NRAS seems like a good thing to do for my IP but am i missing something?

What are other typical assessment criterias?

 

[nano]

Can people please stop thinking in the singular? Seriously?

NP, now i'll train myself to think bigger

Oh, you want the worst case? You buy an IP. The tenant trashes it. Or it gets flooded. Or walls fall down. etc. Insurance doesn't cover everything, and you're out of pocket. Or the market price falls. Looters. Meteor strikes. Zombies. Vampires. Werewolves. Aliens.

You keep thinking about possible worst case scenarios, and you're better off buying guns and canned food and living in the bush. You want PROBABLE scenarios, well, that's where the knowledge comes in.

Totally understand what you're trying to say. There's risk and I do understand that. PROBABLE scenarios + knowledge sounds good to me.

 

[wobbycarly]

Went to an inspection with an agent who presented me with a apartment unit and I'm actually quite impressed. Good area, facilities and population growth from 2011 to 2016 is expected at 6.51% pa

But thing is it's "off the plan" as completion time is 2015

2 bedroom x 2 bathroom, 1 car space + lock up storage
400k @ 10% deposit down = 40k and earn 3% interest for the 2 years
strate approx $980/yr
current rent $400/week, expected $450/week in 2015
eligible for NRAS (can choose not to, but what's the risk?)

Pros:
- (Possible) Capital growth on completion

Cons:
- It's off the plan, can't touch and see until completion
- 3% interest for 2 years (not sure if that's per year or whole 2 years) and that's seriously too LOW! no?

Doubts:
- Are expected rents to be believed at all?
- are strata fees set or rise every year?
- It seems like the agent is steering me towards NRAS, what's in it for them? From what i gather from other thread, NRAS seems like a good thing to do for my IP but am i missing something?

What are other typical assessment criterias?

You want to throw 1st IP, NRAS and OTP all in together?

Do a search on here for NRAS and OTP. Use google and type "OTP site:somersoft.com" and "NRAS site:somersoft.com" You'll read lots and lots. NRAS could be a good option for you, but you have to know WHY!

Why complicate things by locking in for 2015, when there's no crystal ball?

IMO, you should look at an established place, with a track record. A known rent in a known suburb/area. House or unit, doesn't matter. Reno or not reno, doesn't matter. Use the data tables in the back of one of the property mags (API or YIP, doesn't matter) to get a feel for historical growth, but learn why median prices are not a 100% guarantee on anything (google "median price site:somersoft.com")

Don't rush in. Will it make much difference if you do nothing but research and educate yourself for the next 6 months instead of buying something now? I reckon it will - you will make a better-educated buying decision in 6 months!

You've made a good first step in starting your research, but IMO, there is still a lot to learn. I've been on this site for about 4 years, and before I came here I thought I knew a lot. Well, I still learn something new every day.

 

[nano]

wobbycarly/Rob

Thanks and points noted. I'd always been ignorant about properties and it certainly reflects in how little I know. No more excuse

Knowledge and education is really key here and I'm glad that's what I'm hearing from you guys and not just a quick fix

 

[JennD]

Hi,

Let's say I have 100k sitting in the bank and still renting. I'm a migrant, 28, single (but a committed relationship with my partner) and making a full time salary of ~ $80k

I'm looking to buy my own first home but have heard others said that buying an investment property is a better move.

What price range should I be looking at when shopping for property?
Which path should i take?
What should I focus on when making my decisions?
What are the pros and cons of both?

Thanks.

Agreeing with everyone else here re: educating yourself. I'd also recommend going along to seminars etc (beware of spruikers, but just go and surround yourself with people who've invested already).

I'd be figuring out my goals first. For instance - if you're looking to have a family soon and the point of buying a PPOR is for stability for your child, that's a consideration. If you're retirement planning, and intending to hold a property long-term (and maybe even retire in that property), that's another consideration.

What do you want property to DO for you?

I wrote an article a while back about how so many first time investors (myself at the start of the piece too) want to buy property... but can't figure out the reason "why" they're doing it. Without this reason, the motivation to keep going and the ability to ignore naysayers are significantly lowered.

Someone gave me that analogy of driving a car. First of all - why are you getting in the car (e.g. where are you going?)? Secondly - how long do you have to get there? And, as a result, thirdly - what different ways are there to get there?

This will change as your goals change, but imagine if one of those parts of the plan was missing.

You might then find that property and a few different investment types suit this purpose. You might end up buying shares. Who knows. But get a plan put together, and assess it regularly and whenever your life and aims change.

 

[Cloudy_]

Completion 2015, so likely to be 100+ apartments in the block? I'd just be wary of the valuation coming in at settlement time. Don't just assume all property will go up in value by 2015 and of course the last person you take advice from regarding future price and yields is a REA! Trust me, I'm marrying one! Lol). There's some horror stories of people struggling to get bank finance for settlement, having to sell with 10 other people, dropping the price, ruins other valuations etc etc...
Also with the rent, how many other investors do you think will be buying in the building? 1/3? 1/2? 30-50 apartments for rent in a building, a tenant's going to choose based on price, how far will you have to drop your rent to be lucky enough to jag a tenant?
You've set yourself up really well to make that first purchase, from everything I've learnt over my short investment career, established houses/apts etc in low supply will equal better deman and better results. Good luck on your journey!