Should we buy our first home or first IP?

[Big H]

Hi,

I have read this forum and find the comments and advice very useful. I am hoping some of you may be of help.
My parther and I are hoping to purchase our first property next year, (first home buyers), we have $50k deposit, with possible extra funds from family - gift of $40k? We have seen a broker - advised our purchase price will be up to $400k -$600k depending on deposit amount etc and servicability etc

We live in St Kilda and want to stay within the area of Bayside, inc. Highett, Hampton East, Bentleigh, Moorrabin, St Kilda East, the focus on purchasing a run down house (no units, townhouses or OTP etc) My partner has excellent 'handyman' skills, capable of renovating. However the question is do we aim to buy our first home, renovate best we can, and stay in an area we love, our child can go to good nearby school etc, is it really possible to buy for this amount, or do we focus on buying an investment, rent it out, and eventually aim to move in after a year? That way we are in the market at least, or do we simply buy a 1 bed in St Kilda as investment and keep renting and wait till we have more money to buy what we want.

Any advice at all - this is my first time on the forum I apologise for my basic questions!

 

[flightcrank]

most people dont buy in a ritzy suburb for there first house. they mostly buy a place further out without all the mod-cons. being cheaper they pay it off quick smart and use the equity to invest.

buying an IP first is definatly a good option. not necessarily better or worse, what ever suits you best.

jan somer's book more wealth form residential property has you exact scenario in it. buying an ip first. or paying off your own home.

jan's first house was like 50klm form brisbane all the way back in 1972. i dont know where she lives now but she could probably live anywhere she wants. and it all started for buying a cheap place paying it off quick smart then using the equity to buy a little close in each time.

i got all that info from her book.

figure out what you want. then go about getting it. it might mean you have to live futher out. or maybe it might mean you could get a townhouse in a place you want, then upgrade to a house later. its all up to you.

 

[jech]

Sorry to hijack

Scenario: One property to buy
Should you:
- PPOR - live in it, don't pay rent
- IP - claim tax benefits, but pay rent somewhere else

What are the decisions that would make one choose one over the other?

 

[Propertunity]

Hi Big H,

There's really no right or wrong answer on this one.

If you want to get ahead financially quicker, it is almost always better to invest first before spending on yourself. This is true of many things including housing.

However, there are more than financial considerations to make when putting a roof over your own head - like not having to move at the whim of a landlord, decorating to your own taste, not having some pimply faced property manager telling you to clean the stove and dust the window sills, on her twice yearly inspection etc. Things like that you can't put a price on........and if you can, then rent.

 

[Deltaberry]

This is one of the toughest questions.

There are two competing arguments. On the one hand, for most people, your home will be your biggest investment ever. And it will be tax free. Therefore you should buy a PPOR, and buy as expensive, as big as you can afford.

But oh the other hand, a big and expensive PPOR costs a lot of interest to service every year. So the other argument is to buy an IP, which is more serviceable as you get rent. But that might mean you'll never save up to buy a PPOR again, especially if you're an average person, and you'll eventually move in to this IP which is now small and cr@p.

So to answer your question, if you're an average person, you should buy a PPOR. If you're destined for success, buy IPs.

 

[Investor78]

I've rented for the past 7 years, and likely to be renting for at least another 6 months.

But I'm over renting and want to get back into a PPOR for myself next year.

If you can put up with renting, I would go with buying the IP first and renting it out. At least with renting, you can live closer to work or the CBD without paying too much (it's much cheaper to rent rather than buy in inner city suburbs).

However the disadvantages of renting, such as regular inspections, having to move on if the landlord wants the property back, landlord selling the property while you're still living there etc. These things get tiring after a while and living in my own places is a lot less hassle.

Also consider, if you are collecting the FHOG you must live in the property for 6 months anyway.

 

[marg4000]

Why not consider combining?

Buy the property, live in it long enough to legally get the stamp duty conessions and the FHOG if applicable. Also, spend that time wisely by doing any repairs and improvements to make it more valuable. Even painting and sorting out and easy care garden can add lots to its appeal to tenants.

Then rent it out, taking advantage of the fact that it is CGT free for up to the next six years.

Obiously this will not be practical if you don't want to buy in the area you wish to live in.
Marg

 

[Ms Jade]

Hi Big H,

I'd be really surprised if you can buy much of a house in the areas you mentioned for your price range. However, with the addition of rental income it may be do-able. I would find something to spruce up & rent out in bayside and keep renting yourselves for now. I don't know that 1 year is a realistic timeframe to move into that house but if you can afford it then I suppose you could. I think that you may have to wait a few years but at least you'd have secured something in a prime area at a time when the market's down.

 

[Don K]

Why not consider combining?

Buy the property, live in it long enough to legally get the stamp duty conessions and the FHOG if applicable. Also, spend that time wisely by doing any repairs and improvements to make it more valuable. Even painting and sorting out and easy care garden can add lots to its appeal to tenants.

Then rent it out, taking advantage of the fact that it is CGT free for up to the next six years.

Obiously this will not be practical if you don't want to buy in the area you wish to live in.
Marg

I agree with Marg. In this case you will have options to live in or rent out depending on your circumstances. If you crunch numbers you should be able to find out how the both scenarios will work for you. If you are living in you do not need to pay for PM, LL insurance and so on and you will be most likely the best tenant you could have.