Should Your First Home Be an Investment or Your Castle?
Experts say your first house should be an investment.
Your family might say it’s somewhere for you to live.
But who’s right … and who’s wrong?
There’s actually no correct answer. It’s different for everyone.
And I’m not here to tell you what you should do.
Instead, I’ll walk you through what each decision might look like so you can make the best choice for you.
This way, you’ll understand the implications of each path and confidently decide on the one that suits you.
Buying Your Own Home to Live In
For most people, their first home is a place to live. It’s typically more of a lifestyle decision than a financial one. However, there are some incredible financial reasons to buy a home to live in, as you’ll see shortly.
Owning your own home provides security and stability that renting can’t offer.
You won’t have to worry about leases ending, rent increases, or struggling to find another place to live when you need to move (again). Plus, you have the freedom to customize your home as you wish:
- Want to paint the walls yellow? You can.
- Want to update the kitchen? Go for it.
- Tired of the carpets? Change them.
Your home can also adapt as your lifestyle changes. When the kids come along, you can renovate, extend, build upward, add a larger garage, or even put in a swimming pool. Your house really becomes your castle.
Owning your home can be a smart financial move, too. Despite common misconceptions, there are impressive financial benefits, including:
- First Home Owner’s Grant & Other Benefits: You can access the First Home Owner’s Grant, as well as additional grants like the First Home Builders Grant and stamp duty concessions. You might even qualify for government schemes that allow you to enter the market with a lower deposit. These vary by state, so be sure to know what’s available where you live. Keep in mind that these schemes are for homeowners, not investors, and you only get one chance to use them.
- Lower Interest Rates: Homeowners generally receive lower interest rates than investors. The difference might seem small, but it adds up over the life of a loan.
- No Rent Payments: Instead of paying rent, your repayments help you build equity in your own property.
- Stable Loan Repayments: While interest rates can fluctuate, they generally don’t increase as rapidly as rents, which tend to rise indefinitely. Over time, your mortgage repayments may become lower than renting, and they’ll stay that way.
- Mortgage-Free Future: Once you’ve paid off your house, this expense disappears, freeing up a significant amount of money each month. You’ll avoid the endless cycle of rent payments.
- No Capital Gains Tax (CGT): When (or if) you sell your primary residence, you won’t pay capital gains tax.
- Future Investment Potential: You can convert your home into an investment property later. You can also renovate, extend, or even rebuild to increase its value and potentially earn a profit.
- Access to Equity: As your home appreciates, you can tap into its equity to start investing.
As you can see, owning your home isn’t just about comfort—it comes with serious financial perks.
But this doesn’t mean it’s always the best choice. There are also advantages to purchasing an investment property first.
Investing in a Property as Your First Purchase
Alternatively, you could rent where you want to live and invest in real estate at the same time. This is called “rent-vesting,” and it works even better if you can live rent-free, like at home with family.
Of course, being a property investor comes with responsibilities: managing tenants, preparing for potential issues, and staying on top of your finances and taxes. However, there are notable benefits:
- Strategic Investment: You can choose a suburb and property purely for its investment potential. Since it’s not a lifestyle decision, you can invest anywhere in Australia where you expect the highest return.
- Lifestyle Flexibility: Renting allows you to live in desirable areas you might not be able to afford to buy in. If you’re unsure where you want to settle, investing and renting could give you more options.
- Improved Borrowing Potential: Having rental income can make you more attractive to lenders—assuming your rent isn’t excessive.
- Tax Deductions: You can deduct expenses like mortgage interest, property management fees, and maintenance costs. You can also depreciate the property and its fittings.
- Market Participation: Even if you’re not ready to settle down, you can benefit from rising property values by investing. This beats watching from the sidelines as prices climb.
Still Can’t Decide?
As I mentioned earlier, there’s no one-size-fits-all answer. The goal of this article is to clarify what each option entails. Now, you can weigh your choices and determine the best path for you.
Decisions like these aren’t easy, especially when buying a house feels familiar, but investing is less understood. To help you, consider consulting one of our experienced advisors. They can guide you through your options and help you make an informed decision.
Fill out the form below to request your complimentary consultation today.