Hey People[goatee]
My girlfriend and I are close to saving enough money for a deposit on our first home and have aspirations of investing in properties. However we are throwing up between purchasing a home to live in to obtain equity for further/future investment purchases. Or on the other hand purchase an investment property first which means we will have to rent.
I would love to hear others experiences with this or any helpful advice on which would be the better option.cheers[goatee]
Hi Kbeeh,
Assuming you are eligible for the FHOG and have the financial capacity to buy a property in your prefered area then I would suggest you buy a home, qualify for and get the FHOG, do some cosmetic upgrades/improvements (depending upon budget limitations) and when you have met the FHOG criteria move out and convert this property into an IP. Do your own checks on eligibility and qualifiying matters first.
If you buy well, with the elapse of time and the modifications made you may well have realised sufficent gain to enable you to launch into other IPs.
Alternatively you may well choose to retain the first property as a home and reinvest using the gain in equity as your ‘deposit’ for subsequent IPs.
The advantage of buying the first property as your home is that you can use the government gift to help you along the way and it is CGT free. The disadvanatge is that loan interest and costs are not deductible – it is a balancing issue that will be determined by your circumstances.
Either way (retain the first property as a PPOR or IP) you have made significant inroads into your future.
Go to it!
Derek
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Hi Everyone
I am in exactly the same position as Kbeeh. I am really unsure whether I should buy a first home to live in (and therefore get the FHBG) or as an investment. My problem is that I live in Melbourne and everything I have read tells me that the market is near its peak so there isn’t much benefit in buying there (even with the FHBG). So I am wondering whether I should buy an investment property in Sth East Q’land instead where there is much stronger capital growth expected (even though it means I’ll miss the FHBG) and continue to rent in Melbourne.
I am very committed to either one of the above two options and feel that as a first home buyer I need to do something because I’m starting to get priced out of the market.
Any suggestions would be much appreciated.
Kbeeh – let me know if you have any more thoughts.
Many thanks
SimonHi Simon,
Hmmmmmm – an interesting dilemma.
Gold Coast prices have moved significantly in the last 12 months and all projections are that this will continue. Brisbane is in much the same boat although Matusik or Shrapnel are predicting some slow down in 2/3 years time for the Brisbane market.
I am currently looking at either Gold Coast or Brisbane properties and will not get a lot of change out of $350K in the markets I am looking at. Units in the area can be purchased for $220K – may be this is a good place to start.
While you may lose the FHOG investing in Queensland this, to a certain degree, will be offset by a reduced stamp duty rate. From memory Vic has one of the higher rates of stamp duty – but you’ll will need to check this – as I said from memory only.
On the other hand Melbourne is your home and your priorities will determine whether or not a home or an IP is your best option at the moment. There are long term ’emotional’ benefits to owning (or should I say paying off) your own home – and yet there are others (especially in todays market) who are quite happy getting a subsidy from the landlord due to the generically low rental returns in some of the capital cities at the moment.
If you adopt a long term viewpoint either strategy is of value.
Derek
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Hi Derek and Simon
Thanks for your input, your advice sounds good
and i will definitely take it into account. I think in the end it comes down to whether we can put up with landlord inspections etc..
My only hesitation in buying a home 2 live in first is that it may delay the purchase of investment properties and therefore my financial independance. But as you said if i buy in the right area there is potential for capital growth which i can use as a base for obtaining investment properties.I guess we are only young so we do have time on our hands and it would be nice to live in something that is ours.cheers kbeeh[goatee]
Hi Kbeeh,
You can have you cake and eat it too.
One of the myths surrounding property investment is the belief that you need to save a cash deposit before you can buy a property – as a ‘rule of thumb’ this is only true for your first property.
Thereafter you can use equity to create additional ‘cash’ and then you are in a position to launch into an investment program.
For example assume the property (whether its a PPOR or an IP is irrelevant) is valued at $160K with debts of $80K.
Based on these figures a bank will typically recognise 80% of the property’s value ($128K) less the existing debt of $80K leaving you with equity or ‘cash’ of $48K for the next property.
If you were prepared to pay Loan Mortgage Insurance you could have the bank accept 90% of the value of the property as security = $144k – thereby increasing your equity or ‘cash’ to $64K.
While LMI incurs a cost the penalty is far and above outweighed (risk increases too) by the ability for you to leverage the value of your assets even further and thus enabling you to hold more assets in your portfolio.
LMI is not for everyone but there are some distinct advantages. For example we used LMI for properties number 2 & 3 but haven’t since then as we have sufficent equity available to us.
Derek
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