To buy PPOR first or investment?

There are too many unknown variables to give you any sort of answer. Income?  Are you planning on staying where you are long term? Servicability (can you afford any out of pocket expenses each week). Deposit? Borrowing power?

If you are not staying long term maybe buy a PPOR then rent it when you move.  $580 a week is a lot but sometimes it is more viable to rent. You need to sit down with a calculator and work out whether buying a PPOR is better financially for you. Don't forget to factor in costs other than just the interest (rates etc) plus stamp duty, solicitors costs, loss of interest on not having your deposit in the bank.

Most new investors worry that an IP will not be rented. If you do your DD you will know the vacancy rates, what type of IP is in demand etc etc. This will alleviate your fears. I don't know your area at all. If it's not an ideal place for an IP (or PPOR) maybe look elswhere.

Good luck.

Not always the case Dianne. You are not "saving" $580 a week. Also- If you live in an area with low rental yields, financially you are better off renting and buying an IP in an area with high yields. Plus you gain tax advantages.  Yes you will pay CGT at the end but the longterm advantages can be better.  That's why you ALWAYS need to look at the numbers.

Do your DD is all I can say.

Rents in Gladstone, and I am assuming surrounds are on the decrease. People are negotiating down on rentals so you may be in a position to do likewise if you go the IP route first? 

This thread from another forum makes for some interesting reading on the real estate market in Gladstone;

http://somersoft.com/forums/showthread.php?t=71992&highlight=Gladstone

All the best. 

Gladstone…ouch. I went to Qld on a whim last year to meet a property developer and he was still talking about it; I can't remember if it was good or bad though. He was more focused on Toowoomba and Lockyer Valley.

Buying an IP 1st & PPoR 2nd OR PPoR 1st & IP 2nd that is the question, the answer is over a $1,000,000 difference in your wealth.  

Renting where you want to live and investing where the market is moving can give you the best of both worlds. They called professional renters for a good reason. We have watched the results of doing the right way time and time again. 

We have a client CJ: 28yo, self employed, single female, earning less than $90,000p.a. living in a rented apartment (that would be worth $900k) and pays $350 per week for her share. Living the good life and while saving a bit too. CJ has just bought another 2 investment properties with us in the last 2 months. One is an 2 bedroom apartment and the other is a 4 bedroom house. That brings her number of properties to 4, 3 houses and 1 apartment.

At this point CJ will be able to buy again 18 months. All her properties are positively geared and she plans to buy 2-3 more investment properties before she buys a PPoR. She made her first investment 5 years ago and will be able to retire on over $2000p.w. by the time she is 45. Of course I think CJ is smart, but her friends think she is a millionairess (all by careful saving and smart investing).

If you delay buying your PPoR and invest first, your ability to continue buying (serviceability) is going to let you grow your wealth much, much faster. Once you take the luxury of moving into your own home (PPoR), you holt your ability to save and it often takes 5-10 years before there is enough money spare to buy that next property. The outcomes are as different as black and white OR well over a $1,000,000 in wealth.

You have to start with a clear strategy and work towards that goal. This quote sums it up:

 “You’ve got to think about big things while you’re doing small things, so that all the small things go in the right direction.”
― Alvin Toffler

I spend 50% of my week, working with clients to get their strategy right. When they have their strategy's in place, they tell me that they find investing far simpler with a clearer direction, as Alvin Toffler so clearly puts it.

Mark Coburn, Thanks for this post. This has changed my thinking on buying a home first and then saving for a investment second. I have been reading a few of your posts, I am going to call you for some help with my property strategy. 

John, 

No sweat, a little bit of strategy goes a long way. With those things in place you can start your portfolio with a bang! 

Hey Mark,

A fellow novice here. I don’t quite understand why renting is beneficial. Let’s say for eg: You bought a house PPOR for 700k on a interest only loan and burrow the full amount. Just for examples sake. That would result in a monthly mortgage of around $2.2k. By constantly saving and parking excess cash into an offset account, you constantly decrease the mortgage without losing money (I mean the money in the offset account isn’t being consumed). This way, you own the property (as it’s your PPOR) and keep paying less to keep the property (through the offset account) and then you’ll be able to use the equity obtained in the house in a few years to continue purchasing property. Is the purpose of renting just to live somewhere for a smaller monthly fee so it reduces your overall annual expenses, allowing you to burrow more money for IP purchases? If anyone could clarify this, I would really appreciate it :)

These days with low interest rates I think buying a main residence first is ideal ….

Terryw’s comment above makes a lot of sense – I was one who had earlier thought (10+ years back) buying IP’s first was better from a financial point of view.  This was mainly because any Interest paid on an investment is a Tax deduction, while on your own home, it was not.   There were one or two other benefits too, but Interest Rates were the elephant in the room.   Of course, with Interest Rates now stupid-low, the whole scenario has changed.

As an example, check out this post:-

https://www.propertyinvesting.com/topic/5048770-will-moving-some-investment-loans-from-io-to-pi-reduce-serviceability/#post-5048778

In there I commented

 “Interest Rates are so low today, the principal repayments now make up a WAY BIGGER portion of a mortgage repayment than they used to. e.g. 20 years ago, a $200k loan taken over 30 years is repaid at 3.3% pa (so, Principal repayments averaged out to $6,666 per annum, while Interest back then might have been at 9% – so Interest was $18,000 per annum). i.e. Interest is nearly 75% of the total mortgage payments, and principal repayment only 25%.”

Today, with a likely Interest Rate around 3%, and (likely) a far larger mortgage, the ratio of Interest to Principal payments has totally reversed.  Though Interest Rates on IP’s are deductible, Principal repayments aren’t.  Hence the PPOR swings back into favour.

The points Terryw made today do indeed change the whole situation.  These low IR’s have been a game-changer for sure.   But there are still other advantages with IP’s that might tip the scale in your case – it depends on a host of other factors.   As always, “run the numbers” to see which is best for you today.

Benny

• This reply was modified 3 years, 8 months ago by  Benny.