The pros and cons of buying an investment property as a first home buyer

Buying a property is a goal that just about everyone has on their list to achieve at some point in their lives. For many first home buyers, the decision they face is whether to purchase a home to live in or as an investment property.

We look at some of the key pros and cons of buying an investment property to help you make a decision about the option that best suits your situation and lifestyle.

The pros of buying an investment property

  1. Cost of getting into the market could be lower
    The type of property you buy is largely dependent on the budget you have available to spend. When buying a home to live in, you would tend to look for a property that maintains or exceeds your current living standard which may be constrained by your budget. However, when it comes to an investment property, it does not need to tick all the boxes of a property you plan to live in. As long as a property is rentable, the quality of finishings or the layout shouldn’t matter as much to you personally. The cost of getting into the market could therefore be lower than purchasing a home to live in.
  2. Lower emotional investment
    Buying an investment property is far more strategic than purchasing a home to live in. An investment property should be purchased for the sole opportunity it presents to either earn rental income or provide significant value appreciation over a period of time (which could be a number of years). The decision-making process should be strictly financial, and not emotional, which often makes it easier to identify the right property and to negotiate within the limitations of your investment plan.
  3. Earn rental income
    If you rent out your investment property, you’ll be getting money from someone else to contribute to your mortgage, which means you could pay off your home loan sooner. However, the rent you receive may not completely cover your home loan repayments and additional costs. You will need to ensure you have the means to fund any shortfall.
  4. Expenses are offset against income
    When buying a home to live in, servicing a mortgage and maintaining the property can be a significant financial commitment. With an investment property, these expenses are largely offset by the income you will earn from renting it out. For many people, this makes purchasing a property an achievable goal, as they are not 100% exposed to a new set of expenses including mortgage repayments, insurances, renovations, maintenance, rates, etc.
  5. Potential tax advantages
    When purchasing an investment property, you are adding both taxable income and expense deductions to your overall financial position. Depending on the value of the property and the rental income earned, you may find that the expenses of owning and maintaining the property are higher than the rental income. In this case, the net amount you are out of pocket becomes 100% tax deductible. This concept is known as negative gearing which is a great way to minimise your tax liabilities and redirect this additional money into investments.

The cons of buying an investment property

  1. Increased time investment for administration
    Although you may use a managing agent to handle the day-to-day administration of your investment property, there will still be some time commitment required from your side. For example, you may need to do marketing to find tenants or approve maintenance requests. Make sure you understand what’s involved before you decide to rent out your property.
  2. Distance to property
    Depending on your investment strategy, you may choose to purchase a property that is not located near to your current work or home. There could be bargains to be found in regional areas or other states. Buying an investment property means you can widen the search to include any area of the country, however should you need to visit the property, it will require extended travel. There may be times you need to be there in person, e.g. to inspect the property, resolve a dispute or oversee renovations.
  3. Capital gains tax applies
    If you purchase an investment property and make a profit when you sell it, you will incur capital gains tax (CGT) liabilities. However, if a property is your main residence, it is not subject to CGT. This tax can have a significant impact on your long-term investment strategy, so make sure you fully understand the tax implications should you decide to sell your investment property at a later stage.

These are just a few of the pros and cons to consider when it comes to purchasing an investment property as your first home.

At FutureNow Finance, we can help you to plan towards buying your first property, whether you decide to rent it out or live in it. Contact us today if you’d like to discuss your investment strategy. Call 1300 013 730 or email