Investing for Renters

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Owning your own home may be the Aussie dream, but is it the right move for you?

Instead of buying your first home to live in, it can pay to buy an investment property instead.

It may seem strange to hear but there are some persuasive arguments for continuing to rent whilst establishing a property portfolio.

  • You can take advantage of Australia’s negative gearing rules. Wouldn’t you rather be paying tax-deductible interest on your investment properties, than non-tax-deductible interest on your residence? If owning multiple investment properties is part of your financial plan, it may not make sense to be fully paying down the non-tax-deductible debt.
  • Renting is cheaper on a cash-flow basis, as mortgage rates tend to be higher than rental yields.
  • Purchasing a home does not guarantee you can afford to live in it – however, you can rent a bigger and better house than you can afford to buy, allowing you to live in the CBD or close to public transport, improving your lifestyle.
  • When you’re buying property for investment purposes, don’t focus on your likes and dislikes. If it’s smaller than you would personally like, it’s likely to be cheaper and could help you get your foot into the property market. Focus on rentability and whether it has capital growth potential.
  • You can live at home with your parents whilst getting into the property market.
  • You have flexibility to move around to different rental properties with friends while working towards establishing a property portfolio.

Of course, renting isn’t for everyone. The inability to renovate and put personal touches on a home can be frustrating, and being limited to a 12-month rental agreement can mean having to move just when you’ve got settled.

Also, by purchasing an investment property you miss out on the First Home Buyers grant. This can be off-putting for many first time investors and we recommend setting out a cost/benefit ratio plan to decide whether it is worth forgoing the grant. While it may seem like a big drawcard, the amount you receive is a relatively small figure in a long-term investment plan.

We suggest you start by focusing on your long term goals. Consider the age you want to be when you achieve financial independence. Talk with people who have already started investing to gain some insight into the kinds of challenges that lay ahead and the sacrifices you may need to make. Ask your parents whether they are willing to become guarantors, or if they would consider contributing towards the deposit for your first purchase.

One of the key points we make here at Nieuvision is that everything comes at a cost. To achieve your property investment goals you will need to make sacrifices and these sacrifices may seem significant to a younger/ first time investor. Regular social outings might have to be missed to cover investment costs, going out for dinner 3 times a week will be unfeasible – keep focused on your goals, it will be worth it in the long run.

Purchasing your first property is a complex investment and big financial responsibility. Whether you decide to invest in property while renting, or choose to go ahead and buy your first home to live in, the main aim is to take that first step into the property market.

We cannot say this enough: get some professional advice.

Do plenty of research by yourself if you have the time, but why go to all that bother when you can consult someone who has years of industry experience?

Our team of property investment advisors have all the latest information and statistics at their fingertips and are just a telephone call away.

Contact us today on 1300 832 554.

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Disclaimer: We recommend that you seek independent financial and taxation advice before acting on any information in our articles and newsletters. They contain general information only and have been prepared without taking into account your personal objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances. Your full financial situation will need to be reviewed prior to acceptance of any offer or product. Any mention of interest rates are subject to change without notice. Lenders terms, conditions, fees & charges apply.

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