Rising property values are making it harder for first home buyers to get into the market, but instead of buying as an owner occupier, it could be worth buying your first place as an investor.
It’s no secret that investors have become a dominant force in the property market. Figures from the Australian Bureau of Statistics show just how much clout investors are wielding right now, with loans to landlords rising by over 8% in October 2013 alone.
The extra competition is putting the squeeze on first home buyers. However instead of being pushed out, it could be worth changing your strategy and buying as an investor.
Plenty of pluses for being a landlord
There are some clear benefits to being a first time investor rather than a first home buyer.
Firstly, your ability to service a loan is likely to improve as the property will generate its own rental income, something lenders will take on board when determining your capacity to repay the loan.
In addition, many of the costs associated with a rental property including loan interest, can normally be claimed as a tax deduction. This reduces the expense of owning the property and improves an investor’s cash flow – benefits that aren’t normally available to owner occupiers.
There are other advantages too. Choosing an investment property means buying with your head not your heart so you are able to consider a far wider range of suburbs and even types of properties than you would if you were living in the property yourself. This can mean buying in a more affordable location, or opting for a lower maintenance property.
What about the FHOG?
The First Home Owner Grant (FHOG) has undergone significant changes in many states and territories, and a range of conditions can apply to the Grant depending on where you live. In many cases, a key condition is that you must live in the property for a minimum of six months following settlement (or construction).
On the face of it this means you could potentially purchase a property as a first home buyer, receive the grant and then move out six months later and tenant the place.
However this ‘best of both worlds’ approach comes with some solid risks. The six month timeframe is designed to support first home buyers who unexpectedly have to move out for valid reasons – like a job transfer. If it’s reasonably obvious that you never genuinely intended to make the property your home in the first place, you could be asked to repay the grant and even face prosecution by your state or territory government.
Crunch the numbers
A more sensible course of action is to crunch the numbers to see if the FHOG offers greater financial gain than the benefits you’ll receive as an investor – and remember, this includes rental income and potential tax savings.
It’s an area where it’s worth talking with your local Aussie broker who can work through the numbers with you to see if you could be better off as a first time investor instead of a first home buyer.
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| Seasonally adjusted figure. 5609.0 – Housing Finance, Australia, Oct 2013, 10 December 2013|