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Should my first property purchase be an investment?

January 11, 2024

It’s easy to assume home buying should be your first step on the property ladder. But there’s a lot to be said for making your first property a rental investment.

Here’s what to consider.

  • Vacancy rates Australia-wide are at a tiny 1.1%*

Today’s super-tight rental market means your rental property should have no trouble attracting tenants. It lets you earn rent from day one –that’s extra income to pay your mortgage!

  • Pick from a wider range of locations

Buying as an investor means you can choose to buy anywhere including interstate. This can open up opportunities to buy in more affordable locations that are better suited to your budget.

  • Rental income + tax savings = more cash

As an investor you can expect to receive rental income as well as generous tax savings. In 2023, rents climbed by 8.3% according to CoreLogic, while property investors often enjoy valuable tax deductions through ‘negative gearing’. That’s where the ongoing property costs outweigh the rental income you receive. This creates an annual loss that can be offset against your regular wage or salary, potentially delivering substantial yearly tax savings.

  • Your mortgage interest is tax deductible

What’s not to love about claiming mortgage interest on tax? It can make an investment property a lot more affordable than buying as an owner occupier (in which case property costs are not usually tax deductible). That said, be sure to speak with your tax professional to know which property costs you may be able to claim on tax.

  • You won’t be eligible for first home buyer support schemes

Buying your first property as an investor means you won’t be eligible for first home buyer support schemes. However, the likelihood is that the ongoing tax savings of negative gearing will far outweigh the one-off support offered to eligible first home buyers.

  • You need to plan where you’ll live

Buying as an investor gives you a head start on the property ladder so you can benefit from upticks in values. But you’ll still need somewhere to live. That may mean living at home for longer or rentvesting. Either way, check that your personal cash flow can handle the financial demands of property ownership.

The bottom line is that making your first property a rental investment can be a cost-effective (and tax-friendly) way to get started in the housing market. A well-chosen rental property can help you grow equity – a resource that can help you buy a home to live in at a later stage, often without the need to stump up a cash deposit.