First home buyers should forget grant and invest first
Recently I have been speaking with clients who are first home buyers looking to buy an off the plan property in order to take advantage of the first home owner grant. However, many of my clients did not realise that if they bought an investment property first to rent out then they are still eligible for the first home owner’s grant, as long as they have not lived in this property at any point in time.
Many people today feel that the first property they buy should be a property that they will live in. They have the belief that renting a property is throwing good money down the drain and lining someone else’s pockets, so living in your own home instead is more beneficial as you are slowly paying the mortgage off. However, if you are seeking to create wealth for your retirement and lead a more comfortable living in the future then you will need to purchase numerous properties to make this happen.
Unfortunately, very few of us actually go on to purchase two or more properties and there is a lack of understanding as to how an investment property can really benefit you.
Many first home buyers find it difficult to turn down the first home owner grant, which might be as much as $15,000, plus depending on the state and property purchase price you might not have to pay stamp duty. However, there are numerous benefits you would receive by investing in a property instead.
Firstly, depending on the state, investors buying a property off the plan might be eligible for a grant. In New South Wales, investors and owner occupiers can receive a $5,000 grant towards the purchase of new homes under the New Home Grant Scheme. However, the value of the home must not exceed $650,000. Investors in Victoria can also apply for an off the plan concession.
As an investor, you are able to buy an investment property in a high growth area to benefit from capital gains, whilst if you are a first home buyer you are more likely to want to buy a property in an area you want to live in so are more limited with options and might face more competition.
Investors can also take advantage of depreciation, especially if the property is off the plan as year one is where you will receive the greatest amount of savings. Just make sure you have a depreciation schedule drawn up by a quantity surveyor to ensure you are receiving as much depreciation savings as you are entitled to. In contrast, first home buyers are unable to claim depreciation as they are living in the property.
As an investor you can also take advantage of numerous other tax benefits such as negative gearing, legal fees, council rates; borrowing expenses, property agent fees and commissions as well as cleaning, insurance and repairs and maintenance plus much more. All these tax savings can help reduce your overall taxable income, which could equate to more than your $15,000 first home owner grant. First home buyers again are unable to claim on any of these tax savings.
So although buying a property off the plan as your first home does have its advantages of the first home owner grant and stamp duty savings, it works in your favour to purchase a property as an investment first. This is because property prices might be expensive where you live. Take Sydney as an example. Buying a home in Sydney is currently extremely hard for first home buyers to get a foothold on the property ladder as property prices have sky-rocked these last few years. Today you are likely to be paying upwards of $600,000 at least for a one bedroom apartment which might be 45 minutes from the city.
However, by investing in an off the plan property in Brisbane, you can purchase a one bedroom apartment for approximately $400,000, just 3km from the CBD and get much more for your money in an area which is expected to do well in the upcoming years.
An investment property allows you to rent in an area you want to live in, which might not be in your budget to buy, but it allows you to own a property and create wealth at the same time. It also means in the future if your investment property does well, you can use the equity from this property to purchase property number two.
Just remember, your first property does not have to be your first home. You can buy several investment properties first to create wealth allowing you to buy a home to live in further down the track in an area you want to live in at a price you can afford, whilst take advantage of the first home owner grant at a later date.
The first home owner grant is also reducing for New South Wales from $15,000 to $10,000 come 01 January 2016, creating a greater incentive to invest first as $10,000 on a $600,000 really isn’t that large an incentive to buy your first home off the plan.
In today’s property market we have to be cleverer and this is one way you can benefit from the best of both worlds.
To learn more about buying property off the plan and the benefits of investing in property first, before utilising the first home owner grant, contact our iBuyNew Property Consultants today who can assist you further. Phone us now on 1300 123 463.
Published on 7th of October 2015 by Marty Stanowich