Why first home buyers are becoming first time investors

As property prices rise, many first time buyers are now changing tactics and buying property as a first time investor rather than an owner occupier as they learn that buying your first home does not necessarily mean buying a home to live in.

There are many reasons for this change. As property prices are rising, investors are playing a more dominant role in the market, thereby pricing first home buyers out of the market. In order for first home buyers to enter this competitive market, a change of strategy is required and this means becoming an investor.

There are a number of advantages to being a first time investor.

Firstly, renting out your property enables you to take advantage of a number of tax benefits such as depreciation and negative gearing, which you otherwise would not have been able to receive if you were living in the property as your primary place of residence.

It also means that lenders are more likely to offer you a loan as your rental income will be used to help repay the loan. If you go for a loan that is interest only, you will have lower repayments each month. Loan interest can also be claimed as a tax deduction which helps improve the cash flow situation.

As a first time investor, you also have more property options available to you as you should be using your head to purchase a property rather than using your heart and having an emotional attachment. At the end of the day, an investor wants to make a profit to use as a deposit for their next property, and the faster this can happen the better. There are plenty of new apartments coming on to the market which you can take advantage of and buying new property as an investor brings many benefits.

It also means that you can look at suburbs which are more affordable, with good growth rates expected, but would not necessarily want to live here.

Stamp Duty and the First Home Owner Grant (FHOG) is also a major incentive for many first time buyers. The rules for this grant changes per state, but essentially many states require buyers to live in this property continuously for six months to quality for the grant. Many buyers today are therefore purchasing as a first home buyer to live in the property for six months and then turn this into an investment property by moving out and renting it out. However, you should be careful about doing this as you may be asked to repay your grant if it is obvious that you genuinely did not want to make this property your home.

Finally, it is important to look at the numbers with your broker as it might work in your favour to rent this property out straight away and gain the full tax advantages rather than gain the stamp duty and first home owner grant and miss out on these tax benefits.
Published on 16th of December 2014 by Marty Stanowich
Marty Stanowich
Marty Stanowich

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