There is an old saying “a man’s home is his castle” that rings especially true in Australia. For a long, long time the great Australian dream has been to one day live in your own home. It’s a point of pride for many people, and a sign of achievement.
Buying a property is likely to be one of the largest purchases most people will ever make, and for many Australians, owning their own home is a financial as well as an emotional milestone. Property ownership is an important part of building wealth and financial security, which is why the low numbers of first home buyers currently entering the market in Australia is interesting.
For most people, the path to property ownership is a fairly straightforward one. First you save for a deposit, then buy a home, move in and start paying off your mortgage. However, there is a growing trend in which first home buyers are finding it easier to enter the property market by purchasing their first property as an investment rather than as their residence. Almost 17% of the respondents in the 2014 Mortgage Choice First Time Investor Survey revealed they had purchased, or were intending to purchase, an investment property before becoming an owner occupier.
If you are currently living at home with your parents, the most obvious advantage is having a tenant help you pay off your mortgage while you continue to live rent free. Even when living at home isn’t an option, many young buyers are finding it easier to enter the real estate market by purchasing an investment property while continuing to rent their primary place of residence.
These days, mortgage rates are pretty close to rental yields, and depending on the terms of your home loan and the amount you borrowed, you could be making mortgage repayments which are almost the same amount you would be paying as rent in a similar property. So at first glance, buying your first property only to rent it out, doesn’t seem to make much sense. However, when you look a little more closely at the situation, you see that you would also be able to take advantage of Australia’s negative gearing rules to make it easier for you to afford the costs of property ownership and start building equity.
The costs you pay on your investment property (including interest, rates, stamp duty, repairs and body corporate fees) are tax-deductible, while the costs on your place of residence are not. This can make it much easier to own a property that you might not actually be able to afford to live in right now. Remember, that real estate is almost always a long term investment, and if this allows you to enter the property market earlier, it means you can start building equity in your property sooner. Once you have built some equity in your investment, you are in a stronger financial position and may be able to borrow against your gains to purchase a property you can live in and call home. If you can do that, you will then own two properties and be well on your way to financial security.
Property ownership is an important part of building wealth and financial security, and buying a property will always require some sacrifices, but it will be more than worth it in the long run. If renting out your first property makes it easier for you to enter the real estate market, then this is definitely something worth considering. If you’re thinking about entering the property market and would like some professional advice, get in touch with one of our agents.