Should you nest or invest?

There is no right or wrong answer when it comes to choosing whether to purchase your first property as an investment or a home. It’s a personal decision comes down to three main factors; your financial situation, personal lifestyle preferences and how hungry you are to build an investment portfolio.

Many first home buyers will choose to begin investing in property by buying their first home and paying down the mortgage as fast as possible, usually into an offset account in case the property is later converted into an investment. Later, once the home has some equity, it can be used to borrow against for the first investment property, and this cycle then repeats as you start to build your portfolio.

It can give you a real sense of security when you own the home you live in. The main reason for buying your own home first is that you don’t have to contend with the demands of a property manager or landlord, rent increases, lease renewals, property inspections and being restricted in what you can do, such as hanging pictures.

On the financial side, usually home loan repayments will be higher than what you would pay in rent for the same home; however the bank’s lending criteria may be less stringent and the terms of the loan more favourable than for an investment, including a lower interest rate. When you come to selling there is no capital gains tax, so the gain you make is tax free, whereas with an investment property there is tax on the gain.

If you don’t need the security and independence of living in your own home and are impatient to build a portfolio faster, there are advantages to buying an investment property first.

Financially, an acceptable investment property may be cheaper, meaning you can get into property faster, and you can take advantage of the constant compromise between the standard of a home and the growth potential due to location or adding value.

With an investment you might buy an old house in a better location with more potential for growth or with subdivision or renovation potential, meaning you can build wealth faster, whereas if it was your own home you might want a better standard of house and so could not afford the add value properties.

The big one is that you may be able to afford to buy a home but really don’t want to live in the home you can afford, whereas you can afford to rent a property that’s perfect for you.

In the end, it comes down to personal preference as to whether to buy a home or investment property first. Weigh up the pros and cons of each and seek professional guidance to decide on the strategy that works best for you.

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