Should you buy an investment property or somewhere to live?

Cara Brett 10 January 2015

Us GenY folk are a unique bunch of people. We tend to buck many of the trends set before us and blaze our own trail. An interesting pattern that has come up lately is the idea of buying an investment property before buying your first home. 

The main reasoning for this, is that for our first home, we can’t afford to buy where we want to live. We find ourselves buying a house further away, and renting where we actually want to spend our time, usually closer to the inner city.


This is quite individual, and depends on the specific person or couple, where they ultimately want to live, where they can afford to buy, and the location of their job. As you can see, there are a lot of conflicting factors to consider, meaning there is no perfect way to go, but below I outline some of the pros and cons of buying an investment before your own home.

The Pros

  • If you work close to a major city, you may not be able to afford the house prices within this area. Renting close to the city will reduce your commute time to work, but will mean that you still have your foot in the door when it comes to property investing in the outer suburbs.
  • As the property you have purchased is an investment property, you will be able to claim tax deductions on the expenses associated with the property. This includes the interest on the loan, rental fees, and insurance.
  • This option gives you flexibility to change where you live without having to up and sell your place. For those who want to get into the property market, but are not sure where they want to be 2 years from now, this could be a good way to do it.

The Cons

  • Stamp duty is higher for investment properties.
  • You will not get access to any of the first home buyers grants (for building) if you are not physically living in the home for at least 6 months.
  • You need to pay tax on the rental income that you receive from your investment property.
  • Paying rent is not going to get you an asset at the end like paying down your home loan will.
  • If your investment property goes untenanted for a period of time, you need to make sure you have enough excess cash to pay not only your rent, but also the home loan repayments on your investment loan.
  • Depending on the set up and weekly rental price, your property may be negatively geared, which means that the rental income is not enough to cover the repayments and associated costs. You will need to ensure you have enough top-up cash to keep paying the loan repayments as well as your rent.
  • When you eventually sell your investment, it will be subject to Capital Gains Tax (CGT) on any profit that you make.

My thoughts?

For what it’s worth, in most circumstances (not all), I think it is best to buy a house to live in first. You may need to sacrifice either the location or the size in the interim but it will be worth it in the long run. Once you have paid down some of your loan, you have the option of upgrading, or alternatively turning that property into an investment property when you eventually move into something else.

But, as I always harp on about, everyone’s situation is unique. If you are tossing up between an investment or a home of your own, you should talk to a financial planner to help you do the figures based on your personal circumstances.

This post is from our resident Senior Financial Planner, Cara Brett. Check out her details in our about us page.

Posted in: Cara Brett, Investments and Financial Planning

About the author: Cara Brett

Cara Brett proudly heads up Bounce Financial - founded in 2014 after a successful, decade-long career in the financial services industry. Cara’s experience encompasses both the financial product and financial advice sides. This gives her a comprehensive and holistic knowledge of all facets of financial planning.