Investment properties can make great first homes: here’s why

People who make their first property an investment can get ahead of others financially, but separate issues may come into play.

First home buyers can be property investors too, and it may help financially. Picture: iStock

People want to buy their first home for a range of reasons, such as financial security, something to call their own, or trying to escape the expensive rental market.

Romantic reasons for buying real estate are powerful, but from a pure financial perspective the best way to own property is to be an investor first.

An increasingly common term today is “rentvesting”, which means buying a property you can afford as an investment while living somewhere you want, but there are variations of this that make even more money sense.

Firstly, when you’re a property investor you have a tenant helping you pay off the mortgages. It won’t cover all the costs, especially amid today’s high interest rates, but it usually covers a big chunk, and you get to claim a tax deduction for the difference.

Future first home buyers should consider crunching investment numbers. Picture: iStock

A true “rentvestor” still needs pay rent on the place where they live, so it can be tough financially if that’s expensive. Here’s where family and friends come in.

The Bank of Mum and Dad is huge, both for helping their children with deposits and for allowing them to save money while staying at home paying cheap or no rent. But not everyone has well-off parents.

Rentvesting can work if you have friends and roommates who can help split the bills at home, or potentially siblings who may wish to make their first property a joint investment – meaning each investor doesn’t need such a big deposit.

Whatever way you rent and invest, you still get long-term capital growth from owning real estate that a tenant does not, and that capital growth delivers equity that can become a deposit for future properties – either as an owner-occupier or investor.

Equity is your best financial friend. If a $600,000 property grows in value by 10 per cent in one year, that’s $60,000 of extra wealth that can be used as a deposit for later investments.

Building a decent deposit is still a big problem, often requiring six figures, but there are several first homebuyer financial incentives available to help people get a foot in the door. Most of these require people to live in their first home, which means they’ll be stuck paying their big mortgage without any help from tenants or the tax office.

However, as property is a long-term investment, a longer-term strategy could be applied. Accessing these incentives – such as the First Home Guarantee and other homeowner grants – usually only requires a person to live in the home for six or 12 months, so it then could potentially become an investment property while the first homebuyer moves back home with parents or into cheaper share housing with others.

Investing won’t be everyone’s cup of tea, because there is risk involved whenever borrowing money or buying assets.

Many potential first home buyers are dropping out of the market because of the cost of housing and mortgages, and that is very sad. Housing has been a cornerstone of building wealth for millions of Aussies, and it will continue to be.

Originally published as Investment properties can make great first homes: here’s why