First home buyers becoming investors

The number of first home buyers has fallen to a record low 12.3 per cent of home loans nationally according to the Bureau of Statistics, however these figures don’t account for people using their first property as an investment.

We have noticed that first home buyers are purchasing investment properties in some of the places that they would like to live but currently can’t afford. Typically these types of properties are located within a ten kilometre radius from the CBD. Within this context, young adults are choosing to remain at home to give themselves additional time to accumulate the necessary deposit. Lifestyle is a key focus for this demographic and purchasing a house is often relegated to the backburner due to the costs involved. However with some astute planning it is possible to get onto the property ladder sooner and one such strategy is purchasing the first property as an investment and offsetting the costs through income derived from a tenant.

There are significant benefits to be gained by purchasing a first home as an investor. Firstly cash flow is king. It makes smart business sense to offset loan repayments with tenant income.  If relatively low accommodation costs can be obtained by the individual, for example by living at home with mum and dad whilst the tenant pays off the home loan, the chances of reducing the home loan more quickly are significantly enhanced.
Secondly, the fundamentals of survival dictate that everyone from the cradle to the grave needs a roof over their head. Housing is something everyone needs and the capacity to pay a home off prior to reaching old age represents significant advantages.

Thirdly, there are several tax advantages that can be gained by purchasing a property as an investment. The sooner the individual moves onto the property ladder the easier it is to build the required equity to move into a larger dwelling when family circumstances dictate. For example, a growing family inevitably needs a larger dwelling sooner or later. If the property journey is started early it will become easier when the time arrives to purchase the next property. Purchasing at a younger age means peace of mind can also be obtained in the knowledge that, in all probability, there will be a suitable roof in place later in life.

Finally, many people don’t realise that when the government evaluates a pension entitlement, the principal place of residence is not included in the figures that determine what pension quantum is allocated. A person with a one million dollar residence could obtain the same pension as someone with a residence valued at $200,000. The same parameters also apply when applying for social security cards.

There are many solid investment reasons as to why purchasing a first property as an investment makes sense. By taking this approach, individuals can potentially set themselves up for life.

The following tips are recommended for first home buyer investors.

1)    Obtain landlords' insurance as soon as the property is secured.

2)    Find a reputable property manager with expertise and experience in the property sphere accumulated over several years.  Gauge the individual's management abilities by speaking to current clients.

3)    Don’t chase the grants. Focus on the many advantages associated with buying as an investor first.

4)    Reject emotion. The numbers should do the talking.

5)    Look for high yield areas. Research these statistics.

6)    Use a mortgage broker to obtain a loan this is right for you and best aligns with your circumstances.

7)    Don’t cut corners on searches and reports advised by your solicitor. Saving a few hundred dollars on a purchase worth hundreds of thousands of dollars doesn’t make sense.

8)    Check your numbers and factor in incidental expenses including maintenance.

9)    Obtain a depreciation schedule.

10) Use an accountant that is property savvy.

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