Buy to invest, rent to live

We’ve all heard the phrase ‘location, location, location’ used many times over when it comes to real estate.

But what happens when the location of your dreams doesn’t fit with the location in your budget?

This is a dilemma I have seen come up time and time again over the years.

Sometimes, first home buyers can’t afford to buy where they want to live, but don’t necessarily want to live where they can afford to buy – however they also don’t want to miss out on getting their foot on the property ladder.

Luckily, this is a problem with a simple solution.

Buy to invest.

Rent to live.

Purchasing an investment property while continuing to rent in the location of your dreams is a really practical way to get the best of both worlds – the lifestyle you want now, without missing out on the capital growth and strong returns you can achieve with property ownership and investment.

For starters, you can take advantage of negative gearing on investment properties, which means you can offset your mortgage costs and reduce your overall monthly expenses.

Negative gearing is based on the fact that income from the rent you earn from your investment property will usually be less than the interest you pay on your mortgage, combined with the cost involved in owning your property. As this setup is working at a loss, it attracts tax benefits for you. So in effect, the Australian Tax Office helps you as a property owner own and pay for your investment property.

You also have a lot more flexibility and the chance to scale up the property ladder, purchasing or building affordable investment properties in locations that are easy to rent and have the potential for strong capital growth, all while enjoying the benefits of renting and living in your ideal location.

Not many people live forever in the first – or even the second or third – home they buy, which means they may be spending unnecessary costs on stamp duty and real estate agent fees each time they sell the home they live in. If you employ the “buy to invest, rent to live” strategy, you might choose to purchase multiple investment properties with the option of downgrading or upgrading the rental you live in as your income dips or rises – all without incurring property transaction costs.

This strategy may not be for everyone, but certainly provides a great cost-effective solution which can help you get started on the property ladder without you having to give up your lifestyle and living in the location of your dreams. Plus, as your investment property values rise and your portfolio grows, you might just purchase in your dream location in the future!