Is it better to buy an investment property or home first?

There's a lot to consider when making such an important purchase, especially for the first time.

Have you been saving up for a long time and finally feel ready to get into the property market? Maybe you’re considering either buying a home to live in or investing in a property you can rent out.

Either way, it’s worth knowing some more about both options to ensure you’re making a well-informed decision.

Buying your first property to live in

  • First home buyers grant. Depending on which state or territory you live in, a first home buyers grant could help you to finance your first home purchase. This does not apply to investment properties, and in some states you’ll lose your right to this grant if you buy an investment property first. 
  • Security and stability. You can stay in your home as long as you like, as long as you can make your home loan repayments. 
  • Capital gains tax (CGT) exempt. Any home that is classified as your main residence, whether it’s your first place or not, is free from CGT when you go to sell it. If you're not sure what Capital gains tax is, read more here
  • Expenses stack up and these are not tax deductible. Includes initial costs, such as stamp duty and legal fees, and ongoing costs, such as water rates, building insurance and repairs. When buying an investment property you’ll also be hit with these costs, but many will be tax deductible. 
  • You may have to make some sacrifices. Where you really want to live may not be where you can actually afford to buy. So whether it means choosing a place that’s smaller, further out from the city, or having less disposable income, you’ll probably have to make some trade-offs. 

Buying your first property as an investment

With housing affordability now considered a real problem in Australia, buying an investment property to rent out may be a more viable option for many younger Australians.

So let’s have a look at some things to consider when it comes to this option.

  • You can get a cheaper place. An investment property doesn’t need to tick all the boxes of your ‘dream home’. This means you can potentially get it at a cheaper price. 
  • It’s not an emotional decision. It should be based on investment potential, including forecast rental return and capital growth. So instead of walking into a place and having to love the look of it, you can walk in with your investor’s hat on.
  • Earn rental income. If you’re renting out your investment property, you’ll be getting money from someone else to contribute to your home loan, which means you could pay it off sooner. Bear in mind the rent may not completely cover your home loan and other costs.
  • Tax advantages through deductions. Despite having to pay capital gains tax when you sell your investment property, negative gearing and other tax strategies could help you offset some of the property costs. Talk to your tax accountant about the deductions you may be able to claim. 
  • Be prepared for maintenance costs. Choosing a good property manager and good tenants is the key to keeping these costs under control. Just be careful you don’t buy a property that is too old and run down. There’s a fine line between buying a place that can have some simple cosmetic work done to improve rental appeal and investment return, and one that needs major repairs. 

Some other useful tips

  • Read about how much it really costs to buy a property.
  • Check your credit history. Make sure your bills and loan repayments are paid on time so you have a clean credit history.
  • Talk with people who have already started investing to get an understanding of the financial journey. 
  • Think about whether a guarantor could help you protect your property in the event you can’t meet the repayments. 
  • Don’t fear debt – learn the difference between good debt and bad debt

We’re here to help

Whatever you decide to do, make sure your investment strategy suits your personal circumstances, as well as your financial goals. Think about the pros and cons of each and also other investment options too.

If you do think you’re ready to take that exciting leap and buy your first property, AMP Bank has a solution to suit most people’s circumstances.

If you’d like professional advice, you can find an adviser or call us on 131 267 so we can find some someone to help you.

AMP has a range of home loans

Speak to an AMP home loan specialist to learn more about our competitive rates.

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© AMP Life Limited. This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.