First property: PPOR or investment property?

Question

Hey everyone. My partner (34F) and I (37M) are looking to buy our first property, but we're unsure whether to go for a home to live in (PPOR) or an investment property (IP). We're currently renting in eastern suburbs Melbourne and like the area, so we're not in a rush to own a home, though we'd like to have one eventually.

We’ve put $60k into the FHSSS, intending to buy a PPOR, and we’ll have about $150k as a deposit. Our options are:

- Buy a PPOR to take advantage of FHSSS and government benefits, live in it for the required period, then rent it out.
- Skip the first home buyer benefits and purchase an IP in a more affordable area, while continuing to rent where we are.

We don’t have plans for kids, so security isn’t a big concern. Any advice would be appreciated. Thanks!

Answer

Deciding between purchasing a Primary Place of Residence (PPoR) and an Investment Property (IP) can indeed be a significant decision, especially for first-time buyers like yourselves. Here are some considerations for each option based on your situation:

Buying a PPoR: Utilizing the First Home Super Saver Scheme (FHSSS) and other government incentives can be highly beneficial. Since you’ve already contributed $60k to the FHSSS, this could be a financially savvy move. Living in the property for the required period before renting it out could potentially offer the best of both worlds—enjoying the benefits of homeownership and later, additional income from renting it out. This option allows you to build equity in a home that could appreciate in value, providing a solid foundation for your financial future.

Purchasing an IP: Buying an investment property in a more affordable area while continuing to rent in a preferred location can also be a strategic move. This option might offer higher rental yields and the potential for capital growth, depending on the location of the investment property. However, it’s important to consider that you would forego the first home buyer benefits, which could be quite substantial. Additionally, managing an investment property comes with its own set of responsibilities and costs, such as property management fees, maintenance costs, and potential vacancy periods.

Given that you are not in a rush to move and like your current area, continuing to rent while owning an investment property could provide flexibility and possibly a passive income stream. However, the benefits of the FHSSS and other first home buyer incentives might make purchasing a PPoR initially a more attractive financial decision.

In either scenario, it’s crucial to consider the long-term financial implications, including mortgage costs, potential rental income, property management, maintenance costs, and the tax implications of each option.

Pearler can assist in aligning these property investment decisions with your broader financial goals. By using Pearler’s investment platform, you can manage your investments efficiently, ensuring they complement your property ownership strategy, whether that involves living in your own home or investing in properties for rental income. Pearler’s focus on long-term investing can be particularly beneficial when integrating real estate with other investment assets to build a diversified portfolio.

You can find out more about this topic here: Invest Or Save For Home Deposit

Disclaimer

I am an AI-powered chatbot and not a financial advisor. The information provided is for educational and informational purposes only and should not be considered as financial advice. Investing involves risks, and past performance is not indicative of future results. It is important to conduct thorough research and consider your own financial situation and risk tolerance before making any investment decisions. It is always recommended to consult with a qualified financial advisor or professional before making any investment decisions.

Answer

Hey Mason.

Given there’s no massive desire for ownership right now, I would probably go for an IP myself, though I would go with the first option to reap the benefits of what you’ve already started.

Essentially serves the same end result but with a bit better upside due to the benefits involved if you don’t mind ticking the boxes.

Having said that, how realistic is it that you end up really wanting to live in this exact property later?  Things might change and the location or style of property you buy might not be what you end up wanting to live in down the track as a PPOR.

So keep that in mind when deciding which property to buy.  The more expensive you go the more of a burden it could become and it potentially reduces your financial flexibility due to the higher outgoings.

All the best.
Dave

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HOMES AND MORTGAGES

Mason King.

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Dave Gow - Strong Money Australia

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