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Often people wonder whether they should own their own home first or whether they are better of buying an investment property. There is a range of Pros and Cons for each and it is best to consider these first.

Own Home

The Pros

• For first home buyers - access to First Home Owners Grant and saving on stamp duty.
• No longer paying rent
• Any future capital gain on your property is tax free

The Cons

• The interest on your loan is not tax deductible so must be paid with after tax money.
• No depreciation tax benefits on the building and its fixtures and fittings.
• No tax deductions for repairs and maintenance
• You can borrow less for any given level of income because there are no tax breaks or rent to assist you to pay the loan and the banks have to be more careful because you are covered by the consumer credit code

Investment

The Pros

• Receive tax deductions on interest costs
• Receive tax deductions for repairs and maintenance
• Receive rent to help service the loan
• The bank will lend you more for any given income level as they can add back in all the items in the points above. Also the banks have no obligation under the consumer credit code. This my mean you can buy a better place or in a better area

The Cons

• Any capital gain on the property is taxable on sale
• Needs to be managed and creates obligations to tenants
• Potential cost of living elsewhere yourself
• Land tax may be payable
• Other taxes on investment property may be introduced eg NSW vendor duty

What is the best option?

What is best for you will depend on your personal circumstances and the property market. We recommend that you talk to a Creative Finance consultant regarding the matter.

The following are key points to consider:

• If you borrow for investment you can generally borrow more and earlier. Is there value in getting into the market earlier or to be able to have more funds to buy a larger property or in a better area?
• If you buy your own home can you afford the after tax payments? How much would interest rates have to go up before this would become difficult for you?
• Do you think property prices are going up in the near future? If not then it is generally better to wait and save a larger deposit.