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Buying an Investment Property as Your First: Pros, Cons, and Insights for First-Time Investors

By Coposit
9/1/2023

Purchasing your first property is a major milestone, and for many Aussies, it marks a giant step towards financial stability and independence. While the traditional approach might be considered as buying a home to live in, many first-time buyers are dipping their toe in the pool that is investment property. In this article, we’ll delve into the pros, cons, and key insights associated with buying an investment property as your first foray into the Australian property market.

As always, it’s important to remember that buying property is a really personal experience and it’s different for everyone. In saying that, please seek out personalised and professional legal and financial advice before making any big decisions so that you know if buying an investment property is the right choice for you.

Now, let’s dive in.

Pros of Buying an Investment Property as Your First

Potential for Wealth Accumulation: Investment properties can generate rental income, potentially covering mortgage payments and other expenses, while also appreciating in value over time. This dual benefit can offer an avenue to building wealth.

Tax Benefits: Australia offers tax deductions for property investors, including expenses related to property management, maintenance and mortgage interest. As an added bonus, these deductions can help reduce your taxable income.

Diversification of Assets: Owning an investment property diversifies your investment portfolio, mitigating risk by spreading your financial resources across different asset classes.

Rentvesting Flexibility: Opting for an investment property lets you remain flexible in terms of your living arrangements. You can choose to live in a rental property that suits your lifestyle while owning an investment property in a location with strong rental demand. This has been becoming more popular in recent years as major cities become more expensive to live in.

Potential Capital Growth: Historically, Australian real estate has exhibited steady capital growth. Unfortunately, there is no crystal ball that tells us exactly what the market is going to do in the months, years and even decades to come. However, your investment property could appreciate in value over time, providing potential long-term gains.

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Cons of Buying an Investment Property as Your First

Management and Responsibility: As a landlord, you’ll be responsible for property management, which includes finding tenants, dealing with maintenance issues and ensuring compliance with regulations. In short, it’s a lot of work and can be a lot to manage. You’ll likely need to bring in professional help, especially if your investment property is located outside of your state of residence.

Market Volatility: The property market can experience fluctuations, impacting both rental income and property values. Economic downturns or oversupply in certain areas can lead to reduced returns, which isn’t great news for property owners.

Risk of Vacancy: There might be periods when your investment property is vacant, leading to loss of rental income and putting financial strain on you as the owner. It’s really tricky to predict when these periods may occur, so thoughtful budgeting and preparing for a range of scenarios is important.

Interest Rate Fluctuations: We’ve seen in the last two years how much interest rates can change and the impact this has on mortgage holders. Changes in interest rates can affect your mortgage repayments, potentially impacting your investment property’s cash flow.

It’s Not Your Home: This is a bit of a funny one, but as an investment property, the dwelling isn’t ‘your home’. It’s somebody else’s. You might be the owner, but you aren’t the occupier. You need to weigh up what matters most to you; if you want a place to personalise and call your own, an investment property might not be for you (right now).

Insights and Statistics

Rental Demand: In major Australian cities, there’s a consistent demand for rental properties due to factors like population growth, lifestyle preferences and migration.

Tax Deductions: According to the Australian Taxation Office (ATO), property investors can claim deductions for expenses such as property management fees, maintenance, repairs and even travel costs for property inspections.

Long-Term Trends: Over the past few decades, Australian property has generally displayed resilience and appreciation, although localised variations exist.

Investment Loan Rates: As of June 2023, the average variable interest rate for an investment property loan in Australia was 6.78% (Source: Finder). It’s essential to research and compare rates from various lenders to secure favourable financing.

Buying an investment property as your first real estate venture can be a strategic move for building wealth and securing financial stability. The Australian property market, with its historical trends and tax incentives, offers a conducive environment for such investments. However, it’s crucial to weigh the pros and cons carefully, taking into account factors such as your financial situation, risk tolerance and long-term goals. Consulting with financial advisors, mortgage experts and real estate professionals can help you make an informed decision that aligns with your future plans. Whether you choose to become a ‘rentvestor’ or a homeowner, thorough research and planning are key to a successful entry into the Australian property market.

There is more than just one way to buy property. If you’re a first-time homebuyer ready to kick-off your search for your new home or your next property investment, download the Coposit app and start browsing from a range of projects where you can secure your home for as little as $10k upfront.

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