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In: Home Buyers, Property Investors0

Whether to buy a home (Principal Place of Residence (PPOR)) versus an investment property has been an ongoing debate amongst first time property buyers. There are pros and cons to both approaches.

In this blog post, find practical pros and cons for BOTH approaches.

Buying a Home Before Buying an Investment Property

PROS

  • Purchase of a Capital Gains Tax (CGT) free asset under the current Australian Tax Legislation
  • Possible stamp duty exemptions depending on the state you are living in
  • Better interest rates on offer (Lenders differentiate between PPOR and investment lending)
  • Higher Loan to Value Ratios (LVR) possible, i.e. smaller deposit to enable owner occupier purchase
  • Lifestyle and family / emotional decision which may be important for personal and family well-being
  • If you have substantial equity built in your home, you may be able to build a portfolio much faster than when you started

CONS

  • No tax deductibility of the Lenders Mortgage Insurance (LMI) while the property is being treated as PPOR if the purchase has been done at an LVR of > 80%
  • No tax benefits of depreciation or the interest paid on the loan
  • There is no incoming rent, hence the PPOR lending hampers future loan serviceability to help with borrowing to build a portfolio. The higher the PPOR loan, the lesser the ability to maximise borrowings for investment purchases

Buying an Investment Property Before Buying a Home

PROS

  • LMI is tax deductible against your income for up to 5 years
  • Tax benefits on investment lending as well as depreciation of the property
  • Rental income means, the lenders look at the borrowing favourably and with little impact on loan servicing due to the rental income, the individual can borrow further (depending on resources)
  • Numbers based decision, keeping in line with your financial goals in the next 5 to 10 years. If home can wait, you may set yourself up financially for years to come by starting with one investment property and then eventually building a portfolio

CONS

  • Emotion free decision, purely based on numbers, which doesn’t always take into account family and personal well-being
  • Capital gains is Not Capital Gains Tax free (unless the property was first used as a PPOR when purchased, vacated within the last 6 years, and you have not made another property your PPOR)

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Note: Please ensure you always seek specific specific credit, tax, financial, legal or investment advice. Property Twins' Blogs are not a substitute for personal and specific, taxation, financial, legal or investment advice

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