Here at Talking Cents, we chat with experts about shares, tax, super, insurance, property, loans and more to find out exactly what you need to know in order to get ahead.

Buying a home vs. an investment property

Buying a home vs. an investment property

There is a lot to consider when entering the property market, especially for the first time. One of the biggest questions is whether you should buy a home to live in or as an investment property. Today we chat with the lovely Ayda Shabanzadeh about the property market and why we should be interested in property. Ayda’s formal title is Co-founder of Grow Group, but she is known for her property and finance expertise, business coaching and public speaking!

Why should people want to enter the property market?

There is a number of reasons why people want to buy properties....Evidently firstly for somewhere to live and the pride of owning your own home. But there are also other reasons such as to build an investment portfolio and for tax and residual income purposes.

Entering the property market can seem a bit daunting, where should you start?

At the moment due to the social age (Facebook, google etc.), what’s going on in the property market can be extremely exaggerated by the media. We have to understand when entering, that what we are hearing may not be all true…It’s really important to avoid only listening to the hype and instead emerge yourself into the industry to properly understand it. This means researching online, reading books, magazines etc. to get your head around the definitions of investing and mortgaging and how it all works. On top of this, seek out mentors or workshops to further learn about what will work for you at this point of time.

Should you buy a property to live in or as an investment?

There are pros and cons of both options and it depends on the individual, however Ayda explains that it is really important to look at the numbers to decide which one works best for you from there.  

If you are considering living in the property you need to consider what it really costs. The benefit with living in the home you own is that you are eligible for the home owners grant and also can avoid paying Capital Gains Tax. From this, you might calculate the price and work out that it will be cheaper than the rent you are paying somewhere else….However jeep in mind that this isn’t the true cost. The true cost is adding the rates, body corporate, maintenance and any other expenses which you will have to pay as the homeowner.

When buying a property only for investment, someone is paying the rent and you can also obtain a tax credit towards it. So when you look at just the numbers, it is probably costing you a lot less to invest in one property and rent at another. This evidently doesn’t work for everyone as people may want to genuinely live in their own home. However with very high property prices and as first or second home buyers, we are finding it difficult to own properties in the areas we want to live (e.g. 2 bedroom apartment inner city). It’s important to think about whether you are giving up your lifestyle just so you can say that you live in your own home or whether it would be a good idea to buy in a high growth area, and rent where you would like to live.

Have things changed since the Royal Commission?

No, nothing has actually changed yet except for people’s perspective….The changes haven’t been confirmed yet however people are thinking it’s going to affect them so they aren’t making decisions.

What will change with the upcoming election?

If labor is elected, people will not be able to offset tax from their investment properties, as well as benefit from high capital gains tax discounts. It won’t impact anyone that already owns a property, but after the policy change it will mean people won’t be able to use negative gearing benefits. (Check out Episode 16 on Negative Gearing and Capital Gains Tax)

From this, we might see a drop in property price as people sell due to not being able to afford properties without the tax benefit. On the back of this however we might also see increased rent prices as people offset this. What is important is if you can’t afford the property without a tax benefit, you probably shouldn’t buy the property regardless. We don’t know what’s going to happen in the future so you need to consider your true affordability and make sure the numbers add up!

Final thoughts from Ayda:

  1. Understand your numbers truly (not just how much the bank can lend you)

  2. Get educated, absorb yourself in it

  3. Understand the true difference for you to invest or live in your property

  4. Understand the myths of investing

Look out for an episode in the future about obtaining your first home loan! Follow @talkingcentspodcast on Instagram and subscribe on Apple Podcasts to stay up to date.

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