Buy to live v Buy & Rent: which approach works best?
PIA Marketing     Published on  03/07/19

If you’re looking to get onto the Sydney real estate ladder, you may be weighing up whether to buy a property as a home to live in, or whether to buy an investment and rent. We look at the pros and cons of each approach to help you decide which is right for you. 

The advantages of buying a property to live in 

Even if it’s no longer the only way into the Sydney property market, buying a home as your primary residence remains a popular entry point. There are several advantages to taking this approach.

  • You could be entitled to first home buyer assistance. Both the state and federal governments actively help first home owners to buy their first home. At the state level, this includes stamp duty concessions and exemptions, which could help save you up to $26,857. It also includes the First Home Owner Grant, which provides as much as $10,000 towards the purchase price of a new property. At the federal level, it will soon include the First Home Loan Deposit Scheme, which could allow you to get onto the property ladder for as little as a five per cent deposit, without the need to take out lenders mortgage insurance (LMI).
  • You may be able to get a better deal on your home loan. Many lenders offer better home loan deals to owner/occupiers than to investors, including lower interest rates.
  • You won’t have to pay rent. When you’re paying off your own home loan, you’re no longer paying off someone else's mortgage for them. Instead, you receive the full benefit of your home loan repayments and start building equity in the place you’re living in.
  • You won’t have to pay Capital Gains Tax when you sell. Investment properties usually attract capital gains tax (CGT) at the time of sale, whereas your principal place of residence is CGT-free.
  • You can make improvements. You’ll be able to decorate your home and potentially even make alterations so that it matches your lifestyle - subject, of course, to any strata laws or other regulations and restrictions that may apply.

The downside of buying to live in a home

That said, there are some downsides to buying a home to live in rather than purchasing one to rent it out. These include:

  • You may not be able to afford what you’d like. Paying off a mortgage is often more expensive than paying rent, particularly in the Sydney market. That means your lifestyle may need to take a hit as you sacrifice either the size of the property you live in or its location.
  • You’re responsible for paying off the mortgage. A home loan is a massive financial commitment and, without renting out your property, you’ll be responsible for making sure it gets paid. This can be a source of stress for some homeowners, as it can restrict their ability to take a break from work.
  • You won’t get any ongoing tax breaks. While your own home is CGT-free, it won’t attract the tax breaks investment properties can get, such as negative gearing and depreciation.
  • You won’t have much flexibility. Because buying and selling property comes with upfront costs, it’s usually not a good financial decision to keep changing too often. So, if you’re not fully satisfied with where you live, you may find it hard to move on.

The advantages of buying to rent out (or rentvesting)

Purchasing a property with the idea of renting it out - or rentvesting - can help you get around some of these downsides and being you other benefits.

  • You could qualify for generous tax breaks. Property investors often qualify for tax breaks such as negative gearing. This lets you offset the interest you pay on a home loan against your income, so that you pay less tax. You may also be able to claim the depreciation on your property asset, especially if you buy a new property.
  • It can be very cost-effective. Because someone else is paying off your mortgage and you’re receiving potential tax breaks, you could purchase an investment property for less than you think. For instance, our analysis shows you could buy a property worth $650,000 for just $76 a week if your income is $70,000 a year[1].
  • A new revenue stream. Eventually, as the rent on your property grows, you’re likely to start earning more than you pay our each month, meaning you’ll have a new income stream – passive income.
  • You could start building a property portfolio. Over time, as you pay down your loan and the market rises, you’ll build equity in your investment property. You can then use this as a deposit on your next property, giving yourself the chance to grow an entire portfolio.
  • You can keep your current lifestyle. Because you’re not living in the property, you can buy in an area you can afford and stay in your current location so that your lifestyle stays exactly the same. 

The disadvantages of buying to rent out (rentvesting)

Despite the many advantages of buying to rent, there are some downsides you should also consider too before taking the plunge.

  • You may not be eligible for all first homeowner assistance. For instance, to qualify for the First Home Owner Grant, you need to live in the property for a 12 month period within a year of taking ownership.
  • You’ll potentially still be renting. Even though you’re now a homeowner, chances are you’ll still have to rent somewhere. That means you’ll lack the certainty that comes from being an owner/occupier, such as the chance your landlord increases the rent or moves back into their property. You usually also won’t have a say in any major decorating decisions.
  • You may pay more on your mortgage. Some lenders ask investors to pay a higher interest rate than owner/occupiers. They may also place further restrictions on interest-only loans, which are often popular with investors. 

Read more about rentvesting.

If you’d like to know more about rentvesting through PIA, get in touch, call 02 9192 2828,

Book a consult today

The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs.

[1] Assumes100% borrowing on property valued at $650,000 and borrow, with an interest rate of 4.5%, rental income of $500 p.w. 

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