Some first home buyers might be better off foregoing the various grants on offer – for now – and making their first property purchase an investment property.
This strategy could work well for young professionals and others who have the scope to earn significant incomes in the coming years but want the benefits of property ownership now, according to Smartline Personal Mortgage Advisers.
“First home buyers are often stretched in their savings and borrowing capacity, trying to get a foot in the door of the property market while only at the beginning of their lives and careers,” said Smartline Adviser Miriam Castilla.
“The reality is, for most first home buyers their first property isn’t their long-term home, but rather a stepping stone.
“Some of them aren’t even keen to move out of mum and dad’s house or their current rented property; they simply want to make a start on getting into the property market.”
In these situations, purchasing an investment property the first time around, and becoming a renter-investor (someone who rents the property they live in, but has an investment property), could be the solution.
For those looking to buy an investment property, when savings are good but borrowing capacity is tight, the first home owner grant is usually not a necessity to make the home purchase a possibility.
The allowed borrowing capacity is usually higher for investment than owner occupier purchases, as the lender factors in the benefits of rental income plus tax deductibility of the loan in their calculations.
“Most people also don’t realise that by not claiming the first home grant when they buy a property, they’re not forfeiting it all together,” Castilla said.
“If they do not live in the new property for a period of six or more months, they will still qualify for the first home owner grant down the track when they are ready to buy the home they do want to live in.
“Therefore, not claiming the grant, at least for now, can be a very smart move for those who want to make that first move into property.
“Then, as the first home buyer advances in their career and has a significant increase in income, their borrowing capacity will also improve greatly, as will the ability to save more for a substantial deposit.
“That may then be a good time to tap into the grants on offer.”
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