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If you want to break into the property market but can’t afford a house in your dream suburb, you could consider buying a property elsewhere as an investment and renting it out. This is known as ‘rentvesting’ and is a popular way for first home buyers to break into the market while still living in their ideal suburb. But is it right for you?

Benefits of buying an investment property first

Compared to buying a home to live in, there are a few important factors to consider when buying an investment property. Buying a home to live in is more of an emotional decision whereas buying an investment property is all about the figures. But this comes with many benefits, including:

You can adjust the search to match your budget

Buying an investment property can be a good option for first home buyers who have been priced out of the market they want to live in. When you’re buying an investment property, you can widen the net much further to find a solid investment at a price you can afford.

Potential to generate better returns

Because you are buying with your head and not your heart, you are solely focusing on key factors like rental income and capital growth. This could mean that your investment property rises in value much more than a property you’d have bought to live in, not to mention the rental income it will generate that you would have otherwise missed out in.

Potential to boost your borrowing power

Renting out your investment property provides you with rental income, which is an additional stream of income that could be used to boost your borrowing power. If your property is positively geared (the rental income is higher than your outgoings) the boost this will provide to your annual income can increase your borrowing power when you purchase a home to live in down the track.

Tax benefits

Owning an investment property comes with many tax benefits, such as being able to claim tax deductions on your investment loan (if it’s interest-only), council rates, repairs, maintenance, and so on.

More flexibility

Rentvesting can be a good option for those who still want to rent in their desired neighbourhood and have the flexibility to move whenever the desire or need arises, but still get a foot in the property market.

Even if you can’t afford to buy in a particular area, you can probably afford to rent there instead as rental prices are generally more affordable than mortgage repayments in desirable neighbourhoods.

Can you still take advantage of First Home Owners Grants (FHOG) when buying an investment property?

First Home Owners Grants are only available on owner-occupied properties, not investment properties. However, depending on the state you live in, you only need to live in the property for six continuous months before renting it out.

How much can you borrow?

loans.com.au’s home loan borrowing calculator can help you work out how much you might be able to borrow, while their repayments calculator can help you understand how much your repayments might be.

If you’re planning to purchase an investment property to rent out to tenants, no matter whether it’s your first investment property or your next, the experts at loans.com.au can help.