Why Consider Buying an Investment Property as Your First Purchase?

When entering the property market, many first-time buyers face a significant choice: purchase a home to live in or buy an investment property. Opting for an investment property as your first purchase can seem counterintuitive, especially given two key objections:

1. You forgo first home buyer stamp duty exemptions – First-time homebuyers in Australia often benefit from reduced or waived stamp duty. However, this exemption doesn’t apply if you buy an investment property.

2. You miss out on the First Home Guarantee scheme – This program helps buyers without a 20% deposit avoid Lenders Mortgage Insurance (LMI). Purchasing an investment property means you might have to pay LMI if your deposit falls short.

So, why would anyone still choose to buy an investment property first?

The Case for Investment Properties

1. Rental income to boost serviceability
   Investment properties can generate rental income, which lenders consider when assessing your borrowing capacity. This extra income can make it easier to manage your loan repayments, especially if the property has strong rental demand.

2. Flexibility to buy where returns are higher
   Unlike buying a home to live in—where location might be dictated by personal preferences—you can focus on areas with the best growth potential or rental yields when investing.

3. A stepping stone to your dream home
   Investing first can help build equity faster. You may later use this equity to purchase a home in an area you want to live in but couldn’t afford initially.

Final Thoughts

While the upfront costs like stamp duty and LMI might be higher with an investment property vs using what is available to first home buyers, the potential for rental income and long-term growth can make it a strategic choice. It’s all about weighing the pros and cons based on your goals and financial situation.