• The pros and cons of being a rent-vestor vs owner occupier

    Buying your first property is a huge deal, but deciding if you’re going to live in it or use it as an investment, by renting it out, is just as big.

  • Buying your first property is a huge deal, but deciding if you’re going to live in it or use it as an investment, by renting it out, is just as big.

    Even real estate rookies know there’s a world of difference between being a rent-vestor and an owner-occupier, with pros and cons to both, especially for first-home buyers.

    Lawrence Game, a RAMS Home Loan Specialist in Mt Lawley, Perth, explains.

    There is a financial impact of both options. If you choose to live in the property, you may get stamp duty concessions and government grants; if you choose to invest, you could potentially pay less tax via negative gearing.

    Lawrence says buyers need to balance what is best for them financially with their desired lifestyle.

    The pros and cons of being a landlord vs owner occupier-Pic1 - couple on couch 
    Especially with your first purchase, there are pros and cons to being a rent-vestor vs. an owner-occupier. Picture: Getty

    Invest first, occupy later

    “In the Sydney and Melbourne markets especially, first-time buyers are savvy to the idea of buying a property as an investment first up, because it’s simply too expensive for them to buy in the area they want to live in.

    “Rent-vesting is the new word, where people buy a property and rent it out straight away, but rent themselves somewhere else or even still live at home, which can be a big saving. This is a great way to get into the market,” he says.

    However, rent-vesting does have its downsides. Using this approach could mean forfeiting a First Home Owner Grant (FHOG) and various stamp duty concessions offered by state governments, Lawrence explains, because buyers only get “one bite of the cherry”.

    As an investor, buyers could be eligible for some tax concessions, depending on how their affairs are structured. It’s possible to deduct interest on a home loan as a tax deduction against other income, and reduce your taxable income, he says.

    When selling an investment property down the line, capital gains tax could also be payable, Lawrence explains. Being a rent-vestor also comes with ongoing costs, such as management and maintenance.

    The pros and cons of being a landlord vs owner occupier-Pic2 - apartment gardens 
    As an investor, buyers can be eligible for some tax concessions. Picture: realestate.com.au/buy

    The amount of money a buyer could borrow also differs, depending on which option they take, Lawrence adds.

    “With RAMS, an owner occupier could potentially borrow up to 95% of the purchase price, but if it’s for an investment, that figure drops to 90%, so there’s an additional 5% deposit needed upfront for an investment property,” he says. “Don’t forget Lender’s Mortgage Insurance (LMI) may need to be included in your borrowing capacity,” Lawrence says.

    “There are so many things to consider, so we always strongly recommend people speak with an accountant or financial adviser.”

    Jamie Moller, a 23-year-old who purchased a two-bedroom villa with her partner in Sydney’s Sutherland Shire, wasn’t conflicted about the choice.

    Jamie, who works in real estate, and her partner, 23-year-old electrician Taylar Garrett, were committed to being owner occupiers from the get-go, but have a plan.

    “It was always going to be owner occupier for us, but down the track it will definitely become an investment,” she explains.

    “We see this first property as a stepping stone, as it’s certainly not our forever home, but we wanted to get into the market as soon as we could,” Jamie says.

    The plan is to live in the villa for two years and in the process, build up enough equity to buy a second property, which the couple will renovate, while keeping the first.

    “I think we’ll hang onto this first property for 10 to 15 years,” she says.

    Originally published on flatmates.com.au

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  • Disclaimer:

    While such material is published with permission, RAMS is not responsible for its accuracy or completeness.  This information is general in nature and has been prepared without taking your objectives, needs and overall financial situation into account. For this reason, you should consider the appropriateness of the information to your own circumstances and, if necessary, seek appropriate professional advice.