Should I buy a home or an investment property first?
It’s a question many first home buyers ask themselves at some point or another…
I know I definitely asked myself this exact question!
The best way I can help answer this question is by telling you what I did and how I think about the whole thing.
From someone who’s been through the home/investment buying process, I’ll give you my honest opinion and reasons for each option and their benefits/downfalls…. let’s get started =)
Introduction
So i’ll start here by saying that the question really depends on your circumstances and where you want to be 10+ years….
Not everyone desires the same results and people desire totally different things. It just depends on what you want to get out of the property.
For me at least, being 20 something it wasn’t necessary for me to buy my dream home (I didn’t even know what my dream home would even look like!)
It just made more sense to focus on investing first, then i would figure out what I wanted as a dream home later.
Advantages (to buying a house)
- You have a family. The biggest reason people buy homes is they want to move out of mum and dads to start a family of their own. You’ll need the extra space, so this is a good reason to buy a home.
- The pride. Owning your own home feels amazing!
Disadvantages (To buying a house)
- The biggest downside to buying a house first I see is you have a lot more expenses holding you back. This means it’ll be harder (and will take longer) to buy an investment later on.
- Lenders and banks generally don’t like people with a lot of expenses and liabilities tying you down.
So it’s best to be aware of this.
Advantages To buying an investment property first
- Set yourself up a financial plan for success
- Start building up your passive income streams
- Somebody else pays your mortgage
- Learn about business / investing
- Build up your equity
- Tax benefits
- Build up your credit score (Get banks to trust you!)
Disadvantages to buying an investment first
The only downsides (if you could even call them that) to buying an investment property first would be…
- More work initially at the start eg, Learning how to think like an investor, analyzing investment deals.
- Delayed gratification or holding out to buy your dream home later. (If that’s even a disadvantage…often your tastes change over the years anyway)
As you can see there are good reasons why you would do both. It just depends on what your priorities are and motivations in life.
OTHER STRATEGIES…
Buying a home or buying a rental aren’t your only two options. You could easily do a mixture of the two..
HOUSE HACKING
Buying an investment property can be like having your cake and eating it too. Your investment can still be your “home to live in”, it’s called House Hacking. You can check out that article here.
I bought my first property as a “home occupy loan” so technically it wasn’t an investment property until after the first year =)
The three best things about house hacking are…
- I avoided the higher interest rate buying an investment includes.
- I avoided paying higher stamp duty!
- I’m able to live in my own home 🙂
RENT-VESTING
Rent-vesting is a term used to describe people who buy an investment in an area they can afford.
Then rent where they want to live!
Or with the extra money they can live in a more desirable house / neighbourhood.
FINAL THOUGHTS…
My mindset a few years ago was that if I purchased an investment property first, I could rent it out. Then with the extra money, I could buy my dream house later! Or just simply keep buying investment properties and increasing my net worth.
Whereas if I purchased a home, it would’ve taken me a few years before i was ready to buy again. Not to mention with the extra expenses it would’ve been harder to get another loan.
Now that I have an investment, my income has increased from before and i am only looking to keep increasing that number as time goes on.
Its a Win Win!
CONCLUSION
So I hope when you ask yourself now “should I buy a home or an investment property first?” you understand a little bit more.
I just find you have a lot more options if you invest first. But that’s just me.
By owning a rental first, you have more income, then with that income, you can buy more income-generating assets. Or a bigger home for yourself later…
The choice is yours!
Kristian
