How Investing In Property Is Different To Buying A Home - Pearl Financial

How Investing In Property Is Different To Buying A Home

By Shane | Fundamentals

Apr 28

People sometimes use the terms investing in property and buying a home interchangeably. How is investing in property different from buying a home?

Buying A Home

In buying a home, you have the security of place where you’re at. You’re not going to be in a rental where the owner is going to decide to sell and kick you out, or they’re going to decide to increase your rent.  You are the master of your own fate in that circumstance, apart from fluctuating interest rates. So, that aspect of security is really important to a lot of people and should not be overlooked.

The second thing is that you’ve got locked-in pricing in the area. As you know, properties tend to go up and up over time, and rents go up and up as well. By buying a property in the area that you want to live in, you know the price of that property isn’t going to change.

Interest rates may change but the price isn’t going to go up because you already bought it. This means that as rents go up over time, chances are, your mortgage repayments are going to be going to be remaining the same as you pay off your mortgage. So, that puts you in a better financial position.

Another thing is that you can have your home the way you like it. You can put a deck, a pool, or even paint the colours that you like. While in a rental property, you don’t have the flexibility that you likely want to be able to have the home exactly the way you want it. However, if you buy a home, you can do that which leads you to a better standard of living.

 

Investing In Property

An investment property is a property that is not your primary residence. It’s purchased in order to generate income, earnings from appreciation, or to take advantage of tax benefits. If you purchase a property that will be used to make a profit rather than use it as a personal residence for you and your family, then that property should be considered to be as an investment property.

Investing in property also increases your borrowing capacity. When you buy an investment property, the banks are actually going to take some of that rental income into account, which adds to your serviceability and which adds to the amount of money that the banks are willing to lend you. Go and see a mortgage broker and ask them about investing in property and see how much you can borrow.

Because you’re getting an income coming in from that investment property, that can help you borrow more money, which can help you buy multiple properties in the future or buy your own home. So, that is definitely something to be considered.

When buying an investment property, the debt on that property is tax-deductible. The expenses that come with the property are generally tax-deductible because it’s generating you an income. It includes the interest repayments on your mortgage.

However, if you buy a home, then the mortgage that you have on that and the debt that you’re paying on that isn’t tax-deductible. An investment property can be an advantage in terms of taxation because that tax-deductible debt can sometimes help you to pay less tax.

Investing in property enables you to target high-growth or positive cash flow areas. If you’re looking to buy a home, then you’re obviously going to be very specific to the suburbs that you want to live in. you aren’t going to be as focused on buying in a high-growth area. You can look at an extensive range of areas and can, in fact, develop an investment strategy to move you towards your financial goals.

 

Follow

About the Author

Shane specialises in helping Gen Y professionals and business owners make an impact by accumulating more assets, generating more income, and having more time to enjoy life. He has a Master of Applied Finance, an MBA, and a Master of Financial Planning. He is also a terrible golfer.

>