Standard advice about buying your first investment property suggests that you should use the equity in your home to help secure a loan. If you’re one of the many Australians who would like to begin your investment property portfolio while still enjoying the freedom and flexibility of renting, this can be discouraging, but it’s perfectly possible to get an investment property loan as a “rentvestor” if you take the time to understand the implications of your position.
The first thing to remember is that if the first house you purchase is an investment property, you won’t be able to take advantage of your state’s first home buyer grant. These grants are designed for owner-occupiers, so as a rentvestor, you won’t qualify unless you decide to occupy your new house for a time before renting it out. If you do decide to take this path, make sure you understand – and abide by – the minimum period required under the terms of the grant you’re applying for.
Secondly, banks may expect you to have equity in other property if you want to take out a loan for more than 80% of the purchase price. Thus, without equity, you may need to have saved a larger deposit before your bank will agree to lend to you. This isn’t necessarily a bad thing – after all, the less money you borrow, the less interest you will pay in the long run – but it does mean that you need to plan ahead.
Finally, carefully consider the tax implications of your investment. On the upside, you may be able to take advantage of negative gearing, and you can claim certain expenses as tax deductions. On the downside, selling an investment property means paying capital gains tax – which is something to bear in mind if you are considering selling up within a few years to fund the purchase of a family home. Think about your long-term goals, and seek expert advice so that you can be confident you’re making the best choice for your personal situation.
Remember: buying an investment property is not a decision to be taken lightly, and if this is your first venture into the real estate market, don’t rush. Like any other property purchase, rentvesting takes time, commitment, and research if it is to be successful.
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