There are many people that want to live the Australian dream and own their own home but the question is should you invest instead?
If you’re starting out it’s a lot more cost effective to invest instead because the bank doesn’t consider that you’re absorbing the entire cost of the mortgage, the council rates, the Strata fees, the water rates, you name it.
If you’re investing, the banks view that the tenant covers many those expenses or in the ideal situation if you’re positively gearing the property the tenant covers all of those expenses so your serviceability increases.
The idea is to invest and then once you’ve built your investment portfolio then buy the home that you want to live in. If you’re still looking to move out of home, you can look at renting.
By renting the bank sees this as a lesser expense than owning your own home. Also from a diversification and limiting risk perspective, it’s better to purchase multiple properties. For example, if you’ve got $1 million borrowing capacity then it’s better to buy two properties rather than one because that way you have more options, you can sell one and pay out the debts on the other.
Whether you invest or buy your own home, you should always look to pay off at least one Property completely so that you’ll always have somewhere to live, it’s very difficult for someone to kick you out of your home when you own it completely.
If your aim is to invest and own your own home, then it’s important to map out that process. There are 3 important steps to achieving your goals and they are:
- Understand your vision
What do you want to achieve? Is it 2 investments and 1 house?
- Understand how to implement your vision
How much savings do you need, what borrowing capacity do you have? What needs to be your rental return? What area do you need to purchase in that will enable you to reach your vision?
- Understand how to protect your vision
What insurances do you need? What rainy day cash do you need? What happens if you lose your job, do you have income protection?
Buying an investment property will also provide you with more options in terms of location, affordability and the type of property.
It may not be where you want to live but it does help you start living the dream.