Should you buy an investment property or a home first?

The short answer

If you want to live somewhere you can afford to buy, buy the home. The decision is largely made for you, and the assistance available to owner-occupiers is worth having.

If the suburb you want to live in is well beyond what you could borrow, buying an investment somewhere cheaper while you rent where you want to be is a real strategy. It is also not the free lunch it is sometimes presented as.

What buying a home to live in gives you

The obvious part is that you stop renting. You choose how long you stay, you can change the place to suit you, and nobody inspects it every few months.

The less obvious part is that the finance side is simpler and the help available is aimed squarely at you. First home buyer assistance in Western Australia is generally tied to occupying the property you buy, and there are lending routes for owner-occupiers with a smaller deposit that do not apply the same way to an investment purchase.

The trade-off is compromise. Buying where you can afford to buy usually means giving ground on the suburb, the size or the condition, and for some people that compromise is worse than renting for a few more years.

What buying an investment first gives you

An investment purchase decouples where you buy from where you live. You can buy in a market you can afford rather than the one you want to sleep in, which is the entire appeal.

A tenant also contributes to the holding cost. Lenders count that rent when they assess you, though they discount it to allow for vacancy and the costs of owning the place.

• You can buy in a cheaper market while continuing to live where you want to live
• Rental income contributes to the holding costs, and lenders count a discounted portion of it towards servicing
• You are not tied to the property by having to live in it, so selling or holding is a straight financial decision
• Equity built in the first property could fund the deposit on a later one, including the home you eventually buy
• The purchase is judged on the numbers rather than on whether you like the kitchen

That last point changes what you research. When you are not the one living there, what matters is tenant demand, transport, schools and amenities, and what comparable properties let for and how long they sit empty, rather than whether the place suits your taste. Which suburb to buy in is not a broker's call — we arrange the finance, and that research belongs with you, your accountant or a buyer's agent.

How rental income is assessed, how equity is released and how the loans are structured are all covered properly at /guides/property-investment-finance-guide/. This page is about the choice rather than the mechanics.

Rentvesting, and the parts nobody mentions

Rentvesting is the name for owning an investment property while renting the place you live in. It gets presented as having it both ways, and it is worth being honest about what you are giving up.

• You are still a tenant, so you are still paying down somebody else's loan and you can still be asked to leave
• Owner-occupier assistance is generally tied to living in the property, so you may not be able to use it on this purchase
• Investment lending is commonly assessed and priced differently from owner-occupier lending
• You carry rent and a mortgage at the same time, and a vacancy between tenants lands entirely on you
• Landlord costs sit outside the loan: management fees, rates, insurance, maintenance and land tax
• You own a property you may never see, in a market you do not live in and cannot read casually

None of that makes it a bad decision. It makes it a decision with two sides, and the version of it that circulates online usually only shows one.

The test worth applying is whether the arithmetic still works on a bad year rather than an average one. Run your own figures through /finance-calculators/rent-vs-buy-calculator/ and /finance-calculators/rental-yield-calculator/, and use the ones that apply to you rather than the ones in an article.

How the lending and the tax differ

From a lender's point of view the two purchases are assessed on the same principles, with a handful of differences that can move the answer. Rent counts towards servicing but is discounted, and many lenders apply different policy and different pricing to investment lending.

The deposit expectations can differ too, and the routes available to owner-occupiers with a smaller deposit do not all extend to investors on the same terms. What is available to you depends on the lender, on the property and on your position, and it is subject to their approval either way.

On tax, negative gearing and capital gains

The tax treatment of a property you live in and a property you rent out is different, and for many people that difference is the largest single factor in the decision. Broadly, an investment property produces assessable rental income and has costs associated with holding it, and a property held as an investment is treated differently again when it is sold.

What we can do is build the finance around the structure your accountant recommends, and tell you which lenders could accommodate it. Those are two different conversations and they work best in that order.

How to actually decide

1. 1

   Find out what you could borrow

   Before anything else. The gap between that figure and the price of the suburb you want to live in is the whole decision in one number.

2. 2

   Price the home option honestly

   Look at what you could actually buy to live in, in a suburb you would tolerate, and decide whether you would be content there for several years.

3. 3

   Ask what assistance your position fits

   Owner-occupier help is generally tied to living in the property. Establish what you would be giving up, and whether buying an investment first affects it later.

4. 4

   Take the tax question to your accountant

   Not to a broker, not to a forum and not to us. Their answer often changes which option makes sense, so get it before you commit.

5. 5

   Test the investment case on a bad year

   Assume a vacancy, an unexpected repair, rent rising on the place you live in, and a repayment higher than the one you are quoted. The rate rise is the one that hurts most when you are carrying rent and a mortgage at once. If the numbers only work on the good version, they do not work.

6. 6

   Then pick, and get a pre-approval for it

   Approach a lender whose policy suits the option you have chosen, rather than the one you already bank with.

People change their minds at step two more often than at any other point. Seeing the actual list of properties a borrowing figure buys is more persuasive than any argument about strategy.

Where to go next on this site

The two calculators below turn this into your own figures, which is the only version of it that matters.

Once you have chosen a direction, these pages cover the file itself.