Forums / Property Investing / Help Needed! / Do i rent or do i buy first..?

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  • Profile photo of Hamish_QHamish_Q
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    @hamish_q
    Join Date: 2014
    Post Count: 8

    Hi all,

    I'm looking to get into the property world and am getting mixed opinions from family friends about buying my own house to live in first or then renting and buying an investment first and I dont really know what is best..? I've always seen rent money as dead money but am hoping i can get some help?

    Regards,

    Hamish

    Profile photo of BennyBenny
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    Hi Hamish,

      Welcome aboard !!   Of course, family friends only want the best for you – but their answers might be coloured according to their own life experiences.  Not that their experiences should be dismissed, but it might help to delve deeper into "Why they think the way they do" and use the results to weigh up against information from here. 

      Let me point you toward a thread that might help answer some of your questions :-

    https://www.propertyinvesting.com/forums/general-property/4349450

      See post #3 for the answer to your first question.  Other points covered in the linked thread cover questions you might not even know you have yet, but well worth a read to get up to speed a bit quicker.  smiley

    Quote:
    I've always seen rent money as dead money but am hoping i can get some help?

      But then, any interest paid to a Bank could be seen to be equally "dead".   There are times when paying rent can actually increase your wealth. 

      In the end, the right answer is the one you select AFTER seeing things from both sides.   Hopefully, the words pointed to in the link will help you understand the financial side of things.  But then comes the emotional, lifestyle, family side of things. 

      Hope it helps,

    Benny

    Profile photo of streamlineinvestingstreamlineinvesting
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    It is definitely a big decision, and of course a lot people are always going to want to have their 2 cents worth.

    I have developed a spreadsheet which allows you to compare if it is worth buying a place or renting. Basically while renting you are able to save up more money for a deposit, and in turn will reduce the amount of a mortgage you will incur. The spreadsheet also allows for capital appreciation of the property, so although you are saving more money and reducing the loan amount, the house price may also increase so in the end you are not achieving anything. Unfortunately that all becomes a bit of a guessing game if the property values in the area will increase (or decrease) so it is hard to know what the right answer is.

    Well now that I have probably confused you too much, I think you will need a simpler answer. You just need to do what is right for you, what that is, well only you can answer that. 

    It really depends what stage you are at in your life, if you are still single and moving around regularly, then maybe an option for you would be to purchase a nice house that you can look at living in some time in the future (when you have a family with you and everything) and rent that place out, and use the rent from that place to pay for you to rent where you want to live now (most likely near the city), that way you can be comfortable knowing you have the place for the future, but be flexible enough to live wherever you want in the mean time – effectively free since the rent from your future house is paying for the rent you pay. 

    Profile photo of Mark CoburnMark Coburn
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    Hamish_Q,

    To answer your question: Buying an Investment Property 1st & your own home 2nd OR your own home 1st & Investment Property 2nd ?

    The answer is over a $1,000,000 difference to your wealth over the first 10 years of property ownership.

    Renting where you want to live and investing where the market is moving can give you the best of both worlds. The market calls them professional renters for a good reason. We have watched clients doing it the right way time and time again, so we see the results of making the right choice.

    We have a client CJ: 28yo, self employed, single female, earning less than $90,000p.a. living in a rented Sydney harbor apartment (that would be worth $900k+) and pays $350 per week for her share. Living the good life and while saving a bit too.

    CJ made her first investment 5 years ago, then another one 3 years ago. Both were positively geared and being positively geared has meant she has been free to continue her savings plan. Over the last 6 months CJ has bought another 2 investment properties with us. One is an 2 bedroom apartment and the other is a 4 bedroom house. That brings her number of properties to 4, 3 houses and 1 apartment. After Christmas CJ told us she going to sell the two older properties and buy three more new investment properties with proceeds. 

    Her main advantage right now is all her properties are positively geared. She plans to buy 2-3 more investment properties before she buys a own home.

    CJ will be able to retire at 45 on over $2000p.w. investment income.

    If you delay buying your own home and invest first, your ability to continue buying (serviceability) is going to let you grow your wealth much, much faster. Once you take the luxury of moving into your own home (PPoR), you holt your ability to save and it often takes 5-10 years before there is enough spare money to start saving for that next property. The outcomes are as different as black and white OR you could say; well over a $1,000,000 in wealth.

    You will get there if you start with a simple strategy and work towards a clear goal, as this quote sums up:

    “You’ve got to think about big things while you’re doing small things, so that all the small things go in the right direction.”― Alvin Toffler

    I spend 50% of my week, working with prospective clients to help them get their strategy right. When they have their strategy in place, they tell me that they find investing less confusing, just as Alvin Toffler's quote puts it.

    Good luck investing and I hope this info helps.

    Mark Coburn | Coburn & Co - Investment Advisors & Buyer's Agents
    http://coburnandco.com.au
    Email Me | Phone Me

    |Ph: 0405 243 547 | Property Investment Advisors |Mortgage Brokers|

    Profile photo of Hamish_QHamish_Q
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    @hamish_q
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    Thanks for your really reply Mark, i can really see what you mean with CJ's situation. 

    Would you mind if i gave you a call and discuss my situation when you're free?

    Thanks,

    Hamish

    Profile photo of Jamie MooreJamie Moore
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    Hamish_Q wrote:
    Hi all,

    I'm looking to get into the property world and am getting mixed opinions from family friends about buying my own house to live in first or then renting and buying an investment first and I dont really know what is best..? I've always seen rent money as dead money but am hoping i can get some help?

    Regards,

    Hamish

    Hi Hamish 

    This decision can be an emotional as well as financial one.

    Some people take comfort in owning the home they live in (me included) – it means I can renovate, etc and know that I can stay for as long as I like.

    Quite a few of my younger clients purchase their first home to live in (and take advantage of govt. concessions if they're available) – then carry out some renovations, add some value and tap into that newly created equity to purchase their first investment property.

    In this instance, they're doing both – buying a home to live in and also buying their first IP.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
    Email Me | Phone Me

    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of Mark CoburnMark Coburn
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    Hamish_Q wrote:
    Thanks for your really reply Mark, i can really see what you mean with CJ's situation. 

    Would you mind if i gave you a call and discuss my situation when you're free?

    Thanks,

    Hamish

    Hamish, 

    I'm here, just let me know how I can help.

    We can setup a 30 minute call and go over your ideas and see what you want to get out of your property investing, then come up with a strategy to suit you.

    Don't feel you are under any pressure to act, these decisions are big ones. You need to be clear on what you are doing and where you wish to get to, so don't rush just to get started.

    At this stage it's not about the property, it's all about Strategy, Product & Location, in that order. 

    Mark Coburn | Coburn & Co - Investment Advisors & Buyer's Agents
    http://coburnandco.com.au
    Email Me | Phone Me

    |Ph: 0405 243 547 | Property Investment Advisors |Mortgage Brokers|

    Profile photo of Hamish_QHamish_Q
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    @hamish_q
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    Hi TrevisMArcus,

    What makes you say that..?

    H.

    Profile photo of CatalystCatalyst
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    trevismarcus wrote:
    I think you buy your own house to live in first.

    You might but it might not be the best decision for the poster. Financially wise it is often NOT the best option.

    Catalyst wrote:
    Hamish_Q wrote:
    Hi all,

    I'm looking to get into the property world and am getting mixed opinions from family friends about buying my own house to live in first or then renting and buying an investment first and I dont really know what is best..? I've always seen rent money as dead money but am hoping i can get some help?

    Regards,

    Hamish

    Hi Hamish. It depends what you mean as best.

    Best as in it will be your own place and you can do with it what you want and not have to move.

    OR best as in financially best.

    As others have said (emotion aside)- do the numbers.

    It depends on where you want to live also. In lots of decent areas it is cheaper to rent than buy BUT you want to get into the property game or you get left behind. So you can buy in a cheaper area with good rental yield.

     Sometimes it is advantageous to buy something, live in it for a short while then rent it out. You can then take advantage of the 6 year rule and pay no CGT for 6 years).

    Lots of things to consider. We don't know your full circumstances so hard to give definitive advice.

    Profile photo of CatalystCatalyst
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    Profile photo of itchycowitchycow
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    I would suggest the decision also needs to consider the market you are looking at. If the market is in a up cycle, marked by job growth, increased rental demand, rising rents, etc., then purchasing the rental property would be the best option. Why not consider a rental property that you could also live in while renting out other units? You'll get your property management experience in a hurry as well!

    Best regards,

    Walter

    Profile photo of Hamish_QHamish_Q
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    Thanks for your time today Mark. That half an hour has put me at ease and given me a good understanding of which way i want to go in my property investing future. I now have my goals and a strategy which is great and does make it seem simpler. 

    I was set to make some serious blunders if i went about it without doing some research. 

    Cheers,

    H.

    Profile photo of Mark CoburnMark Coburn
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    Hamish_Q wrote:
    Thanks for your time today Mark. That half an hour has put me at ease and given me a good understanding of which way i want to go in my property investing future. I now have my goals and a strategy which is great and does make it seem simpler. 

    I was set to make some serious blunders if i went about it without doing some research. 

    Cheers,

    H.

    Hamish_Q, 

    I am happy to have had the chance to talk to you about your investing future. There is a lot of distractions that come up along the way, you just need to stay focused on your goals and the rest will fall into place.

    I am glad you spotted that not all advice is created equal, there are a lot of people giving financial planning type advice that are completely unqualified to do so. 

    Our financial planner Simon will help you park your cash to create a more balanced investment portfolio, so over time your income will be more diversified than if you just had it all in property alone. Investing your cash in other asset classes for the longer term will help reduce your overall risk profile as you get older, Simon will make sure you have the death and disability cover you need once you have those new mortgages in place. 

    Mark Coburn | Coburn & Co - Investment Advisors & Buyer's Agents
    http://coburnandco.com.au
    Email Me | Phone Me

    |Ph: 0405 243 547 | Property Investment Advisors |Mortgage Brokers|

    Profile photo of Jeff123Jeff123
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    @jeff123
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    It’s a tricky question because everyone’s goals and aspirations (and personal circumstances) are going to be different.  Best thing to do it=s what you’ve done: get advise and carefully weigh up the pros and cons of each situation.  Good luck.

    Profile photo of streamlineinvestingstreamlineinvesting
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    @streamlineinvesting
    Join Date: 2010
    Post Count: 171

    I just read an interesting article about renting verse buying, I have looked at it all before and at the end of the day it really is a personal decision, but if you do want to look at it from a purely financial perspective then maybe the option below would be for you –

    Option 1 ) Purchase 3 x $200,000 investment properties at 7.00% interest rate (interest only), collecting a 6.00% yield and rent out a $600,000 property which has a 4% yield (typically higher end properties are lower yielding)

    Option 2) Purchase 1 x $600,000 PPOR at 7.00% intest rate (interest only – for ease of calculations).

    Note it is assumed 40% tax rate to be paid.

    Option 1 –

    Rent Received = $600,000 x 6.00% x 60.00% = $21,600

    Interest Paid = $600,000 x 7.00% x 60.00% = $25,200 (claiming interest on tax return)

    Rent Paid = $600,000 x 4.00% = $24,000

    At the end of the year you are down $27,600

    Option 2 –

    Interest Paid = $600,000 x 7.00% = $42,000

    I know the above is very simplified and there are a lot of other factors involved, but there is still a significant financial advantage here to renting compared to owning, and given you still end up with the same result (living in the same value property) it really makes a lot of sense.

    Profile photo of Little_StoneLittle_Stone
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    At this stage it’s not about the property, it’s all about Strategy, Product & Location, in that order.

    but if you do want to look at it from a purely financial perspective then maybe the option below would be for you

    Hamish, just reading these as a spectator I think Mark and Streamlineinvesting are really on the money. Scuse the pun. I’d really keep your advice to professionals like above as apposed to friends and family’s opinons.

    Pure figures just speak for themselves, if those IP’s grow by 6%, in no time will you have earnt enough equity to use that for a deposit for a PPOR and then inturn still have 3 IP’s (as per scenario) and then your own PPOR on the way.

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