Nothing beats the young and golden days where you’re out just living life. But if you’re young and looking to purchase a new home to live in, maybe you should consider turning your first home into an investment property.
Most people would disagree and say that you should wait until you bought your first home and then begin investing in real estate. But if you can, invest while you’re still young.
Many people, especially in the wake of the mortgage crisis, have found themselves wondering: “Should my first home be an investment property?” One way to ease your worries about whether buying a house will pay off is by renting out the first home you buy. By turning your home into an investment property, you can change your lifestyle into an investment. All it takes is a little bit of knowledge and real estate spirit.
First time home buyers are usually in a lucky position. This is because they often have lower levels of debt than those already on the property ladder. However, they may also have lower levels of available upfront money and savings. This doesn’t necessarily mean that choices should be restricted. In fact, first time home buyers are in a prime position to make good choices about their financial future. Let’s discuss some of the reasons why your first home should, in fact, be an investment property. Please feel free to share any comments or suggestions you may have. Also, we learn from other people’s experiences so if any of you have any experiences to share, please do not hesitate.
Related: Buying and Owning an Investment Property Is the Best Real Estate Investment. Here Is Why
1. You’ll have another source of income
If you are purchasing an investment property that you plan to rent out, you’ll be able to profit off your investment as soon as you find tenants. You can then take the money you earn from the property and do something beneficial. Maybe you can reinvest in your property or pay off debts you may have. You could earn regular income that will help you better manage and take control of your cash flow.
2. You can potentially borrow more
You can possibly get more money from the banks, thanks to the rental income you’ll be getting from your investment property. Each lender will have his or her own conditions but overall they generally take 60% of the rental income as a portion. Having this extra 60% added to your personal income could make a huge difference to your loan approval.
3. You can claim deductible expenses
If your property was owner occupied, there are a wide range of expenses you won’t be able to claim as tax deductions. On the contrary, when your property is an investment property you can claim expenses such as maintenance costs and interest payments as tax deductions.
Related: All You Need to Know About Investment Property Tax Deductions
4. You can take advantage of negative gearing benefits
“Negative gearing” means your investment property is earning less than the cost of holding it. You cover the shortfall in the hope that in the future your property will grow in value so you can recover these losses. You can then claim these losses as tax deductions against your taxable income. High-income earners like this strategy as a way to reduce the tax they pay on their income.
5. Benefits of equity
The hardest part about investing in property is buying the first one. But imagine all the benefits that will come quickly after buying your first investment property. You can use the money you make from your first investment property to put a down payment for the next. Equity is a term that refers to the untapped value in your property, the value that you haven’t secured a loan against. As your property goes up in value your equity also goes up. You can then draw on this equity to fund the down payments on future investment properties.
Related: What Is Equity in Real Estate?
If you have decided that your first home should be an investment property then you need some tips and guidelines to help you buy the right property for you.
Tip #1: Know your numbers
It’s a very exciting feeling when you know that you’re purchasing your first investment property. However, so many first time home buyers get so caught up that they tend to pay more for a property than it is actually worth. The key for you is to do your research, work out what everything is selling for around the area and then you’ll discover that soon you’ll become very good at working out what a property is worth and you’ll know a bargain when you see one. Never consider purchasing real estate in an area that you are unfamiliar with. Know how much you are able to pay for a property and then start your search.
Tip #2: Concentrate on location
Choosing the right location for your investment property is crucial in real estate. You want to pick a location that you can guarantee in the future will increase the value of your property and attract tenants. Pick a property that has public amenities like universities, schools, public transportation and work hubs.
Related: How to Choose the Right Location for Rental Properties
Tip #3: Plan out everything
Buying an investment property without a plan of attack is like setting out on a road trip without a map…you’ll certainly take a wrong turn and end up lost. Successful wealth creation through real estate requires you to set goals, determining where you want to end up, and then planning a cohesive plan to get there. Work out what you want to achieve with regard to income. When you have everything organized and drawn out as an outlined plan, you are better able to make smarter decisions. Do not be hesitant and be confident in your plan!
A final word
Investing in property is one of the best decisions you will ever make, and the sooner you make the decision to invest, the greater the benefits will be to you. We live in an uncertain world; nobody really knows what tomorrow brings. And life doesn’t get easier, the cost of living increases each year, lifestyle trends change, and our economy fluctuates. For these obvious reasons, many people are trying as hard as they can to get some sort of security in life by working hard. The best way to secure your future is by buying an investment property!