Buy to live or buy to invest?
With prices constantly on the up, is it better to buy to live or buy to invest? Let’s look at how the two options stack up in a real-life scenario.
Assume we have a young professional couple purchasing a home for $1.43m. With a 10% deposit plus stamp duty, we’re looking at a loan amount of roughly $1,260,000.
At a 3.79% interest rate, repayments would sit at $5,863.86/month on principal and interest, or $3,979.50 on interest only. These are the costs of purchasing the property to live.
Buying to live is pretty simple – an owner occupier loan, with the owner moving in as soon as they purchase. The costs above are the real costs of living in that property.
Buying to invest involves purchasing a property and renting it out, then renting a cheaper property in which to live.
With the above scenario, if this couple was to rent out this apartment for $4,333, per month, this would leave them with a shortfall of $1,503 on the P&I option, or an additional $354 on the interest only option.
What happens next is really up to you – if you wanted to rent something of equal value, you might be able to negatively gear the property you purchased, creating a potential tax deduction for an investment with long term capital growth. Better yet, if you could get by renting something cheaper, you can work down that mortgage even faster then look to unlock some equity a few years down the track by refinancing, and purchase another property. Both options have tax implications being either income tax and/or capital gains tax so engaging your accountant for consideration of this matter is very important.