Kym Goodenough Real Estate

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Disadvantages of buying an investment property first

Posted on 30 June, 2015 at 5:30

1. You pay CGT on sale of the property

 

You pay capital gains tax when you sell your rental property, although if you have held the property for longer than 12 months you will get a 50% concession. The capital gain amount is added to your other assessable income and taxed at your highest marginal tax rate.

 

2. You have no access to federal and state government grants

 

Buying an investment property makes you ineligible for the assistance provided by the federal and state governments for first home buyers.

Best of both worlds

 

The good news is you can have the benefit of owning both a home and a rental property.

 

Here are a couple options you may want to consider:

 

Buy a smaller, less expensive property in your chosen area and live in this property for at least 12 months.

You can then look at turning this into rental property, meaning you move out and either rent or buy another property.

 

If you sell down the line, provided it’s within six years, which is the allowable time you can be away from your home, and provided that you haven’t declared a new main residence, you may still get the full capital gain exemption. You need to speak to an accountant for advice.

The thing to remember is that buying and selling a property costs a lot of money. It’s something you need to consider carefully. Property is a long-term play, and you get the most benefit by holding over the long term. You should only consider selling if you think this property has achieved maximum growth and you could use your funds elsewhere.

 

While there are advantages to buying your first property as your home, many of these are one-off benefits. If you want to build your personal wealth, buying a rental property, ideally, should result in greater financial gain.


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