What comes first: An investment property or a home?

By Sasha Karen 13 November 2018 | 1 minute read

Following the news that younger people are considering both buying investment properties and home ownership, we asked a young investor what he thinks is a smart investment strategy: either buying an owner occupier home first or an investment property.

Comparison of two homes

The results of Westpac’s 2018 Home Ownership report revealed 29 per cent of investors are considering buying both an investment property and an owner occupier home, up 105 per cent, but young investors who wish to hold property might be wondering whether to buy an investment property or their own home to live in.

According to young investor and director of Rethink Investing Scott O’Neill, an investment property should be that first step on the property ladder.

In fact, Mr O’Neill said advice from older and more experienced investors who say potential investors need their own home first should consider the fact that the property investment environment is much different than what it used to be.

“It's a classic mistake by the old school investors, they are basically giving the advice that worked in 1950 to 1980,” Mr O’Neill said.

“Back then, it was five times the average income to buy the average house. So of course, you go buy a house, you can afford it, you paid it off quickly, then think about investing.”

By comparison, Mr O’Neill said Sydney required 14 times the average income to buy an average property. With the current condition of wage growth being what Mr O’Neill referred to as “sketchy”, attempting to leverage 14 times an average income to buy house would mean “you're finished”.

In the popular states of Sydney and Melbourne, Mr O’Neill said buying an owner-occupier home before an investment does not make sense.

“Don’t buy your first home first unless you’re extremely confident that you’ve got a massive income that’s going to grow and it's going to be consistent, and then you can save a nest egg, because you’re not going to pay that house off otherwise, paying a million-dollar debt off these days,” he said.

“It's not impossible but it’s bloody hard, and I just don’t see how that’s possible these days.”

The biggest mistake Mr O’Neill says with potential investors who are also looking to buy into their first home in the Sydney market comes from those who overleverage themselves into a million-dollar home.

“Unless you’re on a big income, it’s almost like game over from an investment portfolio sense, you’re done until you pay some of that debt off and until you get pay increases, it’s going to be tough to get another loan,” Mr O’Neill said previously.

“So, they won’t even have the opportunity to get the investment if they go get that in the wrong order.”

RELATED TERMS

Owner

An owner is an individual or entity that has legal ownership and rights to an asset or property.

Property

Property refers to either a tangible or intangible item that an individual or business has legal rights or ownership of, such as houses, cars, stocks or bond certificates.

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What comes first: An investment property or a home?
Comparison of two homes
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