First home vs investment property: Which is better?

Buying property is a big milestone, and for many Australians, the decision puts them on the path to pursuing the great Australian dream of homeownership, but it's not the only path. Purchasing an investment property is an equally viable pathway, especially for medical and dental professionals who often trade higher workloads for a much larger pay packet.

Regardless of whether it's a first home or an investment, the buying journey is a pivotal step that can shape your financial future and personal security. 

The short answer? It depends on your goals. But let’s break it down.

Buying your first home

For every Australian, the appeal of owning a home is clear. You want a place that’s yours, with no rent inspections, no noisy upstairs neighbours, and the freedom to paint the walls any colour you like.

For many, the family home becomes even more than a principal place of residence; offering not just emotional security and stability, but also significant financial advantages.

Why it makes sense to start with buying your first home:

• You’re building equity instead of paying rent
• You may be eligible for the First Home Owner Grant, depending on your state
• You may be eligible to purchase as a first home buyer with as little as a 5% deposit
• First home buyers can access a number of government schemes to help keep the initial costs of buying a first home down
• You may be eligible for first home buyer grants or stamp duty concessions (depending on your state)
• You get increased stability and peace of mind around your living situation
• You can focus on building a life in one location, which is great if your job is settled
• You can eventually sell your first home for tax-free capital gains
• Choosing your first purchase strategically can set the foundation for long-term financial planning and future property investment

When it may not be ideal to buy your first home:

• You’re still moving around for training or work
• You want to live in a high-cost area, but can’t afford to buy there yet
• You’re not ready to commit to one place long-term
• You're not intending to live in the properly immediately (first home buyer grants and stamp duty concessions are generally only available if you move in right away)

Starting with an investment property

Buying an investment property first can be a smart move, especially if you’re not quite ready to settle down. Property investment is a strategic way to build a wealth portfolio, generate passive income, and benefit from rental yields. By purchasing a rental property, you can get a foot in the property market and potentially grow your wealth while still renting where you want to live. Investment properties are often considered good debt because they generate income and provide tax advantages, whereas a principal place of residence is typically viewed as bad debt.

Why it works well for medical and dental professionals:

• You can buy in a more affordable location with good growth potential
• Rental income can help offset your loan repayments and generate income, but keep in mind that rental income is taxable and will impact your tax liability
• You may be able to claim tax benefits and tax advantages, including tax deductions for expenses such as mortgage interest, property management fees, and depreciation
• Negative gearing allows you to deduct losses when rental income is less than expenses, potentially lowering your overall tax liability
• Investment properties are subject to capital gains tax (CGT) upon sale, but if held for more than a year, you may be eligible for a CGT discount, reducing your tax liability on profits
• Investment loans typically have higher interest rates and require a larger deposit (usually 10-20%) due to higher perceived risk

A property manager can handle tenant screening, maintenance, rent collection, and advertising, but this comes with additional costs. Your borrowing capacity will affect your ability to invest and expand your property portfolio. If you live in the property for at least six months before renting it out, you may be able to maintain its CGT-exempt status under certain conditions. Property investors often use property investing as a long-term wealth-building strategy, leveraging tax benefits, rental yields, and capital growth to achieve financial security.

When it might not be the right time:

• You’re not prepared for landlord responsibilities, ongoing costs, maintenance costs, or vacancy risks
• You’re relying too much on future capital growth to make it worthwhile

So, what should you do?

Before making a decision between buying your first home or an investment property, it's essential to assess your financial situation and seek general advice from a trusted financial advisor. Understanding your eligibility for government schemes, your borrowing capacity, and your long-term goals will help you make an informed choice.

There’s no one-size-fits-all answer, but here are some questions to help narrow down exactly what you're looking for:

• Do you plan to stay in one place for the next 5-10 years?
• Can you afford the property you want in your preferred location?
• Are you more focused on lifestyle or building wealth right now?
• Have you considered how each option fits into your long-term goals?
• Have you evaluated unique elements of your market such as location growth, to identify areas with strong potential for capital appreciation?
• Are you familiar with the current real estate market trends and how they might impact your investment or home purchase?
• Have you considered the significance of your first property as the foundation for building future wealth and leveraging equity?
• Are you prepared for the importance of cash flow management when obtaining a home loan, knowing that changes in repayments or personal circumstances can affect your financial stability?

Your exclusive benefits

As a medical or dental professional, you have access to exclusive lending benefits that can make your property journey a little easier. Many lenders offer specialised credit policies that recognise the stability and future earning potential of your profession, allowing you to borrow up to 95% Loan-to-Value Ratio (LVR) for residential purchases. You may also be able to avoid paying Lenders Mortgage Insurance (LMI) altogether, even with a smaller deposit. These tailored benefits can fast-track your entry into the market and save you thousands in upfront costs.

If you want to take advantage of these benefits and receive expert advice on your next financial move, contact our team today on 1800 988 522 or email finance@cutcher.com.au.

About The Author

Dean Menzies is a Partner at Cutcher & Neale with more than 25 years of experience in financial services. Known for his candid and knowledgeable approach, he has built the firm’s Residential and Commercial Finance division into a core service offering, helping clients navigate property lending and investment decisions with clarity and confidence.