First property - IP or PPOR?

Hello

I'm asking this question because I'm fixated in buying my first property as an IP (house) within the next few months. I'd like to hear from other views to see if I should instead purchase a PPOR as my first property.

After purchasing my first property as an IP (house), I'm then hoping to, if possible, purchase a PPOR within approx 5 years after that. My plan is to purchase an IP (house) in Brisbane for about 800-900k (400m2+ 3 bedroom house in the Toowong/Indooroopilly/Taringa area - close to the train station). For a PPOR I'm looking at 550-600k 3 bedroom house.

I haven't actually checked to see if I'll be able to borrow another 550-600k for a 3 bedroom PPOR with a 80/20 LVR ratio so if anyone can give me some pointers that would be appreciated (perhaps I should check with my broker?).

Would it be better from a financial perspective to first purchase a PPOR, then second an IP (eg tax and first home concession grants)? I don't really know how to do the calculations. I'm thinking about this as I've read on the forum that it's better from a tax perspective to use after tax money on PPOR rather than on IP? If I were to purchase a PPOR first, I would probably get the first home concession grants (Qld) then rent out the other rooms.

Here are some of my financials/situation:
- mid to late 20s living at home
- earning approx 94k/year before tax for full-time job + approx 15k/year for cash tutoring jobs (I'll probably do more tutoring jobs next year and probably can bump cash tutoring to 25k/year - I know this can't be taken into account as income for borrowing capacity)
- currently saving at least $1200/week (I don't really spend much money - I pay board, fill up the petrol here and there and try to pack lunch (eat out when I get lazy); take public transport to work)
- 10k HECS debt; pay board; no car; single
- have about 182k currently saved in cash + shares
- broker and bank indicated that I could borrow 800k+ (taking into account rental income for an IP)
- I'm leaning towards providing a 20% deposit (I think I will have the funds - but if I'm short I could borrow from family and pay them back quickly)

Why do I want to purchase an IP? To reduce the mortgage stress of my future PPOR and when I have a family. To have my IP help reduce the burden of my PPOR. I see some of my friends struggle with things like depression after having kids or excessive stress at work - I would like the freedom of having the choice of reducing work hours when I have a family or if there is a need. I think it'd be also nice one day when the rental income from the IP can help pay my PPOR interest.

With my IP I don't really care about having a high yield. More focused on holding in the very long term (20+ years) for capital growth. It'd be nice having a few more properties after that but not fussed. Not aiming to have a massive portfolio - I know on this forum there are alot of successful investors our there with heaps and heaps of properties.

Thanks.

 

Just to clarify, if I purchase an IP first, I would continue living at home with my parents. If I purchase a PPOR first, I would move out and live in the PPOR. Pretty happy at home and get along with family pretty well - I help out (my parents might say otherwise...). But I also realise I probably should move out just to grow up in the coming years (ideally within 3 years but can be more than that - depending on when I can acquire the PPOR) and take on more responsibility.

 

I think questions like these come down to your goals and flexibility. A lot of people would say at this age and single go IP as you are not tied down and retain flexibility in your life. You can always move out and rent in 1-2 years. That is quite a large starting point for an IP though.

Some people prefer to go the PPOR first (often a couple) because they need a home and if they buy the IP first they may not have the lending capacity they need for the second property to be the PPOR they want.

Also you want a 500k PPOR in say 5 years? Is that 500k in today's values? Have you projected with growth what that might cost in 5 years? Will you have borrowing for that with your large IP loan in 5 years?

 

Thanks - great suggestions. If I don't have the borrowing in 5 years time, that's fine - I'll just move out and rent. Or maybe purchase a cheaper PPOR.

 

In my opinion go for a PPOR if you can find a new build under the threshold to obtain the 20k grant that is on offer till the end of the year. Not only this but you are saving on stamps as well. Have an offset so that you can put in all extra income and try reduce the debt as quick as possible by renting some of the rooms out as well. When you are ready, purchase IP by drawing on offset/any equity gained for deposit. By doing this you have effectively generated some "free equity", secured a place for yourself/future partner and won't be "priced out" of the market which we hear come from a number of first home buyers in Syd/Melb.

 

I was similar position as you a few years back. So just to share my current thoughts, but I'm a newbie, so please take thoughts with salt

I too lived home and now how 2 IPs. However now with serviceability tightened, what I can now borrow may be enough for a cheap IP3 but not enough for a PPOR. So now I'm kinda stuck (could be worse, so not complaining but yeh), if I want to keep the IPs. Sure I leave home and rent but for how long ? Renting would make it harder to save money, even being super frugal will make it many years before getting a deposit that keeps up with prices in capital city. But that means I'm staying at home, and for how long - do you really want that ? I get along great with parents too, but having lived independent for a few years, trust me you'll want your a place that is 'yours' in your 30s. I too thought I'd be cool with renting, but when it comes to actually doing it - it hurts giving money to help someone else's mortgage
So, after that rant, if I were to choose again. I would pick an IP that I may want to live in at some stage - so location for work etc. That way at least you have options if your 5 years PPOR plan doesn't work out.
See if you can live in it at the start to get the 6 yr CG rule exemption. I know you said long term holding plan, but keep your options open.

 

Thanks, appreciate your thoughts.

 

long time (occasional) lurker first time poster, came up today actually to ask the same question and glad found this post

a few years back i was at a similar situation, mid-to late 20s, got an income of somewhere over 90k, except that don't have any family here as a migrant and having not much to serve as a deposit (after all i mean, have to survive first as a new migrant)
now look back, the worst thing could happen is to not buy, as long as the housing market is stable (don't see this in sydney and melbourne currently). I put money in share market instead and, it didn't turn out too well, and now i'm again thinking of buying a property, IP or PPOR, and hence this post

another thing to note is that, after a certain age/stage, long as still working as a professional (assume you are), income tends to stablize and has a less impressive year on year (or job to job) growth rate, tapering out instead (depends on professions). so when doing any calculation may take this into account as well

meanwhile look forward to seeing more valuable answers from experienced investors at here