Because housing has become so expensive, making your first home purchase an investment home may be a good idea. Continue reading for an overview of the pros and cons to help you make your decision.
Pro: Leverage to buy the home you want
Many people who are looking to buy their first home usually can’t afford the one they truly want. Rather than put down a lot of money on a home that you’re settling for, you could purchase an investment property and use that to help afford your dream home. You could refinance or sell the investment property, or you could use its monthly income to help afford the home you want.
When you choose an investment home as your first property, it makes it easier for you to have the freedom to move. You don’t want to spend all of your money on a home you live in only to find out years later you want to live somewhere else.
Pro: Tax benefits
One of the top reasons people become real estate investors is because of the generous tax benefits. Landlords who don’t take advantage of those tax benefits for rental real estate transactions lose thousands of dollars a year. After the first year of owning a rental property, you can begin deducting depreciation.
Interest, reasonable costs of repair, insurance premiums and use of personal property are also tax-deductible. Examples of reasonable costs of repair include fixing leaking pipes and broken windows. Improvements to the property that aren’t essential typically don’t qualify for a deduction. Use of personal property is furnishing a rental property with appliances and furniture.
Con: Managing the property
A downside of rental properties is you may have to manage them. There are some ways around this, though. You could hire a property manager, or you could choose a different type of real estate investment like REIGs. When you invest in an REIG, the company takes a percentage of your returns in exchange for managing the property for you.
The sooner you begin building wealth, the better off you could be. Thus, making your first home purchase an investment home could be the right choice for you.