Buy a Home or Investment Property First in Australia?
There is no right answer. Buying to live in first gets you government support and a CGT exemption but no rental income and no deductions while you hold it. Investing first gets you income and deductions sooner but the costs of holding and market timing may make it a poor investment choice. Here is both sides laid out properly.
What Are the Pros and Cons of Buying to Live In First?
Pros:
Access to the 5% Deposit Scheme (no LMI, no income cap), stamp duty concessions or exemptions in most states, and the First Home Super Saver Scheme.
A lower deposit to get through the door. Five per cent rather than the 10 to 20 per cent or more typically needed for an investment purchase.
The main residence CGT exemption when you eventually sell.
Stability. You are living where you actually want to be, not waiting on the sidelines. (If you can afford the location and asset you want)
The option to convert it to an investment later and retain some CGT benefit through the six-year rule, once your borrowing capacity and equity are stronger.
Cons:
Stamp duty is an upfront hit.
You will likely have a trade-off, location or style of home (less desirable area or lower quality home) renting is usually cheaper than owning in those lifestyle areas.
No rental income while you own it, so loan interest, rates, insurance, and maintenance all come straight out of your after-tax pay.
Mortgage interest on your own home is not tax-deductible, unlike an investment loan.
Your serviceability for a second purchase does not improve the way it would if that capital were sitting in a rental property. This is usually the slower path if building a portfolio is the goal.
What Are the Pros and Cons of Investing First?
Pros:
Rental income helps offset your holding costs, and loan interest and other expenses are generally tax-deductible.
You can buy into a more affordable, faster-growing market while continuing to rent wherever you actually want to live.
It lets you get in early if the market you eventually want to live in is heating up but currently out of reach.
Equity and portfolio momentum start building sooner than if you wait to buy a home to live in first.
Buying a second investment can come along quicker if you've purchased under market value and in a market that is already running. I personally used this strategy purchasing my first home $235,000 under market value after having a valuation done 3 months after settlement. (I was a fairly basic renovation but it was my first so it was a big renovation at the time)
Cons:
You typically give up first-home buyer benefits for whenever you do eventually buy your own home. In most states, simply owning an investment property, even one you have never lived in, can already rule you out of stamp duty concessions and the First Home Owner Grant. The federal 5% Deposit Scheme is stricter again, generally requiring no property ownership in the last 10 years. The exact rule varies by state, so it is worth confirming before you commit either way. IMO: The FHOG and stamp duty concessions aren't worth it, if you want to invest in property, the growth and scalability far outweighs owning to live in.
Investor loans typically carry a rate premium over owner-occupier rates and usually need a genuine 10 to 20 per cent deposit or LMI depending on the asset type and location, without government backing. But I see this just as a cost of doing business, but using interest only loans can improve cashflow.
No CGT exemption. Any gain is taxable on sale. From 1 July 2027, the 50% CGT discount is also being replaced with cost base indexation and a minimum tax rate for established properties bought after 12 May 2026, which changes the numbers on this path too. Buuuuut investing in a growth market will almost always make a bigger difference in profit after tax when lined straight up against an owner occupied in a market that might not grow as well as where you might choose to invest.
The biggest upside in my opinion: You are still renting where you want to live in the meantime, until you can buy in the area you want after selling an investment or 2 for that bigger deposit and smaller loan.
How Do You Know Which Path Is Right for You?
Once you have weighed those lists against each other, a few specific factors are usually what tip the decision.
Income. Investor loans carry a rate premium and lenders shade rental income when assessing serviceability, which affects how much you can borrow either way.
Deposit size. If yours is thin, the government support available to owner-occupiers makes buying to live in first the faster way through the door.
Goals: This is probably the most important part - You need to ask yourself and find out where you want to be financially and getting those professionals to map out what that could look like. Do you want to build wealth first or put down the roots in an owner occupied property, the only wrong answer is the one that doesn't align with your goals.
The price of where you want to live. If your ideal suburb is well outside reach right now, an investment property somewhere more affordable can be a quicker route to eventually affording it.
How active that market is. A suburb early in a growth run makes waiting expensive. A flat market gives you more room to prioritise the investment first, then when your local market is priming for growth then purchasing before the growth happens is a better strategy.
A Real Client Situation
A couple I worked with recently wanted to live in Mount Pleasant, Western Australia. But purchasing was well outside what their deposit and income could support. They wanted a freestanding house which at the time typically starts at $1.2mil, which is already over the price cap for the 5% Deposit Scheme ($850,000 in WA). They were weighing an investment property in a Melbourne regional growth market instead, and continuing to rent in Mount Pleasant where they truly wanted to live.
One thing we worked through: buying the investment property first meant giving up their first-home buyer status for whenever they eventually bought their own place. No 5% Deposit Scheme because they would have been over the price cap in WA ($850,000), no stamp duty concession. For their numbers, the growth potential in that regional market still made the investment worth it. Renting made it easier to hold the property because the loan repayments on that sort of asset are substantial.
For them, it was an easy decision, even though in their forties, they still had time to purchase more investment properties and come back with a bigger deposit from those investments.
Their strategy we worked through was buy at least 3 properties and selling at the right time to make the profit to them come back in 5-10 years with that bigger deposit.
They haven't missed out because they are still in the property market.
Conclusion
If you're thinking I should buy to live in or buy to invest first, then you see property as a wealth building vehicle and you'd be surprised to know that the investment will likely win, see my other article on upgrading vs investment. The numbers show that the investment will likely win in most cases.
If you want to live in your dream suburb and in your close-to-dream house, then why don't you keep renting where you want to live and invest somewhere else. The likely-hood of you getting capital growth in an area you want to live is very slim. Only about 98 suburbs achieved double digit growth consistently over a decade. Out of ~15,000 suburbs, that's a 0.65% chance of you living in a growth suburb.
BUT, if you want to squeeze into that dream suburb with a big mortgage, that decision might set you back from investing in property for quite a number of years. If prices aren't moving all that much in the area you want to live, why not buy when the growth is about to happen. Timing markets based on data is possible but you just need to get the right people around you for guidance.
Both paths have a real upside and a real cost. The right one depends on your deposit, your income, the suburb you want, and how active that market is right now. If you want to run your own numbers on both sides, I am happy to sit down and work through it properly.
This article contains general information only and does not consider your objectives, financial situation or needs. Lending criteria, fees, stamp duty concessions and eligibility vary between lenders, states and territories. Property, taxation and financial outcomes depend on individual circumstances. Consider obtaining independent legal, taxation and financial advice where appropriate.