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Better First Property – Owner-Occupied or Investment?

August 6, 2011 · 0 comments

in Personal Finance

The following is a guest post…

When you are about to buy your first property ever, you’ll have a choice to make.  Are you buying it to live in it or are you buying it as an investment property?  Let’s take a look at the advantages and disadvantages of buying a property for investment versus occupying the home yourself.

Advantages & Disadvantages of an Investment Property

The pros of making a property investment right off the bat is that it gives the property a greater chance of appreciating in value over time. Home prices may have declined over the short term, but property values still have generated a positive return over the long term. This means that your property investment will probably be more valuable over a 10 to 20 year time period.

Investment properties can also generate an income stream for you if you lease or rent them out.  If you choose a property well, you could make more from the lease than you owe on the mortgage.  That positive cash flow can be used to cover the taxes and insurance.  The rest can be socked away for the times the property is vacant.

The disadvantage of purchasing an investment property is that you will have to fund your purchase over the short term. This means that whether or not you are able to rent it out, you will have to come up with the cash on a monthly basis to make the mortgage payments yourself. This can be a substantial percentage of a monthly income.

Advantages & Disadvantages of Occupying the Property Yourself

The biggest advantage to buying a property for yourself is that it gives you a permanent place to live without the ups and downs of renting.  You also will be building equity as opposed to paying rent that you will never see again.  When you rent an apartment or house, you are literally paying for the roof over your head but will never have any equity from those payments.  Buying a home allows you to build equity and to one day own the house that you live in.  Once that mortgage is paid off, you will have somewhere to live for the cost of annual property taxes and homeowner’s insurance.

The biggest disadvantage of home ownership is that you may spend more money in the short term than you would on renting. You will have to take care of repairs and maintenance yourself. Property taxes and homeowner’s insurance are pretty expensive as well and vary state to state and county to county.  You may also feel pressure to spend extra money furnishing the home. If you don’t fight off that feeling, you could spend a ton on furniture and upgrades.

In short, when buying your first property, make sure you have a plan.  Do some research in advance to ensure that you can afford the loan no matter what? You can compare home loans online.  Good luck!

From Kris:  I never actually considered buying a rental property before purchasing my first home, but it is an interesting concept. Was your first home purchase for yourself or as an investment property?

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