Is it better to buy a home or an investment property?

For Western Sydney-based mum Lauren Borg, it’s hard to figure out whether she should hold onto her investment property or focus on pursuing her dream of buying a home to live in with her daughter. “I bought the apartment to live in but after COVID I had to move out because I couldn't afford to live there,” she says. “I’ve managed to refinance the loan, but the property value has dropped since I bought it and now I’m not sure if I should continue to make sacrifices and hold onto the property or sell and try to buy something else we can live in.”

With property prices rising in the areas Lauren hopes to buy, she has found herself at a crossroads many will relate to. If you find yourself in a similar situation, here are some strategies for finding your way forward. 

Video: On The Brighter Side, Jess Irvine, CommBank personal finance expert, helps single mum Lauren Borg who is trying to decide whether to keep or sell her investment flat.

Embrace resilience and uncertainty

Amidst financial uncertainties, Lauren has found solace in her daughter and her determination to secure their future. Deciding whether to hold onto an investment property or sell to buy a home you can live in is a significant financial decision that requires careful consideration. One thing that can help is evaluating your financial goals and personal circumstances. Consider whether you’re looking for stable long-term returns from rental income or seeking a property for personal use that aligns with your lifestyle and family needs.

Understand your options

If, like Lauren, you own an asset that’s depreciated in value, CommBank personal finance expert Jess Irvine notes that “while there’s no one answer for everyone in this situation, it’s important to remember that you have options.”

Start by looking into the benefits of both living in a home you own and owning an investment property. “For instance, with owning your home, generally you won’t be taxed on any gain in the value of the property. And once it’s fully paid off, you can live rent-free in retirement,” says Jess. Meanwhile an investment property may be negatively geared. That’s when the cost of owning a rental property exceeds the income it generates, allowing you to offset the loss against your taxable income to reduce your overall tax bill. In the 2026-2027 Federal Budget the Government has announced changes to the tax rules for negative gearing. The proposed changes will impact on whether the loss on the rental property can be used to offset your other taxable income. Further information is available here. Before making any investment decisions make sure you understand how the tax rules will apply to your circumstances. If you’re unsure speak to your tax adviser or accountant for more information. 

Use tools and resources

In the digital age, access to top-quality information is key. Jess suggests anyone in this situation – or simply looking for property market insights – explore the CommBank app’s Buy a home feature, where you can find valuable insights about property values and market trends in different areas. By keeping across property values you’ll be able to understand what you can afford to buy, and then use a calculator to then check your borrowing capacity.

Make the most of talking to experts

Given the plethora of online resources, Jess emphasises the importance of speaking with a CommBank lending specialist – “they’re there to answer your questions and support you.” This one-on-one guidance can provide tailored insights based on your financial situation, and help you navigate complex decisions with confidence.

Jess Irvine (@moneywithjess) is a finance expert, author of Money with Jess and a respected journalist with nearly two decades of financial reporting experience. Her personal passion is helping people with their money. Jess’ new book, The Money Diary (Wiley), is out now.

Published: 29 June 2024