Ask Paul: Should I buy an investment property or a home?

Hi, Paul, I hope this email finds you well.

I am reaching out to you for some advice regarding getting into my first investment property.

I am 39 years old, I have invested about $10,000 in exchange traded funds (ETFs) via CommSec Pocket and have about  $64,000 in savings.

I am renting, paying about $700 a fortnight in a share house.

Any advice on how I could get my foot into the property market as an investor?

Or should I aim to purchase my own place as an owner-occupier?  I would love to aim for financial freedom. I don't know where to start.

Any help would be appreciated. - Lucille

For an old bloke I'm doing well, thanks Lucille. Life is fun. I hope you are also in good health and enjoying life.

Obviously, getting into the property market is challenging. But to your credit you have put yourself in a position where it becomes possible.

The dreaded deposit is not easy to accumulate, and with savings of $64,000 and $10,000 in ETFs you are in the game.

The other important issue is that by saving and investing you are showing me, and a lender, that you can spend less than you earn. This is such a critical skill. Saving is the engine of wealth.

The first thing I would do in your situation is to chat to your bank or a mortgage broker about your borrowing capacity as a homeowner and an investor.

Then it is all about where you would buy and what you would like to buy.

Sydney is just expensive. Other capital cities are not cheap, but are more affordable. Our youngest child, now 30, recently bought in Melbourne.

We spent a fair bit of time looking around Carlton and Fitzroy with her and were pleasantly surprised at apartment prices. In Sydney, she would have had to buy as an investor and rent it out.

But in Melbourne she could buy as an owner-occupier and rent out her spare bedroom. Of course, if you are in a regional area, prices will be even more attractive.

The goal here is to ensure you own a paid-off property. I'm sure you would prefer to do this as an owner-occupier, but if necessary it is good to be patient and buy as an investor, then move in when you can afford to do so.

So, sort out your borrowing capacity.

Then research your preferred area. A one-bedder, two-bedder, one or two bathrooms? Parking? If you are in a regional area, it may be a small house. The most important part is to buy a place where there is growing demand.

But so much of this is personal.

My wife and I prefer a bigger city. We have always wanted to live close to the city, so the compromise for us was a very small property on a tiny piece of land.

Some of our friends preferred a bigger home but much further out of the city.

You are in a position to buy, you have a good deposit, you can save and pay $700 a fortnight in rent, which could go towards your property.

The critical part is to work out where to buy and what compromises you are willing to make to get started on a home ownership path.

Get stories like this in our newsletters.