The first home buyer assistance scheme has been a topic of great interest and discussion lately, especially among investors looking to purchase their first property.
I’ve received numerous inquiries from potential buyers considering taking advantage of this scheme’s stamp duty exemption for their initial property purchase. While the upfront savings are undeniably appealing, several critical factors must be carefully evaluated, particularly for those with their sights set on maximising long-term investment returns.
In this article, we’ll explore the key considerations investors must weigh before deciding if this scheme aligns with their investment goals.
First Home Buyer Stamp Duty Exemption
Before we discuss the pros and cons, let me explain the basics of the first-home-buyer stamp duty exemption scheme.
- Age and Citizenship: You must be at least 18 years old and either an Australian citizen or permanent resident.
- First-Time Ownership: The scheme specifically targets first-time home buyers, so if you’ve previously owned property in Australia, you won’t qualify.
- Property Type: The scheme covers both, whether you’re looking for an existing home or a shiny new build. The choice is yours as long as the property meets all other criteria.
- Purchase Price: Homes up to $800,000 qualify for a full stamp duty exemption—a significant financial incentive! You’ll still get a stamp duty discount for properties between $800,000 and $1 million, making a broader range of homes accessible.
- Residency Requirement: You must make your new property your primary residence for 12 months post-purchase.
Now that we understand the scheme requirements let’s look at some of the limitations it presents if your goal is to purchase an investment property from day one.
Limitations of the First Home Buyer Assistance Scheme
While the stamp duty savings provided by the first home buyers assistance scheme are enticing, there are some significant limitations if you plan to use it for an investment property purchase.
The biggest hurdle is:
The requirement to live in the property as your principal residence for at least 12 months.
During this time, you cannot rent out the home to tenants. Missing out on a full year of rental income could severely impact your cash flow and return on investment, especially in those critical first 12 months.
Additionally, any renovations or improvements you make to the property cannot be claimed as tax deductions while it is classified as your principal place of residence.
With these restrictions around rental income and renovation deductions, the first home buyer scheme starts to lose some of its appeal when viewed through an investment lens. Let’s now explore the advantages of bypassing the scheme altogether.
Advantages of Direct Investment Over the Scheme
In my opinion, purchasing directly as an investment property from the outset, without utilising the first home buyer assistance scheme, is often the more advantageous path for maximising your long-term returns.
Why is that?
By purchasing directly as an investment property, you avoid the 12-month owner-occupier restriction and can immediately rent it out to start earning an income stream. Renting out your property generates cash flow, which can help you repay your mortgage, but it can also make it easier for you to access loans from financial institutions.
Also, without the owner-occupier rules, any renovations or improvements you make could be tax deductible from day one.
These deductions help reduce your taxable income and overall property costs as an investor. You also gain more flexibility to make renovations that specifically cater to the needs of prospective tenants.
Perhaps most importantly, bypassing the scheme means your property options are not limited by purchase price thresholds tied to the exemption requirements.
A higher borrowing limit allows you to secure a more expensive property in a stronger location that can deliver superior capital growth and long-term rental returns.
Conclusion: First Home Buyers Assistance Scheme
When weighing the first home buyer assistance scheme against your long-term investment ambitions, there are valid arguments on both sides to consider. The upfront stamp duty savings can certainly help reduce the initial financial hurdles to property ownership.
However, you must carefully evaluate if those short-term cost reductions are worth the longer-term limitations around rental income, tax benefits, and your overall borrowing capacity.
When it comes to property investment, I always advocate for taking a long-term, strategic approach. An old adage resonates: “Buy land and wait.” This patient mindset of prioritising an asset’s wealth-creation capabilities over decades rather than chasing short-term savings is key.
If you need expert guidance on making this decision or any aspect of your property investment journey, don’t hesitate to contact us directly to discuss how we can assist you. We can provide data-driven analysis to help you identify and secure ideal investment properties that maximise your wealth creation over the years to come.
Disclaimer: The first-home buyer assistance scheme offers significant opportunities for first-time homebuyers and investors. However, it is essential to stay informed about the latest guidelines and eligibility criteria, which may change.
For the most current information and guidelines and to confirm your eligibility, please visit the official Revenue NSW website. This resource provides comprehensive details and updates that can help guide your decisions in the property market.
