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Can I buy a rental as my first home?

11:30 AEST Mon May 23 2011
Can I buy a rental as my first home?
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By Diana Clement, MSN Money expert

Clever young people can and do buy rental properties as their first home. Many stay living at home with their mum and dad, while building up capital in their rental property.

The logic of buying property to let out is that it's cheaper for you to pay board or even rent, instead of living in your own home. Yet you're on the property ladder and hopefully will build up equity over time.

Lenders are willing to offer mortgages on rental properties, providing you qualify. They'll be looking at what you earn, your credit history, and looking at what they believe you can afford to repay.

The difference with a regular mortgage on your own home is that lenders typically require a bigger deposit.

Buying a rental property makes an awful lot of financial sense. But make sure you go into it with your eyes open. Buy the wrong property and you'll be constantly either looking for tenants, or paying extra into the mortgage to make up for a shortfall from rents.

So it's worth educating yourself about rental property. Get a few books about residential property investment in New Zealand. Beware of books that suggest you're going to get rich quick, or you can buy 100 properties in a year. They're exaggerating in order to sell books.

It might be tempting to tell the lender you're going to live in the property, and then rent it out. You do need to be a bit wary of this. Your tax situation is better if the intention in the first place is for it to be a rental.

Mortgage interest is only tax deductible if the intention of taking out the mortgage was to buy a property as a rental. To get around this, you need to transfer the property from your name to a company structure to run the property as a rental.