Traditionally, buy-to-let investors usually invest from a position of being homeowners. Investors typically follow the familiar path of renting and saving to then buying their own home, and will then consider investment property later. A growing minority of younger people are challenging this traditional path and are looking to buy an investment property before purchasing their first home. While investing first can be a smart financial move, it also carries risks and long-term implications that are important to understand. In this article, we will explore whether you should buy an investment property before purchasing your own home and discuss the key factors that could influence your decision.
Why Should Your First Home Be An Investment?
Purchasing your own home has long been seen as a major milestone. Receiving the keys to your first property is often the result of hard work, saving, and financial success. However, with rising property prices and slower wage growth, reaching that goal has become increasingly difficult. For example, in 2024 the average age of a first-time buyer in the UK was 33 years old. Buyers are now having to wait longer to purchase their first home.
First-time buyers face the challenge of affording a mortgage and running a household on a single income, with costs like maintenance, insurance, and council tax stacking up quickly. And with the average salary in the UK being £37,430, homeownership can feel out of reach. By renting out a property, you can generate income from your tenants, benefit from capital growth, and gain significant tax advantages — all while continuing to rent or live with family. As a result, an increasing number of young people are now choosing to purchase a buy-to-let property over a home. This strategy can build financial momentum faster, provided it’s approached with a clear strategy.
The Benefits of Investing in Property
Investing in property before buying your own home may not be an option available to everyone but can offer significant benefits under the right conditions.
Rental Income
Buy-to-let properties can generate monthly income, covering your rent elsewhere and help build long-term financial freedom. Depending on the location of your property, you can generate a considerable amount of rental income each month. You can accrue this income from your buy-to-let passively, if you employ a property management company. Over time, this passive income could even grow enough to become your primary income source.
Capital Growth
Property typically appreciates over time. If you buy in the right location, like in a regeneration zone for example, the property’s value could significantly increase over time. This can allow your asset to gain considerable value and you can sell it for a large profit. These could provide the funds for you to then reinvest later.
Leverage
Property investment allows you to borrow against the property’s value. A relatively small deposit gives you access to a much larger asset. For example, a £20,000 deposit could help secure a £100,000 property via a buy-to-let mortgage. This use of leverage means your money can go further, and your returns are amplified if the property value increases.
Tax Advantages
Buy-to-let properties offer tax advantages by allowing you to deduct expenses like mortgage interest (with a 20% tax credit for individuals), letting fees, maintenance, insurance, and professional costs from your rental income. While improvements aren’t deductible, they can reduce Capital Gains Tax later. Many landlords invest through a limited company to access full mortgage interest relief, lower corporation tax (25%), and more flexible income planning through dividends or salary. However, this setup can come with extra costs, admin, and higher mortgage rates.
Flexibility
Owning an investment property gives you the freedom to live where you like. You are not tied to your asset’s location, meaning you can pursue career opportunities or lifestyle changes without being restricted by your property. This flexibility can be especially valuable in your 20s or early 30s.
Key Considerations
It is important to be aware of the potential trade-offs that come with choosing an investment property over a home.
The Costs
While investing in property is incredibly financially rewarding, it is important that you are aware of all the costs involved. Alongside potential mortgage payments, you’ll need to account for operating expenses and fees. These can include:
- BTL mortgage payments
- Legal fees
- Ground rent
- Maintenance costs
- Insurance
- Property management fees
- Stamp Duty
It is important to take these factors into account as they can quickly add up. If you can’t afford the costs that come with your property, then you may be better suited to purchase a home first.
Due Diligence
Investing in a buy-to-let requires a considerable amount of research in order to find the right property that will yield a high return on investment. Key things to be aware of are location, average rent, property prices, and an area’s tenant demographics. Furthermore, your research should inform you of the state of the market, which will help you gauge whether this is the best time to invest. This whole process can be streamlined by consulting a property investment expert, such as Advantage Investment, who can help direct you to a property that best suits your requirements.
No Personal Security
You are still renting or living with family, which may not align with your personal goals or offer long-term stability. If your property does not perform for you and you cannot find tenants, you could be exposing yourself to financial risk. This is why it is important to conduct thorough due diligence to decide whether this is something you can afford without financially compromising yourself.
Property Management
Owning a buy-to-let involves tenant management, property maintenance, and occasional vacancies. You can decide whether you want to manage this process yourself or hire a property management company to take care of this. It is important to note that property management companies usually require 10% of the total rent each month, but this does free up your time and enables this to be a passive income stream.
Financing
Buy-to-let mortgages are typically more expensive than the type of mortgage used to buy your own home. That’s because traditionally, lenders consider rental income from tenants to be riskier than a homeowner making their own monthly mortgage payments. This makes it vital for you to shop around and look at the buy-to-let mortgage market thoroughly in order to find the best deal.
Buy-to-Let vs Residential Mortgages
The type of mortgage you choose plays a huge role in your strategy. Here’s a breakdown:
Buy-to-Let Mortgages
- Require larger deposits, typically 20–40%.
- Higher interest rates than residential loans.
- Based on rental income projections, not just your salary.
- Often interest-only, which lowers monthly payments but leaves the principal due at the end.
- Less favourable tax treatment than in the past.
Residential Mortgages
- Designed for owner-occupiers.
- Lower deposit requirements (5–10% with government schemes).
- Lower interest rates.
- Affordability based on your income and expenses.
- Usually more flexible for first-time buyers.
If you invest first, it may limit your borrowing capacity for a future residential mortgage, or make lenders more cautious about offering favourable terms.
When Investing First Makes Sense
This strategy can work well in certain situations:
- You live in an expensive area but want to invest in a cheaper, high-yield market
- You don’t need to settle down yet and value lifestyle flexibility
- You have a strong financial foundation, good credit, and a long-term view
- You want to build capital and income that can later fund your personal home
When Buying a Home First Is the Better Choice
For others, buying a home first might be the smarter path:
- You want long-term stability or are starting a family
- You are emotionally invested in having your own space
- You are staying in an area with good long-term property value
- You want to take advantage of first-time buyer incentives
How to Decide What’s Right for You
Here’s how to weigh your options:
- Clarify your goals: Is your priority wealth-building or personal comfort?
- Conduct due diligence: Analyse potential rental returns, mortgage repayments, and costs.
- Assess your risk tolerance: Property investing is not hands-off and risk-free.
- Consult professionals: A mortgage broker and a property investment consultant can help tailor a strategy to your situation.
- Stay flexible: This doesn’t have to be your strategy forever.
Why Investment Property Should Be Your First Home
Investing in property before buying your own home is a bold but potentially rewarding move. It can fast-track your wealth and give you greater financial leverage, but it is not without risk. The key is to understand the trade-offs, do your research, and make a decision that reflects both your financial reality and your personal values.
Thinking of investing before buying your home? Contact Advantage Investment today and we will advise you on the best investment opportunities on the market.
