The Hybrid Brief: the tussle of buying a Home vs. Investment
Buyers often come to us wanting a family home in Canberra, but something that will equally serve as a good investment property too. The challenge for buyers is when the end goal becomes clouded; is the primary aim to secure something that the family can feel secure coming back to? A place where you know your neighbours and the kids know their bedrooms between postings? Or is this purchase part of a bigger portfolio goal to generate capital growth, perhaps? Having a brief that’s trying to serve two masters only results in a property that fails both. A real dud, and neither brief is fulfilled. These often-conflicting goals can create a tricky line to walk for buyers, so let’s dive in.
Prefer to listen? Here’s the audio-only version for you:
Transcript:
Hi, I’m Claire Corby from Capital Buyers Agency. We help buyers like you make great buying decisions.
In today’s session, I’d love to break down an incredibly common challenge that can, if not dealt with at the beginning, cause a huge amount of stress and indecision later on. And that is, when a home is bought with the dual purpose of also being an investment property.
This is what we call a Hybrid Brief, where the end goal has two purposes. It’s the blend between these two outcomes, and the balance or amount of emphasis placed on each one that you need to be really clear on from the outset.
It’s pretty common in Canberra, especially for our expat and military clients. The revolving door of postings naturally brings you back to Canberra, and there’s a saying in Defence circles that “All roads lead to Canberra”, so it makes sense that as your career progresses, having a foot in the Canberra market is something to consider sooner rather than later.
If your plan is to buy a home, let’s say it’s a long-term family home for argument’s sake, it’s only natural that you’ll want this to be a place that you love. A property with more than simply four walls and a roof; it’s your place in the world and one that you’ll make your own. The neighbourhood and its ‘vibe’ matters as much as the property’s suitability over the long term. Your heart is in it, you can picture yourself living there. It’s where you might raise a family, where your pets live with you too, it’s where you mark the wall as your kids get taller each year. Your home is a place where memories are made and it’s a very emotionally-driven decision. Sure, it has to make sense and be practical, but a home is a heart-led choice at the end of the day.
Contrast this with the goal of buying an investment property. What we in the industry call IG - investment grade. It’s a property that makes sense on paper and generates the combination of income and growth that your portfolio needs. It’s not about what you would live in yourself, much in the same way that you don’t buy shares just because you like the logo of the company or how their stores look. It’s about the underlying financial performance of the asset, the tax implications of its income and expenditure. I’d urge you to recognise that in order to maximise your return on investment, buying a great investment property is a logical, head-driven decision.
The challenge with a hybrid brief is that you could end up with a property that does neither. It’s not your ideal home, you don’t love it and you feel little attachment to it. Perhaps it’s on the radar because it’s cheaper, and that’s a justification for saying it’s going to be an investment too. I would gently suggest that trying to have your cake and eat it too just gives you a dud property at the end of the day. You don’t have a home you love, and it’s not a great investment because there’s many other properties that are far better on paper but you don’t like the idea of living in those. When it’s a home, you naturally have locations or suburbs you’re especially drawn to. Near your work or certain schools, or a little bit of postcode envy creeping in if we’re honest. You might feel embarrassed about saying you live in one suburb over another, based on its perception. It’s a very real thing! People want to be proud of where they live and not feel judged by others in a negative way. I’m not saying it’s right or wrong, just that it happens and it can be a factor to cloud your judgement with a hybrid brief.
The other challenge of a hybrid brief is around financing. Family homes can come with different loans compared with investment loans, different loan types, interest rates, deposit requirements and lender policies. Combining the two can complicate financing, increase your risk or dilute your financial flexibility.
A hybrid brief is a common one, but it’s not about choosing one or the other. It’s about consciously choosing which side of fence is more important to you, and acting accordingly. If it’s primarily your home, allow yourself to let your heart lead the way a little and make sure you end up with a home you love rather than just choosing it because it’s cheap. The paradox of choosing a ‘cheap’ home shows itself down the track, when you get fed up with the compromises and decide to move house when a home you actually really, really want comes up and you’re up for the transaction costs of moving, which let’s be honest, aren’t at all cheap.
If it’s an investment, then I’d urge you to make sure that you’re not buying an investment out of convenience. And by that, I mean is this location the right one for you to invest into at this stage of your investment portfolio? Take a really good look at your alternatives to make sure you’re not better off investing in another area and renting instead. Or consider lowering your budget for your home and buying an investment property too - separating these two goals into two separate purchases.
What’s right for you will depend entirely on your own circumstances. Working with our clients, we help them understand what their budget can achieve, and make sure we’re clear on the primary goal. That way, we know what success looks like before we go out to market. Before properties are under the microscope, but there’s hesitation because it’s not pretty enough to live in, you’re ‘not feeling it’, or the returns aren’t good enough to go ahead with the investment decision.
The main thing to avoid is not giving structure to your hybrid brief. Talk about the relative balance between these two goals, especially when buying with someone else. If you’re not both on the same page, you’ll either get nowhere because one of you isn’t keen so you hold back and don’t buy, or someone compromises and resents doing so for years to come. Both of these outcomes aren’t great for your relationship!
Until next time, happy house hunting.