A well-considered investment property can double in value in as little as 10 years. With the old adage ‘time is on your side’ in mind, Australia’s enthusiastic young investors are getting into the property market early and reaping significant gains.
Key Motivations to Buy
Younger investors are getting started as early as 18 or younger, or as soon as they’re able to work. According to a 2011 survey by Mortgage Choice, setting up oneself financially is one of the top motivators for younger investors.
Other reasons included not being ready to own their first home, wanting to get a head start in the market, and not yet being able to afford to purchase their dream home. The same survey found that 77 per cent of Generation Ys were already making lifestyle sacrifices to achieve their property goals.
Hold for at Least Two Growth Cycles
Start as young as possible and hold for at least two growth cycles, suggests Ben Dempster, National President of the Young Investors Club. Mr. Dempster is part of a growing group of young Australians who are getting started very early in property investment and realising significant gains by holding on their properties.
Like many other Generation Ys and Xs who choose to buy an investment property before their first home, Mr Dempster bought his first property at 23 while still living at home with his parents and now holds a property portfolio valued at over $1.35 million. He suggests that waiting for the right time may be overrated; it’s time in the market that builds wealth.
Young investors are at a significant advantage as they’re better able to wait out market downturns. Waiting and holding for at least two, three, or more growth cycles can lead to signficant gains.
A Good Savings Habit
A good savings habit is important. Like Mr Dempster, many younger investors purchase their first property while still living at home or while renting their own property. Once younger investors have saved up for the initial deposit, it’s easier to continue climbing the property ladder by using the accumulated equity in their first property to purchase other properties.
Holding costs can be manageable if young buyers make informed purchase decisions. Investors should obtain advice and support and do plenty of research and buying into areas with high rental demand and low vacancy rates. Getting to know tax issues such as negative gearing and land tax can also help with ongoing maintenance costs and mortgage repayments.
Enlisting Parents for Help
Many Generation X or Y investors turn to parents for a little assistance when they’re just getting started. Parents often help out with the deposit, act as guarantors on the loan, or are even happy to use the equity in the family home for securing loans.
The ‘get-the-investment-property-first’ strategy has been supported by baby-boomer parents who allow their children to stay home longer without paying rent while the young investors get started on their property porfolio.
According to housing studies specialist Dr Terry Burke, around 11 per cent of residential properties are being purchased by people who rent. Many younger investors choose to rent in the inner city and buy investment property in inner-city or outer suburbs. These properties tend to be affordable, have good capital growth potential, and provide high rental returns.