Why you should invest in property in your early 20s
Entering the property market as a young investor in your early 20s is one of the best things you can do to get ahead and become successful in life; however, did you know that less than 1% of investors actually own five or more properties?
Getting into the property market as early as possible is extremely exciting and opens up a lot more doors and opportunities, namely that being the door to an early retirement. Why work until you’re 65 if you don’t have to? Owning five or more investment properties not only provides you with more security, but it will put you closer to an earlier retirement.
Retiring younger allows you more time to do all the things that you actually want to achieve, whilst you’re still fit and healthy and able to enjoy life to the full; whether that’s travelling the world, dining in fine restaurants or buying the home of your dreams.
However, as we are now living for longer, there is a growing concern that our savings might run out during retirement and we may be forced to live off the government pension – if that’s still around. To minimise the chance of this happening to you, you need to budget accordingly to ensure that you have enough money to last you for a comfortable retirement.
Compounding Growth Investing in property provides a safe way for this and the earlier you start the longer you have for this wealth to accumulate. This is called compounding growth and by investing in property in your early 20s, the greater your wealth will be later down the track.
When it comes to investing in property, the best thing you can do is utilise a buy and hold strategy and only sell when you have to such as selling one property to pay down the debts on others to free up more equity. Ideally you want to hold onto a property for as long as possible, but at the minimum this should be for 10 years or more, as this is typically the time it takes for a property to double in value, depending on its location.
Buying a property in your 20s has less risk Buying a property in your 20s is the best time to buy. You are open to more risk as you may not yet have a family to support and this gives you more time in the property market to see your property grow in value. As the property cycle takes approximately 10 years to complete, you could see your properties go through three cycles and dramatically increase in value.
Today, we are living in a world of convenience and luxuries are everywhere. Brand new TVs, phones, luxury holidays, cruises and cars – we all want to spoil ourselves with some of the good life. However, if we want to realistically afford all of this without living on a credit card, then investing in property provides you with not only security, but the ability to grow your wealth and even live off a passive income at the same time.
However, buying your first property can be a daunting and stressful experience, especially as a young investor in your early 20s. There’s lots to research, whilst coming up with a deposit can be particularly difficult. However, it is not impossible if you have the right mindset and you can reap the rewards if you buy at the right time in the right place.
So, as a young investor in your early 20s, how do you enter the property market? Here are 10 tips to get you started:
1. Start saving If you seriously want to purchase a property, then you need to start saving as early as possible. Generally, you require a 10% deposit, so on a $500,000 property this would be $50,000. It may take you a few years to save this amount of money so it is important that you set yourself some realistic goals and create a savings plan.
To get there faster you might want to buy with a partner or try to cut down your cost of living such as holiday at home rather than abroad, walk or cycle to work or bring in your lunch. It might not seem like a lot, but these little costs can quickly add up. You also need to keep in mind that property values also do go up over time, so you might require more than $50,000 two years from now.
Getting into a regular savings habit also is evidence you can show your lenders when it comes to getting a loan. Try to put aside a set amount of money each week or month from your salary which you do not touch. Be sure to keep this realistic as it is less likely you will touch it. You should also look for a high interest rate to make your savings work as hard for you as possible, so it’s best to shop around first.
2. Pay down any debts from credit cards Before thinking about getting a loan for a property, you first need to pay down any debts on credit cards. Your lender will look at your finances and having outstanding debts will make it harder for you to be approved for a loan. Paying your bills on time also shows you keep a good credit record, so make sure you don’t pay a bill late as this could give lenders the impression that you could miss repayments in the future.
3. Develop the right mindset and don’t get emotional Having the right mindset is also important. You need to be realistic as to what you can afford and what the property market is doing. Your first property that you will buy is unlikely to be the home of your dreams, so you need to understand what properties sit in your budget and be comfortable with that. And if this is for investment, then it doesn’t really matter what it looks like, as long as it rents well.
It can be easy to get emotional when buying property, but you need to take the emotions out of it and look at the hard, solid facts and all the evidence in front of you.
You will also have to put in the hard work and be motivated to save every month, rather than spend it on a fancy new TV or holiday. A property purchase should be for the long-term of at least 10 years, so you need to make sure you are dedicated to this and understand that this is not a get rich quick scheme.
4. Get educated Whatever age you are, buying a property can be a confusing and daunting process. There is plenty of technical jargon which you might not understand, whilst you might not be familiar with the property buying process. There are also different types of properties to buy, whether you buy an established property at auction, or decide to buy a new property off the plan and enjoy the benefits from the first home owner grant and stamp duty savings.
To really understand what it is you want and narrow down your search it’s best to educate yourself as much as possible. Read property articles, understand tax, learn about government incentives and what you should be looking for in a property purchase. Speaking to a property consultant can help you with this.
5. Buy comfortably within your budget As previously mentioned, your first property is unlikely to be your dream home. You need to carefully look at your budget and ensure that you do not overstretch your finances too far as this can put you in financial trouble. As an investor, you should be looking at properties situated in good locations, close to core amenities such as transport, schools and retail, alongside a number of other factors.
6. Ask your parents for help One of the biggest constraints that you might find as a young investor is that you are lacking the finances for a deposit. It might take you a few years at least to save up a large enough deposit for a property, by which time property prices might have increased leaving you short.
One method of getting onto the property ladder sooner is to ask your parents for help. If your parents already own their own home, then you might be able to utilise the equity from their home and ask them to go guarantor, instead of having to come up with a deposit. You could use 20% deposit towards your property purchase which is held against your parent’s home. Once you have paid off the loan against this, then the guarantor can be released.
If you buy property off the plan then settlement usually takes 12 to 24 months depending on the size of the development. You might find that by the time settlement arrives, property prices have gone up already, without you even having to start repaying a loan.
7. Understand tax As an investor you need to understand how tax works and discover all of the tax savings that you could take advantage of to reduce your taxable income. Did you know that you can claim on legal fees, loan interest, repairs, maintenance and gardening, council rates, building and landlord insurance, depreciation and much more? It’s best to get a depreciation schedule drawn up too.
8. Make a plan Having a solid investment plan or strategy in place first before purchasing will ensure that you are prone to less risk. Knowing how much money you can spend, the type of property you want and the location will all help you find the property you want sooner. You should also look into the future and set some goals you want to work towards, such as purchasing five properties over the next 10 years.
It’s important that you review this plan on a regular basis to ensure that you are on target to meet your goals.
9. Speak to a Mortgage Broker When it comes to your finances then it is best to sit down with a reputable Mortgage Broker and work out what you can realistically afford. By the time it comes to finding a loan, then a Mortgage Broker can also help you find a lender with the best rates possible.
10. Speak to a Property Consultant at iBuyNew You can go and buy a property on your own, but to have the best help, guidance and access to the latest property market reports, data and properties, it’s best to speak to a Property Consultant. At iBuyNew, our Property Consultants have years of experience working within the property industry and have invested in property themselves, so can advise you on the best option tailored to suit your goals and requirements.
By getting into the property market as early as possible, you are more likely to accumulate more wealth faster, allowing you the option to retire earlier, depending on your goals and long term plans.
If you want to achieve wealth and security, then you need to get started now. The cost of waiting could be disastrous.
To find out more about the benefits of investing in property and how you could become one of the 1% of investors in Australia who own five or more investment properties, get in touch with iBuyNew today.
Call us on 1300 123 463 and enter the property market today.
Published on 27th of September 2016 by Marty Stanowich