How to invest in property in your 20s
If you want to get on the property ladder and start to build wealth, where do you start, especially if you don't have high disposable income?
According to a recent Association of Superannuation Funds of Australia's Retirement Standard (June 2021), Australian couples will require $63,352 per year to live comfortably in retirement, and individuals will require $44,818 per year.
But what if you're aiming to live a financially free life prior to retirement?
Or you want to pass on wealth to younger generations within your family?
A typical superannuation savings plan may not cut it. So, what can young people do to take control of their financial futures?
We love investing in property, and we think that it offers the best way to build long-term wealth. It offers stability, reliability and historical performance – which is why we have started building our property portfolio in our 20s.
Why invest in property?
We believe property will always be in demand because people will always require a place to live, particularly in desirable locations.
Another huge benefit is the ability to leverage property. Once you have purchased a property with a deposit, whether it's 10%, 20% or more – investors earn a return based on the overall value of the property, not just the deposit that they put down.
Lastly, property has demonstrated reliable returns over the last 30 years – 7.25% per annum, according to research by the Reserve Bank of Australia.
If you start investing in your 20s, you will benefit from long-term growth because you have many years ahead of you!
There are 4 key steps that young everyday investors can follow to build a successful investment property portfolio.
Step 1: Setting goals and educating yourself
Understanding why you're investing is crucial to your success. If you're aiming to generate a strong passive income in the short term, your property plan will look vastly different to someone who is aiming to generate capital gains and grow a sizeable nest egg over the next 20 years.
If you can set your goals from the start, you can accurately shape your portfolio towards what you want to achieve.
Educating yourself is just as important as setting goals. Education can come in many forms like listening to podcasts, reading books and blogs or talking with people who have done it before. It's also important to engage with property professionals who can help you understand what you want to achieve, what your personal risk tolerance is and how to achieve it within your timeframe.
Step 2: Formulating your plan
Putting your strategic property plan in place is very important. Investors don't get rich from one property, so planning out your first, second and third property is key. In the planning stage, you can set out a savings plan to help you generate the deposit you need to buy a property. This is one of the greatest challenges that young people face, so investigating your spending and savings habits is critical in this stage.
Planning out your acquisitions will then help you identify what dwelling type, characteristics and price point you require to build a healthy portfolio. Capital growth, cash flow and equity building opportunities such as sub-divisions and renovations, are all characteristics that will help you decide what your portfolio needs in order to keep growing your returns.
Also, give some thought to what team members you'll need by your side for the purchasing process. You may need help from a mortgage broker, solicitor, buyer's agent, pest and building inspector or real estate agent to get started, so jump on the phone and start calling!
Step 3: Conducting the market research
Any property investor will say that market research can be the hardest part of purchasing property! Young investors may find that researching suburb reports, property-related news and blogs, and market reports can help them discover high-performing suburbs.
It's really important to understand where a suburb is in the property cycle so that you know if you're investing at the top or bottom or if it's just about to grow.
Once you've found a suburb that you believe has strong foundations for positive growth, ensure that you research the demographics of the suburb. This will help you find a property that has all of the requirements that are in demand by potential tenants within the area. And as always – make sure you analyse comparable sales! This will help you avoid overpaying for a property.
Step 4: Successful acquisition and planning the next purchase
Once you've identified the locations that you would like to invest in – it's now time to put your preparation into action! Most property investors make their money on their way into their investment, not the way out.
This means it is very important to make sure that you buy the property at the right price or you risk giving up years of capital growth.
One of our best tips for negotiating is to create a win-win for yourself and the vendor. Most people think that price is the only tool you can use to negotiate – this couldn't be further from the truth. It could be the offer with the best terms (such as a fast settlement or a bigger upfront deposit) is the offer that will be successful. Get creative and offer your best terms including deposit amount, settlement period and contract conditions (like finance).
Now that you've successfully bought your property, it's time to start planning out the next! Most Australians struggle to move past their first or second investment property, so it's crucial that you go back to your goals and plan so that you know what your next step will be.
How to get started? Simply start!
Investing in property can be challenging at any age – let alone in your 20s – but our advice is to stop procrastinating!
Discipline is the most important part of your journey, and it is the thing that will set you apart from everybody else. We know how hard it can be to say no to the extra cocktail out at dinner or the Sunday morning brunch at your favourite cafe, but these small decisions might be the things that decide if you invest in your 20s and set yourself up for future financial success.
Lachlan Vidler and Tori Colls are buyer's agents and co-founders of Atlas Property Group.
Disclaimer: The views and opinions expressed in this article (which may be subject to change without notice) are solely those of the author and do not necessarily reflect those of Finder and its employees. The information contained in this article is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort. Neither the author nor Finder has taken into account your personal circumstances. You should seek professional advice before making any further decisions based on this information.
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