As the old saying goes, “If you can’t beat ‘em, join ‘em.” And that’s exactly what’s happening right now, with an emerging trend in first time property buyers opting to become landlords rather than traditional ‘homeowners’.
If it’s good enough for their equity laden, young boomer and older Gen X parents trying for a last ditch effort to financially prepare as retirement looms, then why not their children who are faced with a future of consistently rising house prices?
I can understand wanting to get in on that action!
As talk around housing affordability reaches new crescendos, we’re witnessing an increasing prevalence of first homebuyers taking the plunge into direct property investment.
Leaping their parent’s Launchpad of the (now seemingly defunct) Great Australian Dream, today’s Gen X-ers are buying straight into real estate as investors.
This is understandable; given that many watched their folks endure a none-too-pleasant financial fallout from the GFC led downturn, in conventional super funds and shares.
I fear a lot of people have forgotten how scarring the effects of the GFC were on many mum and dad investors of the day, and just how much that financial trauma changed our perceptions of investing and saving money (and in turn, our children’s).
Suddenly it was more about the security than the immediate gain. Bricks and mortar had never looked so darn good when compared to the very volatile and frightening stock market.
Fast forward seven years and now more than ever, housing is considered a bankable and relatively risk free commodity.
And it’s this perception that could make all the difference when it comes to young people overcoming the so-called ‘housing affordability barrier’.
The perfect property investment storm…
Started building off the back of the GFC, but didn’t really reach its current market maelstrom until the beginning of 2012; the same time, coincidentally, as the Reserve Bank started talking interest rate cuts.
As rates began dropping and stabilizing at lower levels, investment activity gained momentum and soon ‘property investors’ were painted as some type of collective evil force to be reckoned with in residential real estate.
The vilifying of investors was incessant, virtually suggesting that ageing mums and dads were swooping on lucrative inner city markets and snapping up all available stock, leaving soaring prices in their wake and a whole generation behind who could never afford the Great Australian Dream.
But according to survey data from Digital Finance Analytics, this isn’t actually the case, with a notably rapid rise in the percentage of first homebuyer investors since 2012:
It seems a large collective of young people have recognised that buying as an investor is a great way to make property ownership more attainable, particularly when interest rates are so incredibly low and credit so cheap.
The opportunity to have a tenant cover the bulk of your mortgage repayments and holding costs, while being able to claim any out of pocket expenses related to your investment, is certainly appealing.
Particularly given, as a young corporate type looking to advance your career, you’re more likely to want to live close to the city, where prices can be somewhat heady these days.
So then there’s this option…
Have your cake and eat it too!
Or…live where you want and buy where you can. If you’re fresh out of Uni, chances are you’ll be earning a relatively modest income as you work your way up the boardroom ranks.
In order to follow an upward career trajectory however, you need to live where the action is. And I’m not just talking about trendy cafes, bars, shops and nightclubs. I’m talking about employment and industry growth.
So what do you do? Well, you pay a cheaper rent to your inner urban landlord to live in your ideal, commutable location and become a landlord in your own right, investing in an area and asset you can afford.
Whatever you do, don’t let all the talk of housing affordability hold you back!
I personally think this new breed of young investor is very clever indeed. They’re taking advantage of some of the cheapest credit we’ve seen in banking history to secure their financial future, all while living a younger, urban version of the Great Australian Dream.
Here are five ways you can join them…
1. Don’t believe the hype!
There’s a lot of hype and fear confronting would-be property buyers right now, so it’s critical to not lose sight of the wood for the trees. Do your own research and importantly, become educated and empowered as a true player of the property investment game.
2. Consider your expectations and keep them in check
Be realistic with what you can afford and select your asset accordingly. The key as an investor is to detach from the emotion of purchasing a property and see it purely for its potential to generate capital growth and long term cashflow.
As a young person minus the commitments of family, you should have the time, energy and disposable income to tackle a renovator’s delight. This is a great strategy to manufacture additional equity, improve your rental yield and grow your portfolio quicker.
You just need to be able to identify properties with potential, and see the ‘diamond in the rough’ where others see only a disaster.
3. Save your booty off!
If you’re fortunate enough to have grown up in the inner ‘burbs, consider staying at home for a little longer as you establish your adult life (sorry mums and dads!).
It might seem like a drag (sorry again!), but the amount of money you can save on rent in say, one to two years, could equal the deposit on your first property purchase.
If remaining under mum and dad’s roof is just not an option, then make sure you establish clear financial boundaries for yourself and then take responsibility. It’s called budgeting and whether you like it or not, is an absolute necessity in today’s digital and fast paced economic world.
4. Join team mum and dad!
You could always use the err…promise of your prolonged presence in the family nest, lounging around whilst getting mum to do your laundry and cook your meals, as incentive for your parents to consider helping you start out on your property ownership journey.
If your mum and dad have existing equity just lying around gathering dust, it might be a good time to suggest that they too could benefit from owning a few property assets…right partner?
Many parents are partnering with their children in joint venture arrangements, with both generations benefiting from well-bought bricks and mortar.
5. Seek expert advice.
When markets are highly active, as we’re seeing today, it’s easy for first time property buyers to succumb to offers that seem ‘too good to be true’ (and turn out to be exactly that!) and become distracted by all the noise.
Even though you’re looking for affordable housing, you still want property that cuts the investment mustard for at least the next twenty to thirty years.
Although it’s difficult to do when you’re young and untouchable, try to approach your property acquisition(s) with a clear, long-term strategy in place and identified future objectives.
The best advice I can give you ultimately is to seek out a lot of advice. You have the most valuable resource at your disposal as a first time buyer and that’s time, so use it wisely and spend some picking the brains of an experienced property network.
If you’re considering starting out on your own investment journey, why not connect with the team here at Trilogy?
We can’t wash your dirty socks as well as mum (and we don’t want to), but we can put you ahead of the game with years of collective knowledge and insights into Australia’s property markets as seasoned investors and industry experts.
Click here to contact us and take your first step toward the new Great Australian Dream.