Putting a wise head on young shoulders

Do you have aspirations to purchase an investment property but think you’re too young?

It’s true that young investors face unique challenges simply because they lack the key element that makes a property investor seriously wealthy: time. They aren’t settled professionally, have not accumulated much in the way of savings and probably don’t really know where they’re headed in life. On the other hand, time can also be your strongest asset, as by getting in early you can build up your savings and leverage the market.

The most successful life strategies are always those that are planned as early as possible, so what should you as a young investor do to give yourself the best possible start in your investment career?

Buying an investment property is a big commitment that is most suited to those who are disciplined and focused, which is not always easy in a period when you are undergoing many lifestyle changes. But let’s go ahead and assume you have already decided that property is the right investment class for you and you’re raring to go.

Education and planning are the first steps. Read as much as possible via books, magazines, blogs and online forums so you can understand the ins and outs of property investing and make informed decisions; your age is immaterial to your ability to learn and acquire knowledge. And never underestimate the value of surrounding yourself with a team of qualified professionals to help you sort through the misconceptions and myths about property investment, and in particular advice from people who are investors themselves and have achieved what you want to achieve.

It goes without saying (except we're going to say it) that you need to start saving as soon as you can, particularly as lenders will want to see evidence of consistent saving before approving a loan. Lenders wish to deal with people with financial discipline, rather than those racking up credit card debt.

It’s highly likely you won’t be investing near to where you live, as two-thirds of the Australian population live in the capital cities and this means higher prices. You will need to consider towns and cities other than your own and also regional areas, as long as they are areas where the numbers add up to a viable investment prospect.

Once you have an idea of the price range you are comfortable with and can reasonably afford ― and you need to be realistic or you will over-extend yourself.

If you are struggling to get together a 20% deposit there are a few of things you could do. There may be a family member who is willing to help financially, by allowing the equity in their own property to be used as security in lieu of your 20% deposit. Another option is to co-borrow — where two owners agree to share the costs of ownership — with family members or friends. For this you need very a strong and trusting bond with whoever you co-borrow. Finally, you could increase your borrowing to a maximum of 88% but you would be required to pay mortgage insurance (LMI), which protects the lender, not you, in case you default. Your financial situation needs to be stronger for this option as your risk increases.

Perhaps the biggest hurdle of all is finding the actual property, and this is definitely where you need an expert professional to help you decide on the property type and a location with strong economics and employment, population demographics, infrastructure and growth performance. As time goes on you will more than likely have a better paid job and increased savings, and if you are very fortunate and your property grows in value quickly you will have equity and can use leverage to buy your next property!

Here are the simple steps you need to take for successful property investing:

It really excites Philippe when young investors come to speak with him about property even if they are not quite ready, as they have the right attitude for getting an early start on wealth creation. Compounding is the magic ingredient that will allow leveraging to increase wealth, so the earlier you start on the investment property trail the better. All it takes is a conversation with a good professional.