How To Invest In A Property In Your 20s | Home Loan Experts

Question: When is the best time to start investing in property?

With interest rates rising quickly, the best answer is now. The second-best answer is in your 20s.

The Association of Superannuation Funds of Australia’s Retirement Standard data for June 2021 states that an average Australian will need $44,818 a year to live a comfortable retired life. Making a start on investing in property while you’re still in your 20s can be a big help with this.


5 Reasons Why You Should Invest During Your 20s in Australia

Investment is usually viewed as something only people who already have financial stability can afford, which generally excludes young adults. But, in fact, if you are a 20-something, you are at a prime age to start exploring your investment possibilities – even if you earn at the lower end of the pay scale and have university debt.

Here are some of the benefits of buying an investment property – or a home to live in – in your 20s:

1. Paying off your mortgage in your 50s

A National Seniors Australia report shows that 62% of older Australians worry about their retirement savings running out. One possible way to have more savings by the time you retire is to buy a home while you are still in your 20s. This way, you have more time for the equity in your home to grow. If you purchase a home in your 20s, you can pay off a 25-year loan by the time you reach 55. Sometimes, people sell their homes as they are nearing the end of their working years, putting the equity gained towards a comfortable retirement.

2. Smart spending (and saving)

Many experienced homeowners say owning a home leads to better financial habits. Making monthly rent payments on an apartment that you will never own is a never-ending expense. It’s better to make mortgage repayments and build equity in your home – perhaps eventually owning it outright.

Property investments can help you generate cashflow. This can help cover your living expenses, help you build an emergency fund or even pay off your student debt, providing you with greater financial security.

3. Tax benefits

Did you know that the mortgage interest for your investment property can be deducted from your annual income tax?

Please note that this benefit applies only to investment properties and not family homes. Only if the property is earning a form of assessable income (like rent) can you claim the mortgage interest as a tax deduction.

Your home loan can also give you access to credits that will lower your tax liability. This benefit is conditional as well, so make sure to consult your tax adviser or mortgage broker for details.

4. For the future

Yes, the property market has its ups and downs but real-estate values generally increase over the long term. If you invest wisely in a house at an early age, you’ll have something that will potentially yield positive cashflow for much of the rest of your life. And when you’re finally ready, you can sell it – most likely for much more than you initially paid. 

5. More time to build your portfolio

Learning how to make property, or any type of investment, work to your benefit takes time. Some properties will increase in value more quickly than others, some properties will earn positive cashflow for you sooner than others. To make the most of your investment properties, you’ll need to craft an investment portfolio that suits your needs. And the sooner you get started, the more time you have to work out the best position.


Tips For Becoming A Young Property Investor

1. Build up credit

A solid credit score is the only way to be approved for a loan with a competitive interest rate. To qualify for an average mortgage, you will need a score between 500 and 700.

The best way to build your credit score is to pay all of your credit-card bills and other bills on time and have multiple lines of credit open. If you can’t meet these requirements, you can still get a home loan. Make sure you give your mortgage broker all the information they request so they can determine the best way to help you.

Our specialist brokers at Home Loan Experts can help you find lenders that will approve you for a home loan if you have less than perfect credit – or even bad credit! Give us a call on 1300 889 743 or fill out our online enquiry form.

2. Find a guarantor

Parents or legal guardians are the best people to turn to for a guarantor home loan. They can help either by contributing towards the deposit or acting as guarantors on the loan – using their property as security – to satisfy the bank’s requirements.

Remember that guarantors don’t have to remain involved with your property loan permanently. If you make your repayments on time, then once your Loan-to-Value Ratio is below a certain level, you can refinance to a loan without a guarantor.

3. Make a habit of saving

Lenders look for proof of consistent saving over time when determining whether to approve you for a home loan. Build good saving habits from an early age. One way to do that is to put aside at least a small amount of money each month from any kind of income.

Take note of how much you can afford to save without compromising your bills and everyday expenses. Eventually, you’ll have enough saved for your deposit.

To meet most lenders’ guidelines, you’ll need to show savings of át least 3% of your purchase price over at least a six-month period.

4. Build a network

One of the best ways to build an investment foundation in your 20s is to start connections with people who know property investment. Reach out to investors, contractors, agents, property managers, inspectors and mortgage brokers.

Speak to others who have a successful history of investing young and learn from their mistakes and wins.

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Scroll to the bottom of the page to see what one of our specialist brokers, who started investing young, has to say.


Challenges For A Young Investor

Being a young real-estate investor doesn’t come without its set of challenges. Before you proceed, make sure you have knowledge of things that might get in your way:

  • The best returns on property usually take time. If you want quick returns, a different asset class might be a better option than the property market.
  • The initial cost of property investment is high. Some mortgage companies will require property investors to pay higher deposits (and higher interest rates) than those seeking to buy their own home, which can be hard to manage for a young investor.
  • Someone in their 20s probably will not have a very long history with credit, loans and repayments, which makes meeting a credit score requirement that much harder.
  • When making property decisions, many young investors are influenced by their emotions regarding the price or the popularity of the location. Make sure to focus more on factors like security and future growth potential.

Rentvesting As An Option

Rentvesting is a great option to consider if you want to own a property of your own but can’t afford to buy in your desired location. It means that you can buy a property in an affordable location, possibly in another part of the country or a different state, while living in a comfortable rental in your ideal location.

Instead of waiting to save a big enough deposit for the location of your choice, rentvesting allows you to live in the area you want while still earning rental income. This way, you don’t have to give up your lifestyle and can still start your property investment journey.

Read more about rentvesting and its pros and cons from our experts.


The Word From One of Our Experts

One of the brokers at Home Loan Experts, Robert Mo, owns two properties that he purchased in his mid to late 20s.

Here’s what he has to say about getting started as a young investor.

What strategies would you say helped make your process smoother?

Working with a smaller budget. It makes it easier to save up for a deposit and easier to service the debt, so you can get into the property market sooner rather than later.

This meant I had to adopt strategies like rentvesting and purchasing where the price range is lower, but with relatively strong capital growth.

What are the challenges people in their 20s looking for their first property are likely to face (according to your experience)?

Saving the deposit is by far the biggest challenge. I feel a lot of people in their 20s are trying to fit within social norms and want to buy their owner-occupied home as their first property, which means they’ll need a bigger deposit (if they’re buying in Sydney or Melbourne). They are stuck in a never-ending cycle of saving more as the property price goes up each year.

Is there any tip you’d like to provide them?

More and more people are adopting the rentvesting strategy, it’s becoming the new norm.

I would recommend investing in a cheaper property with good capital growth first. If you don’t know where to invest, then I would also recommend a buyer’s agent to help narrow your options down to a few suitable properties to choose from. I believe in the value they bring when they help you start your investment journey.

If you work with a smaller budget when you buy your first property, it’s much easier to service the second purchase and so on.

You’ll be able to build up a property portfolio without getting caught in a never-ending saving cycle.


Make Your First Investment Move

Our specialist mortgage brokers will help you take the right steps as a young investor and dodge possible difficulties along the way. They can search among the 50-plus lenders on our panel to find the best possible option for a young investor.

Talk to one of our expert brokers today! Call us on 1300 889 743 or fill out our online enquiry form.

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