Why Are Young Investors Choosing Property?
Property investment continues to be a popular choice for younger Australians looking to build wealth and start their investing journey. According to research by Commbank (April 2024) according to their data, 46% of the banks new property investors in 2023 were millennials, followed by Gen X who accounted for 37% of all new property investment purchases throughout the calendar year.
The interest may not be suprising, property has long been a popular choice for Australian’s to invest. The great Australian dream of home ownership is deeply embedded in our culture, and for many, investing in property seems like a natural step. But why is property such a popular choice for young investors, and are there risk they should be aware of?
This blog considers the appeal of property, outlines common misconceptions, and highlights some key considerations that can help shape an informed investment approach.
The Tangibility of Property
One of the most common reasons young investors gravitate toward property is because it feels real and familiar. Unlike shares or managed funds, which exist largely in the digital space, property is something you can see, touch and understand.
Most people have either lived in a home, rented one, or watched family members go through the buying process. That lived experience makes it easier to grasp than other investment types. This comfort can create a sense of security and confidence, even if the asset itself carries significant risks.
It’s important to note that just because something feels familiar doesn’t necessarily make it the best option. Every investment should align with personal goals, timeframes and risk tolerance. Starting with your financial goals such as building long-term wealth, achieving financial independence, or building passive income is a useful way to guide investment decisions.
The Influence of Social Media
Property investment has also gained popularity due to it’s presence in social media and TV shows. Shows like the block can glamorise the renovation and house-flipping process. On social media, you’ll often see influencers or buyers agents sharing their journey of buying, renovating, and profiting from property.
This visibility can create the impression that property investing is not only financially rewarding but also very achievable for most people.
While there is potential to increase a properties value through renovation or development, this kind of process comes with complexity. Renovation costs can add up quickly, and there’s a risk of overcapitalising by spending more than the value added. Renovations also take time, effort, and sometimes a degree of project management skills.
For those considering a more active approach to property, it’s essential to plan carefully, research markets, and understand the financial implications for every improvement.
Common Property Myths: "It Always Goes Up"
Another reason young investors may lean towards property is the widespread belief that property values always increase. While long-term trends in Australian property have generally been positive, growth isn’t guaranteed and property goes through market cycles.
Property can be a high-risk investment in several ways:
Concentration Risk: Buying property often involves putting a large amount of capital into one asset. Unlike shares, where you can invest small amounts across a diversified portfolio including global exposure, property concentrates the risk into a single location and asset type
Leverage Risk: Most property involves borrowing, which is known as gearing. Gearing can magnify returns if the asset increases in value, but can also magnify losses if it doesn’t. It’s important to understand and be comfortable with this investment strategy
Liquidity Risk: Property isn’t a liquid asset. They can take months to sell, and selling involves transaction costs such as agent fees, marketing and legal costs
Market Risk: While property values have risen historically, performance can vary by region and property type. A suburban family home in a capital city may perform very differently to a mining town or regionally based property.
Understanding the risks is a crucial part of the investment process. Risk isn’t inherently bad, every investment involves some level of risk but it should be managed. This is where research, planning and support from professionals can be valuable.
Affordability Challenges
Despite its popularity, property investment can be difficult for young investors to break into. Rising property prices, particularly in capital cities, can make it challenging to save a large enough deposit. Further, lenders may have borrowing requirements that are difficult to meet.
Some investors are looking to alternative strategies such as:
Rentvesting: Renting in one location, while purchasing an investment elsewhere
Joint ownership: Investing with family or friends to share the financial responsibility
Regional investing: Buying in areas where property is more affordable
Each strategy has its own pros and cons and should be carefully considered in the context of long-term financial goals.
The Role of Professional Support
Property can be a positive investment, but like all investments it should be approached with a clear plan. If you are unsure of where to begin, speaking with professionals can help provide clarity.
Mortgage Broker: Can help to compare lenders, explain loan features, determine borrowing capacity and help with finding a loan that suits your needs
Accountant: Can help explain the tax implications of owning an investment property such as deductions and negative gearing
Financial Advisor: Can help align your investment choices with your broader financial goals and provide unbiased advice to assist with decision making
Working with professionals can help reduce uncertainty, avoid costly mistakes, and ensure that the investment fits your personal circumstances.
Property may continue to hold a strong appeal for young investors, due to its tangiility, cultural familiarility and potential for capital growth. It can also offer a sense of control and involvement that other asset classes don’t.
However, it’s important to balance the appeal with a realistic understanding of the risks. Property requires a large financial commitment, careful planning, and ongoing management. It’s not a guaranteed path to wealth and it may not suit everyone’s situation.
Before making any investment decision it’s worth taking the time to clarify your goals and seek guidance from qualified professionals who can help you build a strategy that works for you.
About Us
After working as an advisor for a decade, Joel founded Unified Wealth.
Unified Wealth specialises in helping clients who are facing life’s big decisions.
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Data Source: www.commbank.com.au/articles/newsroom/2024/04/Millennials-active-property-investors.html