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Home ownership: The benefits of investing when you’re young

30 September 2021

Buying a home when you’re young – in your 20s or 30s – can help build wealth. It’s a big decision and involves a fair amount of sacrifice and it often comes at a time when you have other priorities, such as studying or travel. That said, it’s potentially the best time to do it.

Why? Well, if you want to build wealth - be it in property, your super or savings - starting young puts you ahead by building equity early. For young women especially, building wealth early and thinking about retirement are important considerations because of pay inequity and time out for caring duties which often fall to women. Buying property when you're younger may help future proof your finances.

Home Ownership Guide

Home ownership rates

Although there’s research showing young people may be the ‘rent forever generation’, it’s not necessarily true for all under-35s. Recent Australian Bureau of Statistics (ABS) data indicates that more women under 35 own their home (mostly with a mortgage) than men – in spite of inflated house prices and the well-documented gender pay gap.

And Westpac’s home ownership report prior to the pandemic found that young women were leading the way in taking out home loans and buying their first property. Furthermore, data collected during the pandemic has shown that the number of first home buyers looking to snap up a property in the next five years has jumped from seven percent to 16 percent.

So, if your income wasn’t impacted by the pandemic and lockdowns left you with less expenses, you may have found it easier to save a deposit.

Why invest when you’re young?

Lots of reasons.

It’s a time when you’re potentially still living at home (and able to save).

You may also be unencumbered by debts or expenses that come with raising a young family. And if that’s the case, you may be more flexible around what to buy, especially if you want to start small with something like a one-bedroom unit.

You’ve got time to consider your long-term goals, study the property market and learn all you can on where to buy and what might give you the best return on investment. Look at other investment options such as shares, savings, investing in your education and career.

There are options on how to use a property you purchase. You could either live in it, or rent it out, sell it in a good market and invest in another property or think about how you could use the equity in your property to purchase another.

Lastly, investing in property in your 20s and 30s gives you a chance to establish a good credit history and create life-long savings habits.

The benefits of buying a home

Apart from the peace of mind that a roof over your head can provide, there are other advantages to being an owner-occupier, or a property investor.

Firstly, if you buy an investment property in a good location where there’s demand for rentals, you can get tenants in and use their rent to help you pay off the mortgage. As an investor, you may also enjoy tax benefits and a second income stream if the property’s rent generates more than the mortgage repayments.

Property usually grows in value over time, enabling you to create security for your future - perhaps more importantly for women, who we know from research are more likely to face an insecure retirement.

Downsides to consider

It’s also important to go into home ownership with a good understanding of what might go wrong, too – after all, knowledge is power.

Beware of unexpected interest rate hikes. They can play havoc on your budget and drive your repayments up if you have a variable home loan.

Market fluctuations might also leave you unable to sell when you need to – or get the price you want on your property, so this type of investment is a long game. If you’re investing in shares, it’s easier to buy and sell.

Signs you’re ready to buy property

Here are ways to tell you may be ready to buy.

You’ve got a secure income. Home ownership is expensive you’ll want a decent salary and secure employment, or a dependable cash flow if you’re self-employed.

You’ve got a rock-solid budget in place. You’ve done your research on costs you’ll incur as a homeowner and are confident you won’t be overstretching yourself.

You’re realistic about what you want. You know your first property probably won’t be your dream home – it’s just about starting small and building from there.

You know what you’re willing to spend – or can realistically achieve. You’ve looked at home loan options to see what’s available.

You’ve saved a 20 percent deposit with that price in mind. If you haven’t reached that marker, you can still borrow, but you may need to add Lenders Mortgage Insurance.

You already have investments There are many ways to build wealth and if you’re no stranger to investing, you already have an idea of how to get a good return.

5 simple steps to buying a property

Decided you’re ready to buy? Great! Here’s what to do next.

  1. Work out how much you can borrow with a borrowing calculator.
  2. Find a home loan that suits you by comparing rates and getting the best deal.
  3. Set a budget for what you want to spend, and all the other costs you’ll incur.
  4. Do your research to be sure you’re buying in an area that’ll give you good returns, for example.
  5. Start searching for your new home.

 Buying a home when you’re in your 20s and 30s may take some sacrifice, but it’s worth it to get a head start on building wealth and setting yourself up for a more secure future.

As with any financial goal, take stock of your situation, chat to a financial planner, do your research to ensure you can afford to buy and are confident you won’t be putting yourself under financial stress by doing so. 

Good luck on becoming a homeowner.

This information is general in nature and has been prepared without taking your objectives, needs and overall financial situation into account. For this reason, you should consider the appropriateness of the information to your own circumstances and, if necessary, seek appropriate professional advice.

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