There are many challenges that prevent young people from entering the property market.
Over the last few days I’ve been sharing parts of an interview I had with finder.com.au regarding investing in property at a young age.
I explained that the main obstacles for young property investors are a lack of knowledge and lack of affordability.
In the interview I said:
It’s a combination of a couple of things.
It’s a lack of information, they don’t know a lot about it and they have misconceptions and myths that they’ve heard from their parents and the media.
The other is affordability.
They can’t afford what they would like to buy.
Here’s a breakdown of some of the main challenges faced by young property investors:
1. Lack of disposable income
Whether you’re still studying or working on a part-time basis, many young people have relatively low disposable income compared to their older counterparts.
This lack of financial resources may present a challenge, particularly if you want to come up with a 20% deposit for a loan in order to avoid paying lenders mortgage insurance (LMI).
For example, if you take out an investment loan of $350,000, you’ll need to save $70,000 to complete a deposit.
However, don’t let your low disposable income deter you from property investing.
While coming up with a deposit is an important step, this is only part of the equation, and there are many options for young investors to access finance, such as through a guarantor.
2. Lack of financial discipline
I’ve found many young potential investors lack financial discipline when it comes to saving.
Their big obstacle is saving a deposit, and with the recent APRA motivated changes to lending criteria it’s getting harder.
However some banks will still let you borrow up to 90% loan-to-value ratio (LVR)/
Many young people have a poor credit rating, but there are ways to improve your credit file.
If you have any outstanding debts, such as a credit card balance or a personal loan, speak with your provider to organise a payment plan to ensure that you rid yourself of your debt as soon as possible.
You should also ensure that you pay your bills in full and on time.
There is an underlying perception that young people can’t invest and that you shouldn’t invest until you have more “life experience”.
However, your age makes no difference on your ability to learn and acquire new knowledge.
If anything, you are more capable of educating yourself now than when you’re older.
And you can always get the help of a good team around you like the independent property strategists at Metropole.
Read the full article at Finder.com.au: How to invest in property at a young age.
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