What are Gen Y Prepared to Do to Secure an Investment Property?

A recent survey has found that a significant proportion of Generation Y (‘Gen Y’) would prefer to have an investment property over a home as their first property purchase. As much as 43 per cent of those born between 1980 and 1994 stated that they were willing to forgo incentives such as the first home owner grant and the first home buyer concessions in order to get started on an investment property portfolio.

Willingness to Make Sacrifices

The survey was conducted by mortgage broker Mortgage Choice. It yields a picture of young Australians that is in striking contrast to common stereotypes. Not only were a large majority (over two-thirds) of Generation Y borrowers prepared to reduce day-to-day spending to invest, many were happy to delay buying a car and spend less on items such as alcohol to save up for their first investment property.

As much as 25 per cent were willing to take an second job to help fund their purchase. 77 per cent of Generation Y respondents stated that they were already making lifestyle sacrifices to achieve their property investment goals. Only 66 per cent of those from Generation X — those born between 1960 to 1979 — and 66 per cent of Baby Boomers reported making similar sacrifices.

A Changing Great Australian Dream?

The fact that nearly half (43 per cent) of young people aged between 17 and 27 prefer to buy an investment property before their first home may be an indication of a great shift in the traditional ‘Great Australian Dream’ of home ownership.

The trend appears to be moving toward property ownership in general or investing in an asset with growth and income potential. All of the age groups surveyed agreed that setting themselves up financially for the future was the top motivator. When asked to elaborate, 15 per cent of Generation Y respondents said that they were interested in investment property because they couldn’t yet afford to buy the home they wanted.

14 per cent stated that they weren’t ready to own their own home and so investing earlier was a good way to get a head start in the market. Another 8 per cent responded that they weren’t interested in owning their own home, but that they were interested in investment property.

Renting to Live, Buying to Invest

Some observers have suggested that there was a growing trend for young investors to rent in the inner city and use their income to purchase cheaper properties that had good rental yield and growth potential.

While most respondents stated that they were planning to rent the property to tenants they did not know, Gen Y respondents were more likely to rent to family or friends at 22 per cent compared with 8 percent for Gen X and 10 per cent for Baby Boomers.

A Growing Proportion of Younger Buyers

There are many young investors with excellent salaries who are happy to rent their own accommodation but spend discretional income on their first investment property. This strategy tends to suit the Gen Y’s particular income and needs at this point in their careers. 1,060 of all survey respondents stated that they were planning to buy their first investment property over the next two years. Around 19 per cent of these buyers will be first time buyers.

A quick breakdown of the survey results for Gen Y respondents:

  • 65 per cent – Eat out less, including less takeaways
  • 64 per cent – Cut back on day-to-day spending
  • 47 per cent – Forgo a holiday
  • 40 per cent – Cut back on alcohol
  • 28 per cent – Delay a vehicle purchase. An equal proportion stated that they would change jobs for higher income to boost their investment property fund.
  • 23 per cent were happy to take on an additional job, while 22 per cent were happy to delay having children.

What the survey reinforces is that whilst the property market constantly adapts and changes to market demographics, the fundamentals of starting early and building a diversified property portfolio are as valid today as they have always been.

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