The benefits of investing in real estate at a young age are twofold: firstly, there is the advantage of independent living, and secondly, the potential for the property to generate future growth and income. Although the former is often the main driver for many people in their twenties as they seek to fly the parental nest, the latter is perhaps more compelling.
The length of time the average US property owner spends in their first family-style home is 13 years, according to the National Association of Home Builders (NAHB). Although this is a considerable stretch, a person purchasing their first home at the age of 22 would only be 35 when considering their next move – so the concept of acquiring a 'home for life' is unlikely to be the principal driver for affluent younger buyers.
Property as an investment
As discussed, real estate can present a lucrative investment for young buyers. Like any investment, the key goal should be to recoup the funds invested and also to generate an eventual profit upon sale, or else a regular rental income. Generating at least a 'break-even' sum is crucial for those placing an initial step on the property ladder, particularly considering the large amount of up-front capital required to produce a deposit.
Although skewed by London house prices, the average deposit for first-time UK buyers is now £72,000. Although the average down payment on US properties is slighter lower at around $57,000 (£38,000), this is still a considerable sum – and particularly for younger, less experienced buyers.
Bearing this in mind, it's useful to view the first property purchase from a purely investment-focused perspective: buying property at a young age puts you on strong footing to climb further up the ladder. If younger buyers accept that their first property is unlikely to be their 'lifetime' home, they can treat it as a stepping stone – and focus on adding value to the property through improvements, renovations or additions, while keeping a watchful eye on the market.
How to invest shrewdly
To make that all-important profit on a first property, investing shrewdly is vital. Serial property investor Ben Dempster, who made his first investment purchase at 23 and now has a real estate portfolio worth over $1 million, recommends the following best practices:
- Put in place a long-term investment plan. Consider what the property may be worth in future (based on historical market trends), both from a rental and sale perspective, and how this will influence your future moves.
- Find out what other people learned when they made their first purchase. This will help you to get a realistic view of the financial journey and equip you with the nous to navigate the market effectively.
- Save smart. Lenders will favour those who can prove they are consistent savers – establish and maintain good saving habits to win confidence with financial institutions.
- Remember that an investment purchase is a rational decision, rather than a choice of the 'heart'. Do thorough research into the local area, considering factors that may bolster your profit potential, such as future development projects, transport links, local amenities and proximity to the best schools.
Contact Engel & Völkers to access an extensive portfolio of properties and benefit from expert advice on how to secure a profitable first-time investment.