I’m in my early 20s. Should I buy an investment property?

I’m in my early 20s. I graduated a couple of years ago and have been working full-time since. I live with my parents, so my expenses are low, and I have a pool of savings. My family is encouraging me to buy a property. I’m not against it, but it feels scary because it’s a lot of money, and I’ve never taken on debt. I don’t know much about real estate, so it’s overwhelming, and I don’t have other investments. Is an investment property a good idea?

There are many different aspects to this decision – contrary to what many people might think, it’s not purely a financial one. There’s more to this than trying to maximise investment returns. Here are some factors that are worth considering in this decision-making process.

Being weighed down by a mortgage in your early 20s might be something you want to avoid.Credit: Simon Letch

Career goals

Since you haven’t been working full-time for too long, one of the first things I’d think about is how stable you feel in your employment. Do you enjoy what you do?

Do you see yourself staying in this profession for a few years? Is this profession likely to provide some level of financial stability for the foreseeable future?

Taking on a mortgage requires a certain level of financial stability into the foreseeable future. You need to feel confident that you can keep earning enough to pay the debt.

Remember that the point of investing is to give you more financial flexibility and freedom – not less.

The mistake some people make is buying a property soon after they start working because suddenly they’re earning and saving enough to be able to afford it, but then they feel trapped in a profession they later realise they don’t want to stay in because they need to pay the mortgage.

Give yourself some time and space to consider how you feel about your current career path. If you can’t see yourself staying in your current profession for the foreseeable future, then you might want to get some clarity on what your career goals are first, so you can decide whether you need that financial flexibility to pursue your career goals or not.

Lifestyle goals

Currently, living at home allows you to have a high disposable income. Do you have a desire to move out of home in the next few years? If so, how would having a mortgage impact that goal?

If you’re happy at home and have a good relationship with your parents, you might decide to continue living there for a few years to fast-track your mortgage payments.

But if you had other goals that could significantly reduce your disposable income – like moving out of home, quitting your job to travel extensively, moving countries, or starting a business – then you want to factor that in, so you allow yourself enough financial flexibility to accommodate those goals.

Remember that the point of investing is to give you more financial flexibility and freedom – not less. You don’t want to rush into buying a property and taking on a mortgage if that will be incompatible with, or hold you back from, other important life goals.

Now, that doesn’t mean a mortgage will necessarily hold you back. Depending on how much you earn, you may be able to afford the mortgage, and still have enough left over to pursue your other goals, but the point is you want to factor that into your decision-making process.

Financial capability/risk tolerance

I think we sometimes forget just how big the purchase of a property is. I’ll see people spending hours hunting for discounts on a $1000 purchase, or weeks researching great deals for a $10,000 vacation, but not blinking an eye at a $500,000 purchase that comes with a 30-year mortgage.

My point is – you don’t need to rush this. You can take some time to build up the financial capability – both the practical skills, and emotional capacity – to feel more confident first. If it feels scary, why not start with learning to invest $5000 before jumping into a $500,000 one?

While this is a slower route, it is one that leads to better results long-term. The process of learning how to save, invest and manage your money first strengthens your financial confidence and risk tolerance so that a property purchase doesn’t feel like such a huge jump.

In short, there’s nothing wrong with buying an investment property. If you know what you’re doing, real estate can be a good investment, just as much as the sharemarket.

However, before you jump in – spend some time thinking about what you’d like your life to look like for the next three to five years, whether you have the income stability for a mortgage, what the impact of that mortgage might be on your other goals, and what other actions you can take at a smaller scale to expand your financial capability and risk tolerance.

Paridhi Jain is the founder of SkilledSmart, which helps adults learn to manage, save and invest money through financial education courses and classes.

• Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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