From $500,000 to $4 million: the massive payoff of buying property young

If you’re fresh out of school or university, you’re probably giving a second thought about retirement planning, loan repayments or property portfolios.

And that’s fair enough—adulting can wait, right?

But here’s the thing. It’s never too young to start and when it comes to investing in property, the earlier you start, the bigger the payoff will be down the track.

You don’t need to be a real estate mogul at 18 or 21, but getting a foothold in property investing while you’re still young can seriously change your financial future and shape your retirement.

Imagine having the financial flexibility to decide whether to work full time or have more freedom.

Living at home: the secret wealth weapon

Let’s be real, living at home in your twenties isn’t always glamorous.

But here’s the upside, you have a lot fewer expenses.

While some of your friends that are living out of home might be burning through their pay checks on rent, bills and groceries, you can take advantage of your current circumstances and squirrel away as much savings as possible.

Having the discipline when young, to cut back on social nights and shopping sprees will help you to build your financial future.

You may even find that you are able to build a solid deposit much sooner than you think.

The power of investing in property young

Imagine this: you buy your first investment property at 20 with a 30-year loan.

Sounds daunting, right?

But by the time you’re 50, you could own that property outright (on a principal and interest loan). Even if you wait until you’re 25, the loan would still be fully paid off by the time you’re 55. Not only that, but this property would also have increased in value by almost eight-fold (see graph below).

A $500,000 property purchased at 20, could be fully paid off at 50 and worth $4 million.

You will be sitting on a golden nest egg, while a lot of your mates will still be paying off mortgages and delaying retirement.

This is the magic of starting early. The longer you own a property, the more you benefit from two key forces: paying down the loan and capital growth.

Property price growth

Let’s talk about the growth side of the equation.

There’s an old rule of thumb in investing called the “Rule of 72.”

Basically, it says if you divide 72 by the annual growth rate, you can estimate how long it’ll take for your investment to double. Historically, property in Australia has doubled in value roughly every 10 years (give or take, depending on the market and location).

So, if you buy at 20 years old and hold for 30 years, that’s three cycles of doubling. Here’s how it looks:

• Buy at 20: property worth $500,000 (as an example)
• After 10 years (age 20): property worth $1 million
• After 20 years (age 40): property worth $2 million
• After 30 years (age 50): property worth $4 million

That’s eight times your original purchase price through the wonder of compound growth.

For an investment property to double in value every 10 years, the location would need an average annual capital growth rate of about 7.2 per cent, or to double in ever 12 years, the location would need an average annual capital growth rate of about 6 per cent.

Now, imagine you waited until you were 30 to buy that same property.

By 60, you’d only get two doubling cycles—so your $500,000 investment becomes $2 million instead of $4 million. Big difference, right?

Investing when young is really for the long-term financial benefit of your retirement years, or it might be to assist to buy a family home once you find a partner and decide it’s time to settle down.

You will have the financial flexibility to work if you want to, retire early if you don’t, or take off and travel without worrying about the expenses.

‘But I don’t earn enough yet’

Fair point. Not everyone walks out of high school or university into a high-paying job. But here’s where a smart strategy comes in:

1. Start small – Your first investment property doesn’t need to be a million-dollar Sydney terrace. A unit in a regional city, or an up-and-coming suburb, could be the perfect entry point.
2. Leverage your position – If you’re living at home and saving, your expenses are lower. That makes it easier to service a loan and build up a deposit faster.
3. Think long-term – Don’t worry if the first few years feel tight. Remember, the real payoff is in 10, 20 or 30 years.
4. Get advice – Talk to a financial advisor or a buyers’ agent. They can help you avoid rookie mistakes and pick a property that sets you up for long-term growth.

A light-hearted reality check

Of course, buying a property at 20 isn’t all sunshine and instant wealth.

You’ll need to have a balance of study or juggling your first job alongside the loan commitments.

Property investing should also be paired with a superannuation strategy.

It’s about short-term sacrifice for long-term gain. You may feel you need to sacrifice some festival tickets or social nights out to assist with your investments but in the long run, this will certainly pay off.

The reality is, the younger you get into property, the bigger the long-term payoff. Living at home might not be glamorous, but it’s a golden opportunity to save, so make the most of it while you can.