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Busting Stereotypes

Busting Stereotypes

Millennials are often portrayed as too frivolous or too generationally unlucky to make a go of property investing. But the truth is different and Miriam Bell talks to some young investors who prove it.

By: Miriam Bell

1 October 2019

Forever tarred as avocado smash-eating lightweights who would rather spend than save, millennials often attract negative press - especially when it comes to property. If they are not portrayed as too frivolous to commit, there is a widespread presumption it’s simply not possible for their generation to get into property anymore.

But the reality is somewhat different. The recent US and Australasian studies suggest that millennials, who are classed as those born from the early 1980s to the mid to late 1990s, are interested in investing generally and keen on the property as an investment.

According to a Legg Mason global investment survey from May 2019, Australian millennials are optimistic and knowledgeable about investing. They are also open to investing in new asset classes and using technology to manage their investments.

In a Bankrate Financial Security Survey from June 2019, US millennials said they were most interested in real estate as a long-term investment, choosing it over shares, cash investments, and cryptocurrency.

‘It might not be that investing is harder for millennials, but rather that it’s simply different for millennials these days’ BRAD OLSEN

There’s no New Zealand data on millennials and property investment. But recent research from Nikko Asset Management shows New Zealand millennials spend as much of their income on investments as their parents and see investing as more “important” than any other age group.

Infometrics senior economist Brad Olsen says New Zealand has a very shallow capital pool and Kiwis tend to see property as the main investment class to achieve good returns. “With millennials starting to increasingly think about what options they have to generate income (either in the short term or towards retirement), property investing is the go-to investment idea.”

Many millennials are not at a stage in life to seriously consider property investing, he says. “For those that are thinking about investing, and who have the means to do so, the current low-interest rates in the market, and sustained strength in prices outside of Auckland, makes clear the appeal.”

Different challenges

In many ways it is harder to get into property investing these days, Olsen believes. “House price-to-income ratios are at unsustainably unaffordable levels, with a reduction in the homeownership rate in New Zealand backing up this view.”

Additionally, restrictions on planning, rapidly increasing insurance costs, higher housing costs, and less generous state support (compared to other times in New Zealand’s history) have also changed the playing field.

“However, it is important to point out that millennials are currently investing in a world awash with cheap interest rates; a vastly different world than other generations. It might not be that investing is harder for millennials, but rather that it’s simply different for millennials.”

EnableMe director Hannah McQueen takes a harder line. She says it’s not just an opinion, it’s a fact that millennials face more difficulties getting into the property. “That’s not to say it’s impossible, but it is harder. In the past, you didn’t need to be particularly good with money and you could still get on the property ladder, pay it off fairly quickly and be all right in the end. Those conditions have changed.”

Nonetheless, the interest is there. McQueen works with students between the ages of 16-24 to help them acquire the financial smarts they’re going to need in a more complex financial environment. About half of those she’s worked with have gone on to purchase investment properties, she says.

And they are not alone. For this article, we talked to a host of millennial investors who has beaten the stereotypes and climbed firmly onto the property ladder. Here are some of their stories:

LEFT Anthony Appleton-Tattersall and his wife own four rental properties, but still rent themselves. ABOVE Satyan Mehra was just 19 when he bought his first investment property. RIGHT For Vaughan and Renee Tither the funds from the sale of a car was the deposit for their first property.

Maximizing Rentals

Auckland-based investor Anthony Appleton-Tattersall (30) readily admits that he’s a bit different to many of his peers. He’s always been interested in making money through property, renting out rooms as soon as he had his own space.

That interest led him and his wife Vicki (28) to purchase their first investment property in 2012 when he was just 23 and fresh out of University. It was a three-bedroom house in Clendon Park (Auckland) that cost $206,000 and which they still own.

“We put down a $30,000 deposit that we had saved. It was a big stretch for us back then, although that price seems ridiculous now. The gross yield was over 8% so it fully paid for itself. My boss at the time said we shouldn’t expect to see much capital gain. But, like most of Auckland, it has doubled in value and it’s now worth about $500,000 – with rents up over 40% too.”

In the years since, the couple has bought four more properties, one of which they later sold. While they lived in their Otahuhu property for a period, all their properties are currently rentals, which turn in good yields, and they themselves are renting. But they are looking to invest again, with Invercargill being their location of choice – in part because they think the market is undervalued.

Appleton-Tattersall, who is a Chartered Accountant by trade, says the biggest issue they have encountered on their journey was the introduction of the loan-to-value ratios (LVRs) aimed at investors. “That slowed us down from growing our portfolio a bit. Overall though, our property journey has gone smoothly. But because we got in early we didn’t have the problems that people face now when we started.”

In terms of investing in general, millennials are spoiled with information and options thanks to the internet and fintech companies, he says. “But it’s much harder when it comes to property these days. There are systemic problems – like house price-to-income ratio – and there need to change. But it’s still possible. Having the right mindset is key and it does make a difference.”

Leveraging On Up

It was the cost of renting when he first arrived in New Zealand that led Satyan Mehra (30) down the property investing path. He also found it hard to accept the idea of paying someone else’s mortgage. And, once he decided it was the way to go, he acted quickly. He was 19, studying accounting and finance at AUT and working when he bought his first property.

“I borrowed the money from my father in India for the deposit and I used some of my student banking benefits. The property was cheap at $335,000. But I still had to work hard to make it work. When I sold that property a couple of years ago, the value had increased to the point that I did very well out of it.”

Following his first purchase, Mehra has built a significant property portfolio by leveraging his equity gains. He owns over 10 residential properties, all in central Auckland suburbs, and four commercial properties in Auckland and the Waikato.

He will continue investing as it’s a passion for him and he believes the market has good long-term prospects.

ABOVE Jack Keeys made an agreement with his mother to use her equity to get onto the property investment ladder.

“In the short term, there’s always ups and downs, so my goal is sustainability and to hold properties over the long term. It’s quality over quantity.”

There’s always challenges, Mehra says.

“You have to be resilient and put in lots of hard work. But it’s do-able, especially in a flat market like now before the market starts to rise again. There are some good opportunities coming through.”

When it comes to millennials, he thinks there’s two distinct types. “There are those who realize the benefits of investing, will make short-term sacrifices for long-term goals and are driven.”

“But the other type finds the necessary sacrifices too difficult and instead focuses on things like travel or flashy, material items instead. It’s fine to choose that path but you can’t then complain if you don’t get both.”

Millennials can still get into investing, Mehra adds. “Connect with like-minded people and learn from them. Prioritize your goals and make savings a habit. If you can’t do it by yourself, explore doing it with someone else. Owning half a house is better than owning nothing.”

Adding Value To Move

The stalled post-earthquake Christchurch market helped Vaughan (29) and Renee (30) Tither into their first property back in 2011. At the time, Vaughan was an apprentice electrician and Renee was a student. But when a house on the street they rented on was put up for sale they saw an opportunity.

The house cost $250,000 and they scrapped up a 5% deposit, in part by selling a car with no loan on it and managed to get finance from the bank to purchase it. They then rented it out for six months before moving in and renovating it.

Vaughan says they got it revalued post-reno and used the equity gain on it to buy another house. “We then repeated the process three more times. So we managed to turn that car sale into a few houses.”

After several years off to establish their business, they recently bought two units in the same block and are soon to go unconditional on another. That puts their portfolio at seven properties - all in Christchurch, all of which have increased in value and all of which they plan to hold.

The LVRs have been their biggest challenge, Vaughan says. “When they came along we had to ease back. We thought that would be it but the success of our business allowed us to get back into it. Which is great because property is our passion.”

From early on, it was also what they figured would help set them up for the future with decent passive income. Vaughan says acting on this at a young age gave them a taste of the thrill of property investing and made them more determined for future deals.

“Many people our age waited longer before buying their first house and opted for new builds. Whereas our plan was to go for older properties, for the right price, that required renovating where we could add value and build equity. It was relatively easy to do that when we started. It would be harder now.”

His advice to other millennials is to bite the bullet and do it. “Don’t get too caught up on the condition of the house, as long as the purchase price is right, a well budgeted renovation and a few late nights will lead to good income.”

Rent-vesting To Start

While many of the people interviewed for this article thought it was harder for millennials to get onto the property ladder these days, the youngest person we talked to did not.

Jack Keeys (now 24) bought his first property, with his girlfriend, three years ago. He was just 21 and they were both studying full-time at University. They had no savings and only worked part-time. But they managed to buy their first property which they now rent out.

Expert Advice For Aspiring Investors

Overall, the consensus among our interviewees is that there are challenges for millennials who want to get on to that first rung of the property ladder – but it can be done. A focused mindset, prioritization of goals, and financial sacrifices are required. Alongside that, our experts have the following advice for would-be investors:

In Olsen’s view, millennials must plan ahead. That involves reconsidering the timing of large and expensive events, like holidays or weddings, to save a deposit, he says. “Millennials are also relying more on family connections to support getting into the property. That could be in the form of financial support for a deposit or living at home for longer to keep costs down.”

McQueen says before buying their own home millennials should think about banding together with others (having formalized the arrangement) because it can help to get to the investing stage faster. “Also, buying new is best as it requires less initial capital, and repairs and maintenance are less of an issue. And balance capital gain potential with rental yield but aim for a property with not less than 4% yield.”

On the lending front, the Legg Mason survey shows that millennials are more likely to use an adviser than other generations. That leaves Loan Market mortgage adviser Zane Torkington recommending that it’s best to deal with an adviser familiar with investment lending to get easy access to multiple banks, as well as non-bank options.

“Let the adviser deal with it and let them prepare your application in its best light, with the right lenders for your individual situation. But always make sure to have all relevant information readily available for assessment.”

Keeys’ mother was struggling financially but had equity in her house so they made a deal to take out a mortgage under her name to help them get a deposit. “We agreed we would pay her back double the fortnightly payments so she would have more cash flow, but not lose much equity. So we were able to negotiate a win-win.”

They also accessed their KiwiSaver and convinced the bank to give them a loan – with the help of a business plan that included boarders, scholarship income and good job prospects.

“We then bought a five-bedroom house with a swimming pool, gardens and a garage in Hillcrest in Hamilton. It cost $450,000 and, after buying, I worked all day on Saturdays and Sundays unloading trailers of green waste to pay the mortgage.”

Because they had used KiwiSaver, Keeys and his girlfriend lived in the house for the first year. But since then they have rented it out and live elsewhere. The most recent valuation on the property is around $650,000.

Keeys is keen to continue investing in property: he and his girlfriend have almost purchased a second property several times and will look again soon. But he thinks, in general, few millennials are involved in any form of investment at all.

“This seems crazy because it has never been easier to invest - given the amount of information, technology and support (from KiwiSaver for example) and schemes in property, or platforms like Sharesies for the share-market.”

That’s due to little understanding of personal finance and a very consumerist, short-term approach to spending versus saving, he says. “It’s driven by clever marketing and finance deals which allow young people to ‘live rich’ without having earned it, which is actually crippling their financial growth.”