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Where young investors are investing their money

28 November, 2018
Categories: Commercial, Investments

With more young people entering the job market, many are figuring out what to do with their hard-earned cash. Young investors are active in Australia and looking for strong yields and big capital gains.

Young investors aren’t playing the same game as Baby Boomers. Yes, stocks and property are still on the cards. But Australia’s Millennials who are wiser than spending their earnings on toys, beers and wardrobe additions are having to adapt to new market environments and investment conditions.

This means looking outside of the traditional beginner’s investment box.

Where young investors AREN’T investing their money

Share investing has taken a nosedive in popularity according to comparison site Finder.

An online survey they conducted in 2017 revealed that younger generations might not be as interested as Baby Boomers in the ASX:

  • Baby Boomers and older Australians (born 1959 or earlier): 27% have tried ASX investing
  • Generation X (born 1960-1979): 23%
  • Generation Y (born 1980-1994): 14%
  • Generation Z (born 1995 or later): 9%

It’s true that some young investors are yet to invest money anywhere. But those young people who are keen to say a big reason for not investing in shares is they don’t know how. It’s hard to understand the performance of a company and how to fix an accurate valuation to a stock. So, many youngsters give up before they start.

Another hurdle many Australians say stop them from stock investing is lack of funds.

But many Gen Y investors do have money saved. In fact, Suncorp has revealed Gen Y-ers are saving over $100 more per week than the national average of $427. Maybe this is owed to not having to repay a mortgage, as many are locked out of the property market…

In 1975, the average full-time earnings in Australia was $7,600. And a property bought at Sydney’s median house price that year costed $34,300 (4.5 times the average annual salary).

Today, the average Australian full-time earnings is $82,472. Meanwhile Sydney’s median house price sits at $1.1 million (over 13 times the average annual salary).

Property values have gone up 32 times since 1975 and incomes have only gone up about 10 times. So, young Australians are battling to buy a home or residential investment property.

Where’s their money going if shares and residential property are too tough to understand or access?

“Plunging into commercial property in unprecedented numbers”

Since 2017, auctioneers and advisors say they’ve seen an influx of cashed-up Millennials invest in commercial property.

David O’Callaghan, a leading commercial auctioneer in Melbourne, who says youngsters “are parking capital without necessarily referencing to the traditional, long-held analysis that most buyers make. They are taking the view that they are young and do not have to worry about it now.”

Many young investors dipping a toe in commercial real estate are buying under SMSFs. Most are cash buyers and using their self-managed super funds to prepare for a glowing retirement in decades to come.

Another trait of these fresh-faced investors is that they’re not investing alone.

Almost half of the 198 purchases CBRE Australia in 2016 were by SMSFs or property syndicates, says its commercial property director Josh Rutman.

“The commercial real estate sector still allows more flexibility for SMSFs, where owner occupiers can effectively buy within their fund and lease back to their business in an arm’s length transaction,” says Rutman.

Why commercial real estate syndicates?

The reasons commercial property syndicates are popular with young investors is obvious to experienced investors:

Solid yields

Commercial property is a tasty investment for income-seekers. Young investors want their money working from them. Yields of 8 to 9 per cent in commercial property are more palatable than a residential property offering yields at or below the inflation rate.

Strong capital growth

Big league investments, in multi-million-dollar commercial assets, can open investors to huge returns. But it’s usually the lack of capital which locks investors out of these opportunities.

Pooling their money with others is a way to combat this. And as a result, commercial property syndicates are becoming popular with young investors.

Simple set and forget investment

Commercial property can give headaches to first or even second-time investors. That’s why many young investors apply the “why have a dog and bark yourself” mentality.

A commercial property syndicator will:

  • Hunt down ideal properties
  • Investigate every nook and cranny through robust due diligence
  • Report the findings to investors
  • Look after all legalities and accounting tasks, with trusted partners

Many Baby Boomers started their investment journey in shares or houses. They then moved on to big league investments in commercial property. Thanks to syndicators, many Millennials are making their first investment alongside their sophisticated seniors… in high-quality commercial real estate.

For more information on how commercial property investment can help you prepare for retirement – whether months, years or decades away – get in touch with Properties & Pathways today.

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