What’s a gen-X investor?
Gen-X had it tough – they had to call the dreaded house phone when they wanted to chat to a boy or girl in high school, often being answerable to mum or dad. Only a gen-X person would know the true torment of picking up a phone, plugged into the wall, and dialling a number, then hiding in the closet room – with the cord stretched under the door frame – for some semblance of telephone privacy. This is the generation born between 1965 and 1976. They were exposed to more day care, more divorce and of course, more fluoro pants and hyper-colour tops while growing up in the 1980s.
MC Hammer could often be heard blasting out of gen-Xers’ cassette recorders. It was always a mad rush to press ‘record’ at exactly the right time when their favourite songs came onto the radio – you had to time it so the radio announcer wouldn’t be talking too long or at the start or the end of the song. This is also the generation that knows the true pain of using pencils to try and fix tapes after they were chewed up in a recorder.
Typically, a gen-X person has started to climb the ladder in their career. They might have already married or started a young family and hopefully, there’s now a bit of equity in their property portfolio.
1. Know what your goals are
Ben Kingsley, who is the Chair of Property Investment Professionals of Australia (PIPA) and chief executive officer and founder of Empower Wealth, says gen-X investors’ principal home usually plays a big part in determining their strategy.
It is also likely they’re at a stage of their lives where they’re trying to ‘keep up with the Joneses’.
“They want the picket-fence home in the nice street and good secondary education for their children. They’re conscious of the impact of private school fees and bigger costs, so they’re really keen to know their numbers and possibly own the $1 million house in the suburb they want to live in,” Kingsley says.
“We’re finding that when the family comes along, there’s a lot more emotional pressure to have the right home. My advice is to work out what the dream home looks like, put that as your number one priority and then work around the sides of that. If there’s still an opportunity to do something earlier, to sneak a cash cow in, then do it if it won’t impact when you buy the significant home. It’s before the accumulation phase finished and you’re retiring the debt.”
2. Get an offset account
Kingsley advised gen-X investors to secure an offset account. This works as a positive double-edged sword. On the one hand, it helps you pay down your own Principal Place of Residence (PPR) faster, as you can put any spare money you have into the offset account. On the other hand, it also helps you build a deposit for an investment property much faster.
3. Factor in one wage
If a baby is on the cards, it’s imperative to factor in living off just one wage.
“If it’s a young couple looking to start a family, that property is going to have to do some heavy lifting in terms of supporting itself,” Kingsley says.
“In some cases, you have to chase yield for couples looking at going down to one income.”
4. Focus on accumulation
Gen-X should work on getting the accumulation phase over and done with within a 10-year bracket. If you start accumulating when you’re 35, aim to finish by the time you’re 45. Then focus on retiring the debt by the time you’re 55 and voila, you can exit the workforce not only early, but also wealthy.
“Pay attention to the properties you already have. The biggest risk isn’t losing money but wasting time. Time you don’t get back. There’s never a bad time to buy a great investment property and there’s never a bad time to sell a poor one. If you’re not confident you have the best asset possible, you should sell it.” Kingsley says.
5. Take a risk
A gen X investor has time on their side and so they can take a risk, according to Kingsley. This means they can pay lenders’ mortgage insurance to leverage an opportunity – they don’t necessarily need a 20 per cent deposit.
6. Stop procrastinating
What if you haven’t already jumped into the property market? Stop procrastinating.
“If you have kids, don’t use that as an excuse,” Jan Somers (Property author and millionaire) says.
“A lot of people have the attitude, ‘my parents couldn’t afford this, I’m not letting that happen to my own kid’. But they spend, spend, spend on their kids and it’s the wrong attitude. Teach your children good spending habits.”
By teaching children good spending habits, you can save more money and suddenly, there will be no excuse to procrastinate. After all, these are the most important years of your life, where you have the chance to either set yourself up financially or do noting and then live in regret later.
“Don’t kid yourself, ‘We’ll do it later’. That never happens. Have the right frame of mind, you need to invest early.”
7. Manage debt
Families with children need careful debt management, according to Somers. She says there should always be a line of credit of about 10 to 20 per cent of a loan. This means if you have a $600,000 loan, you should have a $60,000 line of credit as a minimum.
“If something goes wrong you can live off your equity,” she says
“But you can’t go to the bank when there are no tenants or when you lose your job. You have to set it up beforehand. It may never come to that, but having access to that money is really important.”
8. Don’t waste spare cash
For this generation, Property Tycoon Finance director Stuart Wemyss believes it’s about trying to carve out a bit of your income and allocating that towards an investment strategy for retirement. “You only need about $10,000 to $15,000 extra to start,’ he says.
“It’s about getting access to equity and getting access to buying opportunities. The sooner you can buy an investment, the longer you can hold it and will work nicely.”
Lauren Day, Australian Property Investor, July 2014