Why young people are starting businesses rather than trying to buy homes

The national debate about millennials and their money may have been reduced to a brunch dish, but many young people are becoming more concerned with how to grow wealth, rather than talking about how it’s spent.

Smashed avocado aside, without gifts or inheritance, there are limited ways people can grow the wealth required to buy Melbourne property in 2017. Interest rates are at historic lows and wage growth has flatlined.

Launching a business, although high risk, is one way money experts say it’s possible to turn a small amount of savings into something more substantial. A growing number of millennials have turned to entrepreneurship in a shaky job market, but against the backdrop of rocketing house prices, many see business and property as a fork in the financial road.

“It’s a real choice young people are making because there are less jobs around and less ways to climb the career ladder,” Startupbootcamp managing director and angel investor Trevor Townsend said. “It’s much higher risk but there’s also vastly more rewards.”

In making the choice of business versus property, Mr Townsend said it was much harder to turn to entrepreneurship after a mortgage.

“So you can see why people choose to start a business earlier. They can say, ‘I’ve saved up $10,000, $20,000, $30,000, it’s not enough for a [property] deposit, but I can get my yoga shop or start my tech start up, and give it a real shot’.

“Business can grow quite quickly, within two or three years you can have a substantial business, and you’ll never climb the corporate ladder that fast.”

For Changz Canteen owner Josh Monteiro, working in a corporate management role for a telecommunications company for seven years never gave him the financial opportunities his successful Elsternwick burger joint did.

“I don’t think there would have been much of an opportunity in that environment to be able to even put down a deposit,” Mr Monteiro said.

Having started with just a hot sauce recipe and minimal capital, he said a mortgage would have made the business much riskier.

“I started with basically nothing, just a concept, there was no money borrowed from anywhere. But if I was going to go into property, there would have been money borrowed and I didn’t want to put myself in that situation.”

The 33-year-old and his wife Tara, who rent in Cheltenham, plan to sell the business in about five years, putting half towards a home and half towards another venture.

It’s a different story for Kathleen Estoesta, who started her architecture and interior design studio Studio Ester in 2013 with a view to grow wealth but never buy property.

“Having my own business was something I’ve always aspired to,” Ms Estoesta said. “So it made more sense that I invest in that as a future rather than own a property.”

She said owning a home was no longer an achievable goal for many, especially on a single income. “But for those people who are concerned with it, they should really be asking themselves why? Is it attributed to measuring success? … If you’re looking for a financial investment, buying a property isn’t the only option out there.”

Owning a business would arm young people with the financial skills to step more confidently into property investment, Council of Small Business Australia chief Peter Strong said.

Empower Wealth chief executive Ben Kingsley believed the conversation around stagnant average wage growth was misleading and said one could rise through a corporate career to save for property. But he said, ultimately, owning a business was a great way to fast track wealth.

“Property will not deliver the same types of returns that you will be able to return in your business if you are very successful,” Mr Kingsley said. “But you need to ask yourself honestly if you’re in for the long haul with this business idea… If you’ve got that drive to see it through past the first five years, there’s no doubt a successful business will allow you one day to buy a dream home.”