Are you a young adult looking to break into real estate? Starting now could give you a huge advantage over both your non-investing peers and those who start much later in life. In this article, we’ll show you how to get into real estate at a young age, with several strategies for building wealth, tips for getting started, and more!
Summary:
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Entrepreneur Andrew Carnegie is often credited with saying, “Ninety percent of all millionaires become so through owning real estate.” Over 100 years later, this is still largely true, as most wealthy people own at least some type of real estate investment. This isn’t a coincidence. Real estate is the asset that average Americans, no matter their age, can use to become wealthy. How?
Real estate can provide monthly cash flow and, depending on the investment, passive income. REITs (real estate investment trusts) are completely passive, professionally-managed turnkey rentals offer semi-passive income, and other investment properties may require you to be more hands-on. Pick the investment that best fits your availability!
Historically, the U.S. housing market has grown significantly over time. While this isn’t true for every single property in every market, most properties do appreciate over a long time horizon. If you bought an investment property 15-20 years ago in a high-appreciation market, it might have doubled in value by now!
As you make your mortgage payments, you build home equity. So, if you have tenants paying you rent each month, they’re effectively paying your mortgage for you!
Unlike most investments, real estate allows you to use leverage (loans). This means you could bring a $50,000 down payment for a $250,000 investment property and have the bank finance the rest. You can’t do this with most assets!
Disclaimer: The following example is for illustrative purposes only.
Let’s look at a simple example that demonstrates the power of investing while you’re young. If you buy one $250,000 rental property every two years between age 22 and 30, assuming a 3% yearly appreciation rate, here’s what your equity gains would look like:
Age 30: $161,808 equity gain
Age 40: $647,352 equity gain
Age 50: $1,299,882 equity gain
That’s a massive boost to your net worth—seven figures before age 50, just from real estate!
Even if you’re investing in real estate in your 20s, you have options! Here are some of the top strategies you could use to start building wealth today:
House hacking is a very beginner-friendly strategy where you buy a house as your primary residence and rent part of it to tenants. If the property has multiple units, you could live in one while renting out the others, OR you could rent out rooms in a single-family home and share common areas.
House hacking is one of the best real estate investments for young people because of the following:
Living in your own investment property comes with a few trade-offs:
Turnkey rentals are newly-built or renovated properties you rent out to tenants. These properties often come with property management (and sometimes tenants) in place, allowing you to invest in high-cash-flow markets with more affordable home prices from many miles away.
Buying turnkey gives you a more “hands-off” investment and the following benefits:
Despite turnkey properties being worth it to many investors, they do have a few (minor) drawbacks:
Ready to invest? Get into your first rental property with 5% down!
A live-in flip is a property you buy as your primary residence and gradually improve over time, allowing you to “force” appreciation and increase the value of the home. If you occupy the property for at least two of the last five years, you could sell the property without paying any capital gains tax!
Many investors prefer the live-in flip strategy for these reasons:
There are a few notable downsides to the live-in flip strategy:
The BRRRR strategy is when you purchase a distressed rental property, renovate it, rent it out to tenants, and then refinance into long-term debt—usually pulling your cash out so you can fund the next property and repeat the entire process!
The BRRRR strategy can be a powerful wealth-building tool for the right investor because of the following:
Despite its advantages, the BRRRR method presents several investing risks and challenges:
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Don’t want to deal with tenants or toilets? REITs give you a more passive way to invest. These companies buy and operate real estate, while you buy shares of them (like stocks). Since REITs are legally required to distribute at least 90% of their taxable earnings to investors, you get steady, passive income!
REITs provide a simple, low-effort way to invest in real estate and offer several benefits:
REITs aren’t the right option for everyone. Consider these drawbacks:
Not quite ready to invest in real estate? Here are a few ways to prepare for that first investment:
Before you invest in real estate, you’ll want to make sure you’ve built a strong financial foundation. Increase your income as much as possible and keep your expenses in check by creating (and sticking to) a watertight budget!
Unless you plan to buy a rental property with cash, you’ll need to get a loan for your investment property, and lenders will want to confirm that you use debt responsibly, pay your bills on time, and don’t bite off more than you can chew. Apply for a few credit-building cards, get a credit-monitoring app, and work on getting that score up!
The more you save, the faster you’ll have the funds for your next investment, down payment, and closing costs. Just make sure you’re also setting money aside for cash reserves to cover emergencies or unexpected repairs.
If you want access to all kinds of resources and connections, find and attend your local real estate meetup. Start networking, building relationships, and gleaning what you can from other investors!
Today, there are so many ways to learn about real estate investing, like reading a few real estate books or tuning in to the Rent to Retirement podcast. Once you’ve exhausted these free resources, joining the Rent to Retirement Academy is a great next step—it’s designed to take you from no properties to a full portfolio!
Before you buy any rental property, you need to ensure it’s a worthwhile investment. Practice analyzing properties and determine whether they align with your investing goals. Use our free rental property calculator to analyze deals in minutes!
Investing in real estate in your 20s gives you an enormous advantage over those who are just starting in their 30s, 40s, or 50s. The sooner you start, the faster you’ll be able to scale your portfolio and grow your investments. Begin today while time is on your side, and you could retire early with real estate!
There are several ways to start investing in real estate at a young age. You could buy a primary residence and rent part of it out (house hacking), buy a professionally-managed turnkey rental in another area of the country, put 20% down on a traditional investment property, or simply invest a few dollars in REITs (real estate investment trusts) for 100% passive income.
If you’re still in high school, you may not be able to buy your first rental property just yet, but if you start preparing today, you could be ready once you turn 18! Save as much money as possible, learn about real estate investing through books and podcasts, and attend a few real estate events that have presentations and speakers (with a parent, of course!).
How much you need to invest in real estate depends on your investment strategy, market, and the deal itself. You could invest in a REIT (real estate investment trust) with only a few dollars, or you could put 20% down on your own investment property!