When it comes to investing, you can never start too early. The reason that real estate is such a prime investment is that the market is going inexorably upwards. So the earlier you get in, the more appreciation you’ll be able to take advantage of; getting started in your twenties instead of waiting until your thirties can mean hundreds of thousands of dollars of profit you might have missed out, if you’d sat on your hands.
So what does it take to start investing in real estate in your 20s? Here are nine easy steps that’ll help you get in the game, and maximize your future prosperity.
Step 1: Do Your Research
Knowledge is power, and the inverse of that is that ignorance is the shortest route to bankruptcy. But educating yourself doesn’t have to mean sweating it out in an MBA program, or even shelling out for one of those expensive weekend investing seminars. There are some amazing, reputable, free resources that’ll get you up to speed on the fundamental principles of investing, and even some of the advanced ones.
In investing, there’s the smart money, and the other kind of money. Make sure you’re the smart money.
Step 2: Is Crowdfunding Right for You?
In 2019, there are many innovative ways to invest in real estate that don’t necessarily involve buying property. One of the most popular innovative investment paths is real estate crowdfunding. How’s it work? Think of it like GoFundMe for a real estate project or, if you’ve already advanced to a moderate level of expertise, a REIT for the social media era.
Through sites like Fundrise or RealtyShares, pre-vetted developers allow investors like yourself to buy shares of their projects for very accessible amounts of money; Fundrise, for example, has only a $500 minimum buy-in. Once you choose your investment, all you have to do is sit back and monitor its progress. While it lacks the security of knowing you own something concrete, as in traditional real estate investment, you’ll still be sharing in the profits of the market.
Step 3: Consider Taking on a Partner
Two heads are better than one, as the saying goes, and that’s definitely true when it comes to real estate investing. That’s not only because two people bring twice the smarts and experience to the table, but also because the risk is divided between two people.
Life is far more unpredictable than the real estate market, and if you ever run into cash flow problems, having a partner can be the difference between default and keeping those profits rolling.
Step 4: Picking the Perfect Location
It’s easy to look up which neighborhoods are “hot” right now, but once you narrow your search down to a general location, you’ll want to visit specific sites to evaluate them. A method one successful investor uses is to check the area out during all hours and conditions, to see it as an actual neighborhood occupant would.
How far is the nearest park and grocery store? How’s the noise level during the day and night? How are the schools and access to mass transit? Even details as small as how the streets drain during a rainstorm can help you decide if an area is ripe for investment or not.
You’ve probably heard that the three most important things in real estate are “location, location, location.” Well, it’s true. Choose the location of your first investment wisely.
Step 5: What Kind of Properties Are You Interested In?
The kind of property you invest in is going to have a big impact on your experience as an investor. Single-family homes are easy to rent, and can be great, stable long-term investments, but you’ll have to either act as landlord, or hire a management company.
Buying a multi-unit complex allows you to use the “house hacking” strategy, which essentially gets you free rent, while accelerating your wealth curve, but living next to your tenants can be challenging. And if you invest in a large complex, or a commercial property, there will be even more work to be done.
Choose the right type of property is going to depend not only on your financial means, but also on how much day-to-day effort you want to invest.
Step 6: Partnering with the Right Agent
Having the right real estate agent to help guide your investments can save you a huge amount of legwork. Let’s say you and your partner have targeted 4-10 unit properties, and you’ve narrowed the potential location down to a couple of specific areas. Now what?
A great agent will already be familiar with all the properties on the market that meet your specifications, and they’ll have insight into the mindset of the sellers. Through their network, they’ll also know of properties that are listed off-market, which is where some of the best deals are to be found.
And of course, they’ll negotiate the best possible price for you. Don’t underestimate the value of a hardened, experienced negotiator, especially in a phase of your investment career when a few percentage points can make the difference between a successfully closed deal and a missed opportunity. A good agent is worth every penny you pay them.
Step 7: Secure Financing
If you’re a novice investor in your 20s, you’re probably not going to be doing any all-cash purchases. So once you settle on a property, you’ll want to get financing lined up.
You have a ton of options here, from FHA and VA loans, to hard money loans, to conventional mortgages. The best option for you is going to depend on your credit rating, how much cash you have on hand, and what you plan to do with the property.
Step 8: Raise Cash
Unless you line up a zero down payment mortgage, you’ll need some cash for the down payment. Even if it’s only a 3.5% down payment, as you see in common FHA loans, that’s still going to amount to several thousand dollars.
Where will this come from? If you’ve been saving, you may already have it on hand. If not, you can borrow it, or rely on your partner for a cash infusion to get things off the ground. (Remember when we said a partner would come in handy?)
Step 9: Draw Up a Roadmap for the Future
Once you’ve closed on your investment property, it’s time to think about what you want to do with it. Do you want to sit on the property and let it appreciate? Do you want to do a quick fix and flip? What are you going to do with the profits?
Long term, you’ll want to consider strategies like the 1031 exchange, that allow you to avoid capital gains taxes, and parlay your initial investment into an even bigger one. Once you’ve got your foot in the door, there’s really no limit to how much you can make, if you make wise investment choices. All you need is a plan.
Want to Make Extra Cash For Free?
|Company||What You Need||Earning Potential|
|$500 to Invest in Real Estate||8.7 – 12.4% Annual Returns||
|Smartphone||$100+ Per Month||
|Smartphone||Up to $50 Per Survey||
|Apartment or House||$650 Per Week||