Are you thinking about getting into real estate at a young age? Well, you are already on the right track. Real estate investing is an excellent way to grow your savings and create income, so the fact that you’re thinking about how to get started is a good sign.
Real estate investors usually enjoy great returns and use a variety of financial strategies and tools that help them build wealth. Real estate investment is, in most cases, an extended play. This means the best way to build wealth is by implementing a long-term strategy instead of a short-term one.
This is not a “get rich quick scheme.” Implementing a well-researched investing strategy to build equity and achieve significant financial gains takes many years. This is why it’s a great idea to start when you are young. After all, the sooner you begin, the sooner those long-term wealth-building strategies come to fruition. There is no better time to get started than right now.
It’s also an exciting time to begin investing in real estate at a young age because the landscape of this business is becoming more and more varied and accessible. There is no shortage of ways to invest in real estate, from cryptocurrency purchases to crowdfunded real estate investment groups to traditional real estate investments like house flipping.No matter which option you choose to start a real estate business, the one thing they all have in common is that the sooner you get started, the better. Choosing from various avenues for real estate investing can seem daunting, but it’s all about finding the right fit for your personality and financial situation.
Start As Early As Possible
Real estate investing can be an excellent wealth-building strategy, but it takes time. This isn’t a “get rich quick” scenario where you invest in something high-risk and high-reward with the hope of immediate returns. An excellent real estate investor knows it is quite the opposite. Patience and pragmatism win out over haste and impulse.
Real estate markets are steady over the long term and historically have always provided a significant return on investment (ROI). They can go through lows, but your investment will rebound if you wait out the downturns.
For example, in 2008, the real estate market crashed as the economy took a downturn. Lenders were approving mortgages people couldn't afford, and when the value of homes plummeted nationally, many people were left upside down on their mortgages. That means they owed more to the bank than the house was worth.
Homeowners who chose (or were forced) to sell their homes took a significant loss on the initial investment. However, if they had waited and continued to make their monthly mortgage payments, they would have seen the value of their home increase over time and be worth much more than they paid for it by 2011.
When patience and time are the keys to success, youth is a strategic advantage. Let’s say, for example, you buy an income property at the age of 25 for $200,000. If this is in a scorching real estate market, where demand is high, and inventory is low, you could expect the property to increase in value at 10 percent per year. That means in 5 years, the property would be worth more than 320,000.
In that scenario, you are only 30 years old and are already sitting on a profit of $120,000. You can take that money and invest it in a new property, and the cycle continues. Now, let’s say the market dives only a year after you bought that property. All you need to do is wait however many years it takes for the market to rebound, and it most assuredly will.
If you tried to execute this exact scenario at 55 years old, you might need to cash out that property sooner with the expenses of family, retirement, health care, etc. If the market crashed in the first year or two of your investment, you’d be stuck taking a loss. Conversely, if your investment were successful after five years, you would be 60 when you cash out, with fewer years left in your professional life to reinvest that profit to make more money.
Simply put, the more years you have in front of you, the more real estate investments you can make and the more patient you can be if the market fluctuates. That’s why it's a great idea to start investing at a young age.
Get Educated On The Matter
It’s essential to understand how to invest in real estate, no matter when you start investing. Knowledge is power when it comes to the real estate industry, so make sure you are as informed as possible when wanting to become a successful real estate investor.
This is even more important for a young real estate investor because you probably haven't gained a peripheral knowledge of real estate from buying a home yet. Real estate is complicated, so understanding the key components is critical.
This begins with understanding the financial side of real estate investing. Simply put, you need to know how much you will invest, what expenses you will incur after the initial investment, and what financial return you can expect. These will help you determine the ROI of each possible type of real estate investing.
The types of real estate investing you can utilize are almost limitless (more on that later). Getting educated on as many as you can will increase your options and chances of success. However, before you dive into various ways to invest in real estate, you need to ensure your finances are in order.
Start Saving Up For The Investments
Building long-term financial wealth will likely take time. The good news is you have time because you're young! Starting with a solid financial foundation in your younger years is an incredible strategic advantage if you want to invest in real estate.
Here is a step-by-step guide for creating that good financial foundation that you will use to build your real estate investing plan for years to come.
Pay Down Debt
When you are ready to invest in real estate, you will need to come up with cash, incur some debt, or do both. First, look at what outstanding loans you have (credit cards, college loans, medical bills, etc.) and pay them down as much as possible. You don't want to add that on top of too much existing debt, or it will take longer for you to pay it all off and start building wealth.
Start with the highest interest rate credit card you have. If you have a credit card that charges you 30 percent in interest every year, that’s a hefty sum you pay each month. In addition, this sum doesn’t help to pay down your principal balance. If you have a card that charges 5 percent interest, that’s a pretty reasonable amount each month. Pay off the card with a 30 percent interest rate and carry a balance on the other card if you can't afford to pay them both off completely.
Save Money For A Down Payment
If you decide to purchase your first rental property (more on that process later), you will need a downpayment. In fact, the down payment is an essential part of buying property in general, regardless of whether it’s your primary residence or an investment property, your first property, or your last. This is the money you bring to the table to pay for a portion of the property you are acquiring. The balance of the price is funded by a loan from a mortgage lender (unless you are paying cash to cover the entire sales price).
Even though they both require down payments, investment properties and single-family homes are not the same for loans. Single-family homes can be purchased with very low down payment amounts, sometimes as low as 3 percent of the purchase price. In fact, there are some loans, like VA loans, where you don’t need to put any money down.
For rental properties, you will need to come up with at least 20 to 30 percent of the purchase price for your down payment. This is because when you buy rental properties, there is no private mortgage insurance (PMI). When you pay PMI on a low down payment loan for a single-family home, the lender has some assurances if you default on the loan. Without PMI, the lender is on the hook if you stop paying your mortgage. As with all loans, the more risk you pose to the lenders, the more they want to see you pay upfront.
The amount of savings you have will also help lenders determine how big a loan you can get pre-approved for. If your savings are significant in relation to the loan amount, they know you will be able to pay your mortgage every month even if you suffer a loss of income or some other financial hardship.
Essentially, the more you save, the more options you will have when you decide to buy property as your first investment. You won’t know the exact purchase price of the investment property you will buy until you search and select the best opportunities. So, start saving right away and save as much as you can.
Debt To Income Ratio (DTI)
This is a measurement of how much debt you have in relation to how much income you bring in each month. If you have to pay a significant amount of your total income that needs to go toward paying debt, you won't have much leftover for more investment properties.
Lenders know this, so they want to see a DTI that shows you will be able to handle the payment, especially for new investors who don’t have a track record of owning real estate. The mortgage company will want your DTI to be in the 35 to 45 percent range to approve you for a loan to purchase a rental property.
If you own a house, you probably notice that this is significantly higher than the DTI needed to purchase a single-family home. An FHA loan, by comparison, can sometimes be approved even with a DTI as high as 55 percent. The logic for this is simple: Lenders know that if you have a mortgage for your primary residence and your investment property, the mortgage for the home you live in will take precedence over the investment property when the bills come each month.
For example, let’s say you face financial hardship and need to choose between paying the FHA loan on your primary residence or your investment property loan. If you choose to pay the investment property mortgage, you and your family may become homeless. If you choose to pay your primary residence mortgage, you may need to defer your dream of owning rental properties, but at least you won't lose the home you live in.
In addition to your DTI, savings, and total debt, your credit score is another critical factor when lenders decide whether to approve you for an investment property loan. It is essential to understand how it is calculated, what you can do to improve it, and how high it needs to be to get a loan for your first rental property.
It all starts with understanding the three major credit bureaus and what type of information they compile about you. Experian, Equifax, and TransUnion track and keep information on anyone who has ever borrowed money, including you. They know your payment history, how much available credit you gave, and how much you owe on every single loan that’s in your name. Sort of creepy, right?
Well, they do have a reason for keeping track of all this. Your credit score (also known as your FICO score because it is calculated with software from Fair Isaac Corporation) is determined by using all of this information.
Here is a more in-depth look at how your credit score is calculated:
To get a loan to buy a single-family home, you usually need a credit score of around 620 or higher. It can be even lower, though. In fact, some mortgage lenders might even approve you for a loan with a credit score of 580.
However, for rental property mortgages, lenders will want to see a credit score of at least 620. This is the very minimum, and the terms for a loan will be much better if your score is at 740 or higher.
In short, the better your credit score, the better terms you will get on a mortgage when you purchase your first investment property. This means you can enjoy a higher loan amount and a lower interest rate, so get your credit score as high as you can before wading into the real estate investment waters.
Mortgage Or Cash?
When it comes to buying a house for you and your family to live in, most of your local real estate agents will tell you that cash is king. Cash offers are more attractive to sellers and have no financing contingency. This makes the sale easier for everyone, as there is no appraiser and final loan approval to worry about. It also makes sense for buyers because they aren't paying interest for 15 or 30 years on a property that isn't providing monthly income.
For a rental property, things aren't so simple. Both cash and financing are good options, depending on what you are trying to accomplish. If you are focused on monthly income, cash might be a good choice. You can enjoy the monthly rental income (minus expenses) without taking away the interest you would have to pay on a loan. If you are more interested in getting a high percentage of ROI, a loan might be a better route.
Here is an example to illustrate the difference between buying a rental property with cash or buying it with a loan. First, let’s suppose you buy a rental property for $100,000 cash. After accounting for depreciation, income taxes, property taxes, and rental income, you get $10,000 in annual revenue. This would be a 10 percent return annually on your initial investment. Not bad compared to the stock market.
Next, let’s suppose you buy an income property with a 20 percent down payment and four percent interest on the mortgage loan. Once you subtract operating expenses, the earnings could be in the range of $5,500. That’s 28 percent ROI!
The ROI is much higher with a loan, and you can invest less money when you make the purchase. The overall amount of money you make yearly will be higher with a cash sale, but you need to be able to come up with those funds to start investing.
How To Get A Mortgage
Once you have decided between taking out a mortgage or paying cash, it’s time to get a loan if you have decided to go that route. Here are some critical facts about rental property mortgages, including how they are different from traditional mortgages and what steps you need to take to get one.
First off, the interest rates will be higher than traditional mortgages. The default rates for income property loans are much higher than single-family residences, so the lender takes more risk. As with any loan or insurance, the more risk the provider takes, the more you pay for them to take it.
A loan officer (or even an online algorithm) can pre-approve you for a loan, but that’s not the same as being approved. Pre Approval for a mortgage is done with minimal information that you self-report like income, credit score, and savings. To achieve final approval, the loan officer sends the loan to underwriting.
Underwriting is where you and your loan get combed through with a fine-toothed comb. Your credit, your income, your credit score, and a ton of other information are verified to make sure you are ultimately approved for the loan. This process is more stringent for investment property loans than single-family home loans.
The components determining approval for rental property loans are similar to a single-family residence loan. Things like credit score, debt-to-income ratio, and down payment amount are all considered. However, the requirements for each of these variables are more strict when getting approved for a loan to buy an investment property. For example, they may require a much higher credit score and a lower debt-to-income ratio.
This means shopping around is critical. You may have to go to three or four different lenders before getting approved. Even if the first lender you talk to approves you, keep getting more quotes. Review them with great attention to detail, ask questions if you don't understand something, and let them know you are talking to other lenders. This will encourage them to make the loan terms as attractive as possible.
For example, if one lender is offering a lower interest rate than another, sometimes you can tell the lender with the higher rate that you have a better offer. That may cause them to try and further bring their rate down to secure your loan. Research, negotiate and then research again before deciding which mortgage lender can provide you with the best possible loan to help you purchase rental properties.
Different Ways To Invest Early
Real estate investing means different things to different investors. Real estate investments come in many shapes and sizes. Some are more suited to experienced investors, while others are perfect for young people looking to get into real estate investing for the first time. Here is a look at a few different ways you can start real estate investing without needing a lot of experience.
Become A Real Estate Agent
One of the easiest ways to get into real estate without a significant financial investment is to become a real estate agent. You may think it’s complicated to start a real estate business, but you might be surprised by how easy it can be.
The best way to understand the life of a real estate agent is to talk to one, so if you have any family or friends who are in the business, pick their brains on how to get started and what the secrets are to success.
You will find that you don't need significant capital to get started. You can train for and receive your real estate license for a couple of hundred dollars. Once you have it, you can be selected to work with thousands of real estate brokers across the country.
Real estate brokers oversee the work of real estate agents in exchange for a part of the money they make (commissions on each sale). Once you have been an agent for three years, you can take your broker’s exam and get your broker’s license. In the meantime, you can enjoy the income and real estate education you get from being an agent.
The amount of income you can make is entirely dependent on how hard you work and how many sales you complete. The standard commission for real estate agents is 3 percent of the purchase price, minus what they pay their broker. This broker fee is usually called a “split” and is an agreed-upon percentage of the commission the agent gets paid for the sale.
For example, let’s say you help someone buy a home that costs $300,000. Your commission (usually paid by the seller) would be $9,000. If you have a 35 percent split to pay your broker, that means you take home $5,850 for the sale. As you can see, the more sales you make, the more income you can generate, and the potential for significant earnings are evident.
Once you get your license and decide on a brokerage, it’s time to grow your real estate business. Start with family members, friends, classmates, and anyone else in your sphere of influence and simply let them know you are working as a real estate agent and can help them buy or sell property.
Once you have a solid database of people who might need to buy or sell property either now or in the future (which is everyone you know, by the way!) It's time to start generating leads that will turn into eventual sales. Below are a few strategies that will get your real estate business thriving.
Create A Brand
There’s no shortage of real estate agents. As of October 2021, the National Association of Realtors (NAR) had 1,564,547 members. What does that mean to you as a new agent? You will need to differentiate yourself from the rest of the pack.
Ask yourself these questions:
These are the type of questions to ask yourself as you define your real estate agent brand.
Maybe you live near a lake and have spent many childhood summers at a lake house. In many ways, that makes you an expert on lakefront properties. Understanding their market value, rental capabilities, and other aspects of these properties can be learned. The concept of “lake life” and articulating that lifestyle to prospective buyers is something you might already be pretty good at.
Finding your real estate niche is a good idea, whether it’s lake houses, rental properties, old homes, or any other specific type of home you want to specialize in. This will allow you to market yourself to a particular group of buyers looking for a specialized agent. You won’t be able to differentiate yourself from other reagents based on experience right when you start as an agent, so promote unique expertise to potential clients.
Master Social Media
Facebook, Instagram, TikTok, and many other social media platforms allow people to connect with each other and businesses like never before. As a realtor, having a presence in these online social gathering places is essential.
Most people have an extensive social media network of friends, family, and other acquaintances. This is a captive audience for you to promote your business to. Post about your new career as an agent right away and continue to communicate as you tour houses, write contracts, and close deals.
Be an attentive observer on social media as well. Conversations about buying and selling houses are everywhere, and you need to find them. For example, let’s say you see a friend post about their new kitchen remodel, and another friend comments that they are thinking of moving because they want a bigger kitchen. Your real estate agent's radar should go off immediately, and reach out to that person to see if you can help them sell their current home and buy a new one.
Build A Website
If you are going to be a successful real estate agent, prospective clients need to find you online. An excellent real estate website will tell them a little about who you are and why you are a good choice to help them buy and sell property.
In addition, a search function is critical. Most people want to search for homes when they go to a real estate website. The advantage of having them do that search on your site means they stay in your web environment during the home search. You are the only agent featured, as opposed to sites like Zillow that will serve them up agents that have chosen to advertise on their site.
Your real estate brokerage might offer to set up a site for you, so check there before you spend time and money building it yourself. Whichever route you choose, investigate online tools and resources that will make your website easy to find, user-friendly, and functional for bringing in new clients.
Learn About SEO
Search engine optimization (SEO) is a critical concept for real estate agents and really any business to understand. SEO refers to ranking your web properties like your website, blogs, etc., when people search relevant topics on the web.
For example, let’s say you are a real estate agent in Chicago and want to be the real estate agent people go to in that area. You can focus your online content to rank highly when people search for “best real estate agent in Chicago.”There are various SEO tools available, like Surfer SEO, for example, where you can type in keywords and get an outline for writing content optimized for SEO. In addition, you can outsource this entirely and have SEO-trained writers and website developers craft your content.
Create A Referral Network
Many new real estate agents finish their licensing exam and think they can only generate business in their local market. That’s not true. While it’s accurate that your real estate salesperson license only works in the state you are licensed in, you can serve clients from all around the country through referrals.
If one of your clients is moving out of state, you can refer them to an agent in that state that can help them find a home. A referral contract is written up and signed by you and the agent you are referring them to, usually including a referral fee of roughly 25-35 percent of the gross commission paid to you by the other agent.
This works the other way as well. If an agent has a client moving away from their state and into the state you work in, they can send you the referral, and you send them the referral fee. By the way, the 25 percent fee you pay an agent at closing for a referral is well worth it. Buyers who are prequalified, ready to make a purchase, and willing to sign a buyer’s agency contract with you are worth their weight in gold to your real estate business.
Help People Find Rentals
Many newly licensed real estate agents know they can make money selling and buying houses but don’t understand they can make money by helping people find rentals as well. The payouts aren’t as high as buying and selling homes, but you might pick up some clients who will buy later down the line.
Rental commissions are usually one-half of the monthly rent. So, if you find a rental for a client that costs $1,500 a month, you will get a commission check for $750. This is only for rentals listed within a real estate agent online listing service and presented by a listing agent.
This isn’t much compared to the 3 percent you will make on buying or selling a home for a client, but it’s not nothing. Make sure you continue to communicate with that rental client after they move in, reminding them often that when it’s time to buy, you are the agent they can trust.
Strategies like these will help you go from a newly licensed real estate agent to a seasoned agent earning a hefty monthly income in no time. In addition to the income, being a real estate agent allows you to learn about the business in a hands-on way that will influence decisions about your own private real estate investments. After helping your clients buy and sell property, you will have the knowledge and confidence to start looking for investment properties to purchase yourself.
Purchasing And Leasing Rental Properties
Before you start investing in buying physical real estate (to generate rental income and create positive cash flow), you need to decide if you want to be a landlord. If you are renting now, you probably know that when a faucet drips or a toilet doesn’t flush, you call the landlord, and they send someone to fix it (or do it themselves).
When you buy your first rental property, those types of responsibilities will fall on you. If you are comfortable with a wrench in your hand and have at least a basic knowledge of home maintenance and repair, these tasks might not seem like a big deal to you. If you get nervous at the thought of fixing a busted garbage disposal, being a landlord might not be suited to you.
However, if you don't want to handle these types of issues, you can still invest in a rental property and hire a property manager who will take care of them for a fee (usually 10 percent of the total rent each month).
Work with a real estate agent to analyze local markets where you might be interested in purchasing an investment property to rent. Look at home values in the area. Are they rising? Finding a hot market when homes go up in value significantly will allow you to build significant equity in the property you buy.
For example, if you buy a duplex (to rent out to two families) for a price of 250,000 and the value goes up 5 percent in the first year, you would have $12,500 in equity in the house. That’s money you can cash out when you decide to sell. However, the longer you hold on to the property, the more equity you will have.
You can also create instant equity by purchasing a property that needs some work and fixing it up. The value of the investment would increase right away, instead of year over year. This would also allow you to raise the rent since the property would become a more desirable place to live.
Let’s say you buy an income property for $100,000 that is being rented out for $1,000 a month. Then, you put $25,000 into it to fix it up. If you choose the right renovations, this could bring the property’s value up to $150,000 and the monthly rent up to $1500. So, now you have $50,000 more in equity and $6,000 extra in rent each year. This would be well worth the $25,000 you invested.
Successfully buying a property to rent is all about finding the best value for the purchase price, understanding the best upgrades for high ROI when you sell, and getting the most possible monthly rent that the local real estate market will allow.
House hacking refers to purchasing multifamily properties and renting out rooms to cover your mortgage and other expenses. You can rent out those rooms to long-term roommates or rent them to a different person each day or week.
For example, if you live in a city with sporting events that generate large crowds, you might be able to cover the monthly mortgage by renting out a room or two during games. Think about locations with high resident turnover and local attractions as suitable locations for house hacking.In addition, online real estate platforms like Airbnb, VRBO, and Vacasa make finding tenants very easy. The suite of digital tools these companies offer allows you to turn each individual space in your multifamily property into rental revenue. You can even do this if you are renting an apartment and have not bought a home yet. By covering the monthly rent and then some, you cut down on your living costs and generate income simultaneously!
Real Estate Crowdfunding
Commercial real estate (CRE) refers to any property zoned by the local government to be used only for business purposes. A few examples are malls, individual shops, and office buildings. CRE has historically been inaccessible to many young investors as it has been reserved for real estate investment groups (more on that later), large corporations, and individuals with a large amount of capital to spend.
Crowdfunding has changed all of this, making commercial real estate deals available to literally everyone. Real estate crowdfunding gives access to commercial real estate deals through an online platform that allows for searching and investing all in one place. Simply sign up, begin researching deals to invest in, and then send the money to invest in the deals that seem like they might be a good fit for your real estate investing goals.
One of the great benefits of real estate crowdfunding is you don’t need a lot of money to get started, which appeals to young investors who haven’t built up a lot of expendable income yet. They often can’t afford to buy an entire property on their own, but with crowdfunding they can start investing by purchasing a small portion of one.
For example, if a hotel is listed at $2,500,000, most young investors won’t be able to come up with that kind of cash or get approved for a mortgage to buy it. However, crowdfunding allows many different young investors to pool their resources to purchase the hotel. Each real estate investor who contributed to the purchase would have a percentage of ownership in the property, depending on how much they invested. Unlike real estate investment trusts, also known as REITs (more on those later), crowdfunding allows you to invest in a single property. Many other investment tools like REITs require you to invest in a portfolio of properties. As you might assume, the research on the deal for a single property is usually more focused and accurate than the research on a portfolio of properties.
Real Estate Investment Groups (REIGs)
Real estate investment groups (REIGs) focus their resources on real estate to make a profit. Two types of real estate investment groups are real estate investment trusts (REITs) and real estate limited partnerships (RELPs).
REIGs purchase, improve, and sell multi-unit properties such as apartment buildings. The single-family property, single investor equivalent to this, would be flipping houses (more on that to come). Once the REIG purchases a property, it sells individual units within the property to investors. The REIG handles property management, including collecting rent, maintaining the building, and overseeing repairs.
REIGs make money for their real estate investors in several different ways. They can acquire industrial buildings and commercial buildings, for example. They can then generate income for their real estate investors by leasing these properties to businesses. In addition, real estate investment groups can make money by lending funds for other entities to purchase the properties they own, much as a traditional mortgage lender would.
Real Estate Investment Trusts (REITs)
Real estate investment trusts share similarities with crowdfunding platforms because they bring many different real estate investors together to buy a property. Unlike crowdfunding, though, REITs purchase a portfolio of properties instead of one single property.
REITs make money for their real estate investors by renting the properties and then selling them once the value has increased enough for a nice profit. Publicly-traded REITs are available for anyone to invest in. However, there are also privately-traded REITs that are closed to a network of specific individual real estate investors.
One advantage of investing in a REIT is that they are required by law to pay out 90 percent of their income to their investors. This means that if the REIT successfully earns a profit, you will get your share. Another feature that many real estate investors like about REITs is that they are spread over multiple properties, so if one of the properties is not profitable, that doesn't mean the entire REIT portfolio isn't making you money.
However, REITs are not without some drawbacks. If interest rates go up, REITs often lose value. In addition, the money you make by investing in REITs is taxed at a higher rate than most other investments.
Real Estate Limited Partnerships (RELPs)
Real estate limited partnerships (RELPs) allow real estate investors to pool money to buy and sell properties, just like REITs. The limited partner aspect of the RELP is what makes it different from a REIT. Essentially, a general partner, usually a corporation, is fully liable for the property, and the other partners are not.
This means most real estate investors who are partners in a RELP can enjoy the income of the investments without being liable if something happens to the property. For example, if someone slipped and fell on a property that was part of a RELP and wanted to sue for damages, only the general partner would be liable.
This is attractive to real estate investors who want to generate income from real estate but don't want the responsibility and liability that can come with buying properties on their own.
Wholesaling is another way to make money at a young age if you aren't interested in purchasing property yet. The process takes some intense education and research regarding specific properties and the potential buyer pool, but the fundamentals of how it works are pretty simple.
Wholesaling means signing a contract with a seller for a specific purchase price to buy their house and then finding a buyer for that house who is willing to pay more than what you agreed upon. The buyer is found before the initial contract gets to the closing table, so you never actually buy the house.
Distressed properties where the seller is in foreclosure or facing foreclosure are good candidates for wholesaling. The seller is in a financial bind, so they will likely accept considerably less than the house is worth. You secure this discounted price in a contract for you to buy it and then market it at a much higher value to find a different buyer before the purchase is complete. If done correctly, wholesaling can be a great deal for the buyer, the seller, and you.
Flipping a house means buying it, fixing it up, and selling it for a higher price. Sounds easy, right? Well, it’s a little more complex than the reality shows on HGTV might lead you to believe.
First, you need to find the right area for the flip. Target cities and neighborhoods with a high demand for homes and a low inventory of houses for sale. This means there is buyer demand, so when it comes time to sell the property, you won’t be searching too long for someone to purchase it.
Next, target the house in that area in the most disrepair. If a house is beautifully updated, the potential to add value with renovations is minimal. If it’s in a nice neighborhood where home prices increase yearly, but its value is way below average because it needs some work, you’ve found the right property for flipping.
When considering renovations, make sure return on investment (ROI) is always on your mind. Look at the material and labor costs of each specific renovation project and compare that to how much you think the final sales price will increase if you do it.
When the renovations are complete, make sure to work with an experienced real estate agent with the right skills and connections to get you the best sales price possible. This means they need to have an understanding of the local market and a top-notch marketing plan for the house you are flipping.
Invest In Real Estate Mutual Funds
It's never too early to start investing in the stock market, and it’s never too early to start investing in real estate. Real estate mutual funds (REMFs) allow you to do both simultaneously. As you may know, a mutual fund pools money from various investors to invest their funds in multiple companies by buying stocks.
A real estate mutual fund does the same thing but focuses on business related to real estate. There are many REMFs that can offer significant returns, but, like with all stocks, there is some risk. One thing that makes REMFs different from traditional mutual funds is that owning stock through a REMF does not give you any voting rights in the company. For real estate, this means you won't have any input on which properties the REMF buys and sells.
Whether you have already started investing and have a robust investment portfolio or are thinking about investing for the first time, real estate mutual funds are a great financial tool to consider.
Conclusion: For Real Estate Investing, The Younger You Start, The Better.
Young people should be thinking about their financial future with every decision they make. This includes calculating living expenses, understanding how to increase both active and passive income, and establishing a goal for their net worth.
Real estate investing is a great way to secure your financial future, and the earlier you start, the better. Long-term real estate investment strategies, of which there are many, take time to develop into large amounts of wealth. For older investors, this can be discouraging. For younger investors, time is something they have on their side.
From flipping homes to investing in real estate stocks, the options on the table for young people to get into real estate investing are plentiful. Consider them all, make a plan, and start real estate investing at a young age. After all, there’s no better time to do it!