Investing in real estate in your twenties is the best way to achieve financial freedom. The cash flow and the passive income as a property owner are so satisfying that every effort pays off. While you are still in your 20s, real estate investing is something that you might feel that it should be done after your 30s because it requires a large amount of capital, but the truth is different. If you start young, you will see the benefits during the 30s when everyone else is just beginning.
This article will show you how to start property investing while you are still in your twenties and how to enjoy the benefits of this strategy.
Contents
Why invest in real estate in your 20s?
First, the longer you own a property, the more it appreciates and the better the investment it becomes. While everyone else is busy starting their careers and working up the corporate ladder, you can put some money aside to support the smartest decision regarding your financial freedom. How can you do that, especially if you’re still a college student, working full-time, or have another responsibility that takes most of your time?
Let’s clarify that real estate investing is not for everyone, especially not for the faint of heart, because it requires a significant amount of capital, time, and energy to manage property. Plus, you must not forget that real estate will be your non-liquid asset, and your money will be tied up. Still, it is an investment that is well worth it in the long run.
Here are some defined reasons why you should start in your twenties:
- You will make passive income that will be a beneficial supplement to your salary
- You will be able to build an emergency fund for paying off student loans or growing a retirement account
- You’ll be able to afford to buy some things that otherwise you won’t have the budget for
- You will gain experience and build a portfolio from an early age
- You will get tax benefits, including various deductions
How to start investing in real estate during your 20s
Do your research
The first thing to do is to do your deep, extensive research and ensure that real estate investing is something that you really want to do. You must be equipped with all the knowledge in order to handle all the risks. You can read books, listen to podcasts, watch videos, and attend online events and webinars. Find out the top voices in the industry and listen to what they have to say.
Build up credit
The next thing to do is to work on having a solid credit score so you can be approved for a loan with an affordable interest rate. The minimum credit score is 620, but it is recommended to be higher than 740. This is the first challenge for you as a 20-something-year-old investor in real estate because you need a credit score that is high enough during that period of your life. However, you can build your credit by having multiple lines of credit, making your credit card payments on time, and using only about 10% of your available credit limit.
Save as much as you can
The next step is to save as much money as you can. You will need to let go of things that you don’t really need to put some money aside to invest. This can also be rather challenging in your twenties because there is a high chance that you are working for a not-so-high salary and there are a decent amount of expenses along the way.
So, what you can do here is to start paying yourself first. This means you need to set a reasonable amount of money from every monthly paycheck. Calculate how much you can save after deducting your bills and estimated expenses, and then use that money to transfer it into a savings account each time you get paid. It is better to make it an automatic transfer so you don’t have to think about it when you get the paycheck each time.
After a while, you will notice you have enough money to make your first down payment. And remember, the earlier you start, the faster you’ll get to that milestone. If you want to start investing as soon as possible, think about a second job, and a freelancing job that fits your schedule would also be convenient.
Make a financing plan
You have saved enough money to make the down payment, but that’s only the first step in buying a rental property. You also need to think about how you will finance the rest of the payment. The most common way is to apply for a mortgage, which usually asks for 25% of the purchase price and then monthly payments for 15 to 30 years.
Borrowing money from family, friends, or other connections and paying back to them is also a good option, primarily when investing at a young age. However, this would require making internal contracts so that both sides are on the same page about the loan.
Hard money is another option. It means borrowing money from an individual who has enough capital to lend out. However, this comes with a higher rate of interest and shorter terms, so it is not the wisest idea, especially when you’re in your 20s.
Make connections
Start networking now, and you will benefit significantly in the long run. Connect with investors, contractors, agents, property managers, and inspectors because every piece of advice they give you will be very beneficial and open new opportunities. Plus, sharing your challenges will help you brainstorm new ideas and solutions to problems. To do that, you can reach out to people on social media, websites, or forums, or join a network of investors.
Strategize
The next thing you should do is pick an investment strategy. Usually, that would be buying a property to rent out or investing in real estate investment trusts, flipping properties, short-term vacation rentals, or wholesaling. You need to explore each of these options, consider the challenges and risks associated with them, and make an informed choice. Real estate investor software can aid in evaluating each strategy’s profitability and aligning choices with your investment goals.
Pick a market
Usually, you should think about finding high-growth areas with an upward trend in home prices. Don’t forget about location, too. For your first investment property, you want to buy something locally, which means that it should be somewhere where you live because it will be easier to manage. Or, if you feel pretty confident, you can choose interesting and popular tourist destinations to invest in, for example, in LA, like an out-of-state investor, and get a property management company to handle everything.
Set specific goals
Finally, you need to set very specific goals because you need to measure your success down the road. These goals should be both long-term and short-term. The term in the criteria that will be used to measure success and always improve and adjust the strategy according to the real estate trends in the market at the moment.
Conclusion
Investing in real estate at a young age is one of the smartest decisions you can make, especially during your 20s. It will grant you the financial freedom you will enjoy later in life. However, you must talk to experts, do the research on your own, and consider all the challenges and risks that will come your way. Always make informed decisions and never stop believing you will achieve your goals.