Real estate has always been one of the most popular investments out there. It consistently produces more stable returns than other investments and its value can greatly appreciate over time. It has been famously said that 90% of millionaires earned their money by investing in real estate.
Despite these facts, real estate can often be a daunting investment for young investors due to the huge capital outlay required. However, as home sales in the US are set to fall over the next two years, this could be the best time to start investing in real estate. In fact, more and more millennials are beginning to invest in real estate.
Here are some tips to help young investors get started on their real estate investment journey.
Research, research, research
Before you get started, find out everything there is to know about the real estate market you want to invest in. Whether that takes the form of real estate investment networking in Dallas, intern at a real estate company in New York, or join a real estate class in San Diego, it’s crucial to find out the specifics of your own market. While the internet can be helpful for general tips, real estate markets vary hugely from state to state and even city to city. It’s best to get help from seasoned professionals who can tell you the ins and outs of your local market.
Decide what you want to invest in
Real estate isn’t like stocks – you can probably only afford to buy one at a time. So think carefully about what kind of property you want to buy. You can opt for the most common type – rental properties. These are good because you can generate income from them almost immediately and use that money to pay off your loans. However, rental-ready properties are often more expensive, so think carefully about whether you are able to bear the debt. You must also think about what types of properties will gain more value in your area. For some areas, there are certain things that heighten value a lot — but may not be as valuable in other areas. For example, areas affected heavily by COVID may need a home office for remote work in their property, while other areas may not view that as importantly.
The flipside is that it will likely require less in the way of repairs and other costs that landlords have to bear. Luckily, rental properties aren’t the only type of property out there. You can also consider commercial properties, which often generate higher rents. Flipping houses is also another way to generate a rapid return on investment.
Consider passive real estate investing
Buying a property isn’t the only way to become a real estate investor. For younger investors with less capital, real estate investment trusts, or REITs, could be an alternate path to investing in real estate.
So what is a REIT? A REIT is a trust that buys property on behalf of the trust’s owners. The good thing about REITs is that they also handle the daily management of the properties such as paying taxes, doing repairs and maintenance, and dealing with tenants. These things are often very time consuming and can become quite costly for the owner.
So investing in property through a REIT is a good way to reap the profits of owning property without having to deal with the downsides. You can also choose how much you want to invest in a REIT based on how much profit you want to gain. However, REITs also have costs such as hidden fees, and you also can’t control what properties a REIT buys. But REITs are much more affordable than properties, and are therefore a good way for young investors to get started in the real estate market.
Don’t bite off more than you can chew
It can be tempting to see the word “millionaire” and imagine yourself as a real estate mogul. However, don’t let these optimistic visions of the future lead you to over leverage yourself. It’s important to know your own financial limits and stick to them. Investing is a slow process, and putting in more money at the start doesn’t mean increased profits right away.
Also remember that buying a property isn’t the end of your investment in it. You’ll also need to set aside money for renovations, repairs, realtor fees, and many other costs. Not being able to maintain your property properly could cause its value to drop, leading to you potentially losing money. So make sure your investment plan accounts for all these factors, and stick closely to your budget.
Real estate may seem like a daunting investment, especially for young people. However, with proper research and a smart game plan, you can begin your investment journey at any age. Real estate is much less volatile than other popular investments like stocks and cryptocurrency, so the initial cost is outweighed in the long run by the profits that you can make.
Just like with any other investment, make sure to build up a good base of knowledge before you start investing. With the right knowledge, your real estate investment could become the bedrock of your future financial stability.