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Real estate investing is one of the best ways to make money in both the short and the long terms. But many people wait until they’re in their 40s or 50s to get started. The most common excuse for not real estate investing in your 20s is that you need a lot of money to invest in properties. It’s something that young people just can’t afford.
However, this isn’t necessarily the case.
As a matter of fact, it’s absolutely feasible to start investing in real estate early in life with little money.
Actually, the sooner you start, the more time you’ll have to make money and build wealth in real estate… and the sooner you’ll be able to retire from your 9-to-5 job, if that’s something you aspire to.
To help you start investing in real estate properties in your 20s, here’s what you need to do:
Step 1: Educate Yourself Online
One of the best things about real estate investing is that it doesn’t require any formal education or training. Although a real estate license is required for agents and brokers, you don’t need one to be an investor.
Nevertheless, you must understand the basic real estate concepts, terms, and strategies in order to succeed. Luckily, you don’t have to spend a penny on your real estate education. All the information you need is available online for free.
There are hundreds of real estate websites out there that will educate you on the best real estate investment strategies for beginners. You’ll learn how to invest with little or no money, how to analyze properties, and any other topic you can imagine.
If you don’t like reading, you can subscribe to various channels on YouTube or listen to numerous real estate podcasts. Regardless of your preferred form of learning, make sure that you get information from at least a few sources to learn from different perspectives and experiences.
Step 2: Save Money
This is a no-brainer.
The second thing you need in order to invest in real estate in your 20s — besides knowledge — is money. Chances are you still don’t have access to large amounts of cash. That means that you have to start proactively saving as much money as possible.
For example, forget about the latte you grab from the coffee shop on your way to work. Instead, make an espresso in the office kitchen. Limit your number of takeout meals and begin to make some quick, healthy lunches and dinners.
While each coffee and takeout lunch costs just a few dollars, this adds up over time. With some deliberate effort, you’ll be able to save a few hundred dollars a month without sacrificing much.
Most importantly, start saving money now. This way, you’ll already have some cash for a down payment when you find the right investment property.
Step 3: Maintain a Good Credit History
Another aspect of financing real estate investments is having a good credit score. This means that you should limit your debt early on and keep it down.
If you already have a student loan, make sure you make the repayments on a regular basis and avoid taking out other loans. Pay all your bills on time. Use your credit cards sparingly to secure low balances.
Keep a close eye on your credit report and inform your bank of any possible errors right away.
You’ll thank your younger self for keeping a good credit score once the time comes to apply for a mortgage for your first investment property.
Step 4: Build a Network
Have you heard that real estate is a “people’s business”? This is the absolute truth.
No matter how smart you are and how hard you work, you can’t succeed as a property investor unless you know the right people.
That’s why it’s crucial to start making connections in the real estate business as soon as possible… preferably while still at college.
Check out real estate investor groups and meetups in your area and ask to join them. You’ll benefit a lot from establishing relationships with more experienced investors and real estate professionals.
Furthermore, these people will be more than happy to get to know you since they’ll also perceive you as a potential future partner.
Once you’ve started establishing your real estate investment network, make sure to grow it all the time. Keep in touch with people and follow up with them. Reach out to other investors as well as agents and brokers, property buyers and sellers, appraisers, inspectors, real estate attorneys, financiers, insurers, property managers, and others within the industry.
Step 5: Find a Real Estate Mentor
In addition to having a wide real estate network, you should also aim at building a closer relationship with one specific person who’ll turn into your mentor.
You’ll be surprised by how willing experienced real estate investors are to share their success and know-how with younger investors. They take pride in their achievements and love showing them off to others.
Plus, most successful real estate investors received support and advice from a mentor early in their career. Now they feel compelled to give back.
While you can learn all you need to know about property investments on your own, there’s no need to reinvent the wheel. You don’t need to go through multiple trial-and-error experiments before figuring it all out.
Finding a good mentor is a much more time- and cost-efficient manner of starting investing in real estate. In this way you’ll be able to get the most bang for your buck from the beginning.
Remember that mistakes in real estate investing can cost you tens of thousands of dollars, so you should avoid them as much as possible.
Step 6: Consider Finding a Partner
If you’ve never dealt with real estate before, you should look for a partner to start your business with.
The best possible place to turn to is your own real estate network.
We bet you’re already starting to notice why it’s so important to build a solid network early on. You can even approach your mentor and see if they might be interested in partnering up with you.
Some of the benefits of investing with a partner or two include a larger pool of financial resources, enhanced know-how, and sharing the risks. That’s not to mention it can divide the legwork necessary for finding an investment property, buying it, and managing it.
It’s best to look for people from different backgrounds and professions. That way, you’ll build a well-rounded team in which you complement each other’s strengths and make up for each other’s weaknesses.
A word of advice: Real estate partnerships can take various legal forms such as an LLC, a sole proprietorship, a corporation, etc. No matter what you and your partners settle for, make sure that you have a written and signed agreement that highlights the rights and responsibilities of each party in detail.
Don’t rely on your partner’s being a nice and loyal person who’d never try to take advantage of your time and money. It’s best to be legally secured.
Step 7: Look for Different Financing Options
Getting a conventional mortgage might be the most popular strategy for financing the purchase of an investment property, but it’s definitely not the only way to go about it.
Conventional mortgages are preferred by many investors because they offer a long repayment period and relatively low interest rates.
However, the down side is that you have to have a minimum down payment equivalent to 20% of the purchase price of your property in order to qualify. A fifth of the price of a house worth $200,000-300,000 is a lot of cash for someone in their 20s.
This means that you should research other options such as hard money loans, private money lenders, or even an FHA loan if you meet the requirements. Each of these options has its pros and cons that you should read about and investigate carefully before deciding on the most appropriate financing method for your particular situation.
Step 8: Think About House Hacking
House hacking is one of the most feasible and affordable strategies for beginner real estate investors.
If you’re still in your 20s, you probably don’t own a home, so you need a place to live. Instead of renting a place and investing in another one, you can buy a duplex or a triplex. Live in one housing unit and rent out the other(s) to tenants.
This strategy is known as house hacking and is how many successful investors started out. It allows you to use the rent money you receive from your tenants to pay off the loan for your own home.
However, before you decide to become a “house hacker,” think carefully whether you’ll be able and willing to share a house with total strangers. For one, you’ll need to step up your tenant-screening process to assure you find trustworthy and quiet people to live with.
Step 9: Consider Different Strategies
Investing in real estate doesn’t necessarily mean buying and owning your own investment property. There are alternative ways to become a real estate investor in your 20s.
Real Estate Wholesaling
For instance, wholesaling real estate is a good strategy for beginners who aren’t ready yet to own a property… or simply don’t have the money to buy one. A real estate wholesaler finds a property for sale (usually a distressed home selling for under market value), puts it under contract, and then finds a buyer to whom to assign the contract.
Wholesaling is particularly affordable since you need money only to market the property. There are plenty of creative ways to do that for free, such as your network, social media, and others.
Fix-and-flip is another short-term investment strategy that allows you to get a flavor of the real estate business without committing to a property for the long run. In addition, you have unique financing options at your disposal with this strategy because you need to borrow money for just a few months until you repair the property and sell it to another investor or a homebuyer.
Yet another real estate investing strategy that’s gaining more and more popularity among young investors is crowdfunding. This is somewhat similar to the older concept of investing in real estate investment trusts (REITs) but entails zero involvement, can be done entirely online, and can be implemented with as little as $500.
One way in which young people can start making money from real estate is by renting out a room or two in their house on home-sharing platforms such as Airbnb, HomeAway, and Vrbo.
In most cases, however, owning a home is a prerequisite. But some rental agreements allow for re-renting the property to third parties.
Becoming an Airbnb host in your own home will show you whether managing a rental and dealing with hosts/tenants is the right business endeavor for you. Moreover, it requires only a minimal initial investment for buying extra bedsheets and bathroom towels.
Step 10: Prioritize
If you really want to invest in real estate, you have to put this goal at the top of your priority list. When you’re in your 20s, the sky’s the limit. As soon as you realize how important becoming a property investor is for you, put down a detailed action plan and stick to it. Figure out what steps you need to take and write down a timeline and deadline for each of them.
While you might need to postpone some priorities (such as traveling and buying your own home), the sooner you start investing in real estate, the sooner you’ll have the extra money to focus on these other things.
Becoming a successful real estate investor is feasible at any age. The key is to build a strong real estate network, be eager to learn and research, and be ready to work both hard and smart.
Don’t wait until you’re 40 or 50 to join the millions of successful real estate investors in the U.S. housing market.
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Daniela Andreevska is Marketing Director at Mashvisor. She has been writing about real estate investing for several years. Previously, she worked in economic policy research and fundraising. Daniela holds a master’s degree in Middle East and Mediterranean Studies from King’s College London.
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