If you look around online, you’ll find numerous articles on why you should invest in real estate young — as young as your twenties. Does that sound out-of-reach to your present or past self? It very well might. However, investing in real estate, like any avenue for passive income, is most effective when it is given time to grow and produce fruit.
Recently, we discussed the Bankrate findings that named real estate America’s favorite investment.
That sentiment was particularly strong among the younger generations, specifically millennials. Despite a historic lack of buying power in this demographic, it hasn’t prevented them from seeing the merit in real estate investment.
Getting started, however, can be a challenge in and of itself — or so you may think.
First, let’s look at why investing as soon as possible is advantageous.
The Benefits of Investing in Real Estate Early
For you, early might not be your twenties. You may be beyond that stage of life. That doesn’t mean you shouldn’t invest, however. It’s not too late, though the sooner you can start the better.
Why Invest Young?
The idea of investing while you’re young can be intimidating because of your lack of world and financial experience. Even if you have a solid foundation in personal money management, investing in rental properties is usually seen as a big leap!
But know this — people don’t get rich by squirreling their money away. They get good at saving it and good at selecting the right investments.
Investments — real estate particularly — benefit from compounding leverage. Leverage is one of the biggest advantages available to real estate investors. Instead of utilizing your own money to fund a property acquisition, you “leverage” money from your financial lender. This way, you are not buying properties totally at cost.
With a buy-and-hold strategy, you can wait for that property to appreciate (and provide higher returns than your purchase price) before you sell or trade up for another investment (click here to learn all about the 1031 Exchange for real estate investors).
Then there’s your passive income to consider. A buy and hold investor doesn’t just wait for some magic date in the future where selling creates profit. No, as passive real estate investors, we reap the benefits of monthly passive income. The more lead time you have, the more you get out of your investments in terms of both cash flow and opportunities to grow your portfolio.
As with any investment, starting early and investing often gives you the time necessary to cultivate a world-class investment portfolio. Just like waiting to think about your retirement, waiting to invest will rob you of years worth of passive income earning potential.
Be sure to check out: The Essential Quickstart Guide to Preparing for Early Retirement
How to Invest at Any Age
Perhaps the biggest obstacle to investing in real estate for twenty-somethings is financial. We know that, by and large, millennials and Gen Z struggle to save enough money for a down payment on their own personal homes.
However, it doesn’t mean that investing in real estate is out of your reach. You just have to be determined to make it happen.
Save. First and foremost, hone your money management skills by saving. Save as much as you can and save often. If you really want to make your dream of investing happen, make short-term sacrifices so that you can fast-track your path.
Opportunity Cost. Many people are under the impression that they have to own a personal home before they start buying investment properties. Not so — in fact, that downpayment you’ve been saving up could go to an investment. We’ve been conditioned to believe that a personal home is one of the best investments out there, but that simply isn’t the case. Without a guarantee of appreciation, a lack of property management and diligent repairs and renovations, making a personal home a true investment is a long-term chore.
If you instead, for example, purchase a turnkey investment property, you begin with the foundation for a passive real estate investment portfolio. Not only is appreciation of your property a factor in building your wealth, but the passive cash flow is a welcome addition to your equity growth over time.
Utilize the Experts. We mentioned early on that experience is often an obstacle for young would-investors. What if you make a mistake and lose your investment? What if you find all of these problems once you buy the property?
When you invest in turnkey real estate, these “what ifs” disappear. Instead of relying on your own know-how and experience, you can rest easy knowing that expert advisers, management teams, and renovation experts (among others) are ensuring that you get the most out of your investment while avoiding common missteps.
Younger investors tend to be more flexible with their time and personal expenses. Take advantage of this flexibility and invest. Use your decades of time to become the expert. Start building your wealth early — no one has ever regretted it.
Learn how you can start building passive wealth today.
