The sooner you decide to become a real estate investor, the better. If you ask most successful investors what their biggest regret with regards to real estate investments is, they’ll say that they wish they started sooner. Specifically, they’ll say they wished they started in their college years.
But is it a good idea for a college student, undergrad or even grad, to get into real estate investing? Aren’t there some financial barriers that don’t go in students’ favor? What are some ways a college student can invest in real estate? These concerns and more will be addressed in this blog. If you’ve wanted to know how to become a real estate investor while in college, this blog is for you.
Why Start in Real Estate So Early?
College is a time for young adults to begin to tackle the real world through courses, experiences, and reckless parties. So, why decide to get messy with real estate investments during these years? Would students even have the time to deal with income properties? Well, this will depend on the student. But some investors argue that investing in real estate during college is one step closer to financial freedom as future investors. Investing in real estate before having a 9-5 job or a family helps reap better long-term cash flow.
Even if a student doesn’t plan on being a full time investor, being a real estate investor will still have its perks. A student could become a part-time investor instead of a full-time one and can still benefit from owning a rental property. Anything from tax advantages to rental income can sure motivate a student to invest early on. Another immediate benefit is that the student can use the rental income to pay off student loan debt.
What About Money, Credit, and Loans?
Sure, investing in real estate while in college gives the student more time to be established, but is this really a head-start since most students aren’t financially capable? This is a valid concern, and it’s important to know how to become a real estate investor in college without taking on too much risk.
For instance, how can students invest in real estate if they haven’t established an credit history? The answer is, they can’t. So, if you’re a student who wants to know how to become a real estate investor while in college, go ahead and establish credit. The credit doesn’t have to be great as will be discussed shortly.
There is a great strategy that eases the concern of credit, cash, and loans and gives the question of “how to become a real estate investor while in college” a feasible answer. By purchasing a property as a primary residence and renting part of it, college students can deal with financial limitations. Here’s why this works. By purchasing a home, the student will deal with lower interest rates and down payment compared to buying a rental property head-on. That’s because the loans used to buy homes, owner-occupied mortgages, have less risk than non-owner occupied mortgages.
Related: All You Need to Know About a Mortgage for a Rental Property
College students are eligible for a special kind of owner-occupied mortgage called FHA “Kiddie Condo” Loans. The Kiddie Condo Loan helps young adults buy their first home. The down payment on these loans is incredibly little, as low as 3%, compared to the 20% of rental properties. However, students need at least a decent credit score to qualify.
The only catch is that the student will need a cosigner on the loan. Cosigners in this case are normally the parents, and they will need a good debt-income ratio and decent income.
Once the purchase has been made, the student can rent out part of the house to tenants. A good choice for tenants is fellow college students, especially if the student lives in a college town. And of course, make sure renting out part of your house is legal in your area.
Related: Best Places to Invest in Real Estate: College Towns
In What Ways Can College Students Become Real Estate Investors?
Here are some ways how to become a real estate investor while in college:
Rent part of your house
This is the example mentioned previously. Purchasing a home through a Kiddie Condo Loan and then renting out a part of it is probably the best way to invest as a college student. Not only are you renting out a property, but you get to live in it for free!
Related: Real Estate Investing: Renting Part of Your House
Here’s another way how to become a real estate investor: invest in REITs. REIT stands for Real Estate Investment Trust. It’s a great way to invest in real estate without being a landlord. By investing in a REIT, you are likely in for high yields. Also, tax rules are relatively simple. REITs often invest in common facilities like malls or traditional real estate. As a college student, you could invest in REITs if you have an adequate amount of money. The amount will differ from company to company. Before you decide to invest in an REIT, however, consult a financial advisor.
While you will need some money to invest in REITs, you could begin wholesaling with not much at all. Wholesaling is essentially buying a vacant property and selling it to a buyer for a higher price. Investors don’t own the property; they merely buy the contract and try to sell the property without fixing it. This strategy may not be as reliable as renting out a part of your home, but it can still be profitable. Wholesaling nearby properties is a great and quick way to earn some cash. Moreover, it will give you some knowledge of and experience in the business of real estate investing before you can afford buying and managing your own income property. As it sounds, wholesaling does add in risk factors, so be careful, but it can be very lucrative when done correctly.
Wanting to know how to become a real estate investor while in college takes some guts. Most college students will be at a financial disadvantage compared to older aspiring investors, but that shouldn’t discourage you. Using the Kiddie Loan is definitely an advantage, and the extra time can be used in wholesaling. Wanting to know how to become a real estate investor takes knowledge, too, so find websites and videos to help you along the way. Start networking with more experienced real estate investors and other experts as they will be an invaluable source of information and help. Also, be sure to read the Mashvisor blog to learn other tips on how to become a real estate investor!
If you’re ready to take the next step in how to become a real estate investor, use Mashvisor to search for your first investment property as a college student.