There is a common misconception that real estate investing is a private club for retirees and wealthy individuals.
Most people don’t even consider learning how to invest in real estate until later in life when they have a successful career and plenty of extra income at their disposal. Why is this the case when the purpose of real estate investing is to make money and earn a steady income with a real estate investment? Many successful real estate investors have actually achieved financial independence because they learned how to invest in real estate at a young age.
Becoming a real estate investor can be one of the best financial moves you make in your 20’s. Of course, real estate investing is a kind of skill that needs to be learned, but this guide exists to help you with that. Keep reading to learn how to invest in real estate in your 20’s.
Teach Yourself How to Invest in Real Estate
The great thing about how to invest in real estate? It can be learned by anyone, anywhere, at any age. While you may choose not to invest in a formal real estate education, you can learn how to invest in real estate in many other ways:
- Get your hands on books on how to invest in real estate.
- Search the web for real estate investing websites that offer advice and support.
- Subscribe to a real estate blog created for all levels of real estate investors.
- Find landlords in your area who can advise you on owning rental properties.
- Reach out to local real estate investing groups to find a willing mentor.
- Turn to other real estate investors who started at a young age.
Besides taking advantage of the real estate investing experience of others to learn how to invest in real estate, it’s a good idea to learn about and stay updated on the following topics that affect a real estate investment:
- Real estate market trends
- Laws on owning an investment property
- Landlord-tenant laws
- Investment property taxes
- What makes for the best place for a real estate investment
- Return on investment metrics
Don’t be overwhelmed by all there is to learn about how to invest in real estate. You can always turn to real estate agents, lawyers, accountants, and other real estate professionals for assistance. There are so many valuable resources for real estate investing; take advantage of them to learn how to invest in real estate. While experience is a part of it, learning how to invest in real estate can start with a simple internet search.
To find rental properties in the best neighborhoods in the US real estate market, click here.
What About the Money for Financing a Rental Property?
The biggest concern among younger people who want to learn how to invest in real estate is the money. Where can they get the money for becoming a real estate investor and financing a rental property? Buying an investment property doesn’t require as much money as some might imagine (or at least it doesn’t have to). But before talking about financing a rental property, there are a few key steps young real estate investors must take:
Save Up Money for Buying an Investment Property
One of the first steps for how to invest in real estate in your 20’s is to start saving up the money for buying an investment property. Saving up the entire cost of an investment property is not necessary. As you will see, real estate investors don’t always have to save up for the typical 20% down payment for financing a rental property. Nonetheless, it is important to start setting aside a percentage of your weekly or monthly income for real estate investing goals. A healthy history of saving will look good to mortgage lenders when you apply for a loan for financing a rental property.
Work on Your Credit Score
The average person in their 20’s has probably accumulated debt in the form of student loans, which hinders one’s chances of financing a rental property and can lower one’s credit score. The best thing to do as you’re thinking about how to invest in real estate is to pay off debt. The more debt you pay off, the better your debt-to-income ratio will be. This results in a higher credit score that is favorable to mortgage lenders. In the meantime, don’t add any more debt before buying an investment property.
Besides this, there are other steps to take to improve your credit score for financing a rental property:
- Take a look at your credit report. Notice any mistakes? Request that they be removed.
- Pay your bills on time or early.
- Have a credit card debt? Start paying it off.
If you have no credit score at all, then apply for a credit card before buying an investment property. Pay the credit card debt in a timely manner to build up a credit score before buying an investment property.
An FHA Loan Is the Best Option for Young Real Estate Investors
Why? Because rather than requiring a 20-30% down payment for financing a rental property, this government loan only requires a 3.5% down payment. Specifically, the 203k loan is a good option for young real estate investors wondering how to invest in real estate. This FHA loan will include the cost of repairs for an investment property while still allowing real estate investors to pay a 3.5% down payment. You can get started in real estate investing while having the budget to increase the value of the investment property for a better return on investment.
If you do choose to go with a conventional bank loan for financing a real estate investment, consider having a parent act as a guarantor on the loan.
Stick to Residential Real Estate as a Young Property Investor
Residential real estate will be your best bet when learning how to invest in real estate in your 20’s. Residential real estate is more affordable than commercial real estate, and dealing with fewer tenants will be easier on a younger real estate investor. The types of residential real estate to consider are:
Another form of residential real estate for young real estate investors is multifamily real estate made up of two units (duplex). With this residential real estate, real estate investors can use one of two property investment strategies:
- Rent out both units and possibly live at home for some time.
- Rent out one and live in the other unit as an owner-occupier.
Take Advantage of a Rental Property Calculator
While learning how to invest in real estate in your 20’s, investment property analysis may seem like too much work. With the help of a rental property calculator, you can be sure that as a beginner real estate investor, you are choosing the best rental properties for a great return on investment. Use Mashvisor’s rental property calculator for investment property analysis. Determine the return on investment for potential rental properties in a matter of minutes, and avoid manual calculations and spreadsheets.
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Learning how to invest in real estate in your 20’s doesn’t have to mean that by the time your 30, you’ll have a complete real estate investment portfolio. But getting started in real estate early in your life is the best way to reach financial independence. Start with one of the rental properties suggested here, and use Mashvisor’s rental property calculator to find rental properties with the best return on investment. Slowly but surely, you’ll have the cash flow to build an impressive real estate investment portfolio as a safety net for your future.