So many young people ask, what is the perfect age to start investing in real estate? It is hard to really pinpoint the right age to start investing, want to know why? Because there is no right or wrong age. Investing in property at a young age seems like a bit of a frightening prospect sometimes. Most young people don’t have a lot of disposable income, often have poor credit, and might have student loans. However, young investors have such a good opportunity if they start investing at such a young age because they can get their compound interest started. Before they know it, they’ve set up a retirement fund. If they start now and do it solid for 5-10 years they can be set for the rest of their lives. So for all you young investors, now is your time!
Related: Young Real Estate Investors
Why invest in real estate at a young age?
It’s never too late to begin investing and planning for the future, but the sooner the better. Investing in real estate while you are young gives you an education. The money is great, of course. Yet, real estate investment teaches you to think in new ways. It requires problem solving and determination to wait for the best deals. You will learn to assess things differently. It’s great for young investors to start investing while they are still young and in control and while they still have time to make mistakes and understand from them.
How to start young?
- Watch your debt
This is probably the most important thing to getting started. Pay off things like student loans and credit cards and keep these things under control because banks look at your debt and credit before they even think about giving you money.
- Watch your credit
Whether you’re looking for that dream home to live in or a property to rent out, you’ll likely have to work with a bank to get a mortgage unless you’re blessed with heaps of cash. Regardless of the loan type, the bank will take a look at your credit history, which probably isn’t the strongest when you’re young. So as a young investor, watch your credit history and keep it under control by paying your bills and loans on time.
- Learn from those who have been there, done that.
Speak to others who started investing young, to gain a realistic view of the financial journey, sacrifices they took, and the rewards. Educating yourself through the experiences of other people is crucial for young investors who want to start investing in real estate.
- Save wisely
Lenders look for evidence of consistent savings over time. Get into good saving habits from an early age by putting aside money from any working income, even casual jobs. To meet lender’s guidelines, you’ll need to show savings of 3% of your purchase price, generally over a six-month period.
One main advantage to investing when you are young is that if anything goes wrong, you will have more time to make mistakes and still recover without affecting your retirement. You have nothing to lose and everything to gain, so why not get started?
Avoid these mistakes
The market is constantly changing and evolving and one common mistake that young investors make is that they hesitate when a good deal arrives. Good investment deals are hard to find so when one comes your way don’t delay the opportunity because you are indecisive.
2. Heart over head
When buying a property, about 90% of your purchasing decision will be based on emotion and only 10% on logic. This is understandable, as your home is where your heart is. It’s your sanctuary. When it comes to investing however, letting your heart rule your buying decision is a common trap and should be avoided at all costs. Allowing your emotions to rule your judgement means you are more likely to over-capitalize on your purchase, rather than negotiating the best possible price and outcome for your investment goals. You should always buy an investment property based on research! Ask yourself questions such as:
- Will it provide the gains and returns you require?
- It is in the best location to attract quality tenants?
3. Not doing your homework
Understanding the markets takes time and one common mistake young investors make is that they don’t study their investments correctly. Getting to grips with the nature of real estate is something that even experts have trouble with. So don’t think you can read a couple of books and have a handle on exactly what to buy. You need to know the neighborhood you intend to invest in like the back of your hand. Make yourself completely familiar with any given area by talking to the locals, real estate agents and property managers. Find out all about the amenities, vacancy rates and historical values of properties in the area. When you know the area, get to know the street you intend to buy in and the property you intend to buy. You can never know too much about your investment!
4. Poor cashflow management
It’s easy to fall into the trap of poor cashflow management as a young investor. Understanding all of the costs involved in acquiring and holding property can be difficult. Always seek the advice of a professional accountant who knows about real estate investments to ensure you know exactly what you’re getting into financially. You need to make sure that you can afford to hold onto any property you buy. In other words, how much income will your investment generate and will it be enough to cover your outgoings? If not, can you manage any shortfall? Don’t forget to account for any possibilities such as unexpected maintenance costs.
It’s great to dream about the riches you can make from real estate no matter how young or old you are, but it’s critical to enter into property investment with your eyes wide open when it comes to all the out of pocket expenses you’ll acquire along the way. As young investors, you need to make sure to examine each potential investment analytically and reasonably. Most of all, you need to enjoy the ride of real estate investing and not be afraid to take the opportunity because it truly is a great experience.