You can never start too early when investing. The reason real estate is such a great investment is because the market is inexorably high. So the earlier you get in, the more appreciation you can use; Starting at twenty instead of waiting until you’re thirty can mean hundreds of thousands of dollars in profits that you might have missed out on if you had been on your hands.
So what does it take to start investing in real estate at 20? Here are nine simple steps to help you get into the game and maximize your future wealth.
Real estate investment guide
Step 1: do your research
Knowledge is power, and the opposite of that is that ignorance is the shortest route to bankruptcy. But educating yourself doesn’t have to mean having to work off an MBA program or even investing in one of those expensive weekend seminars. There are some amazing, reputable, free resources out there that can teach you the basic principles of investing and even some of the more advanced principles.
In investing, there is smart money and the other type of money. Make sure you are the money wise.
Step 2: is crowdfunding right for you?
There are many innovative ways to invest in real estate that don’t necessarily involve buying a property. One of the most popular innovative investment avenues is real estate crowdfunding. How does it work? Think of it like GoFundMe for a real estate project or, if you already have intermediate expertise, a REIT for the social media age.
With real estate apps like Fundrise or EquityMultiple, pre-screened developers enable investors like you to buy shares in their projects for very accessible amounts of money; Fundrise, for example, only has a minimum purchase of $ 10.
Once you’ve decided on your investment, all that’s left to do is sit back and monitor its progress. You may not have the certainty of having anything concrete, as with traditional real estate investing, but you will still share in the profits of the market. You can read a full Fundrise review or EquityMultiple review to learn more.
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Step 3: Consider adding a partner
Two heads are better than one, as the saying goes, and that’s definitely true when it comes to real estate investing. This is not only because two people have twice the intelligence and experience, but also because the risk is split between two people.
Life is much more unpredictable than the real estate market, and if you ever run into cash flow problems, having an affiliate can mean the difference between defaulting on payments and keeping those profits on.
Step 4: choose the perfect location
It’s easy to see which neighborhoods are “hot” right now, but if you narrow your search to a general location you’ll want to visit specific websites to rate them or take virtual tours. One method that a successful investor uses is to check the area at all times and in all conditions to see it as an actual resident of the neighborhood would.
How far is the nearest park and a grocery store? How is the noise level during the day and at night? How are the schools and access to local transport? Even details as small as the drainage of the roads during a rain shower can help you decide whether or not an area is ripe for investment.
You’ve probably heard that the three most important things about real estate are “location, location, location”. Well it’s true. Choose the location of your first investment wisely.
Step 5: What type of property are you interested in?
The type of property you invest in will have a huge impact on your experience as an investor. Single-family homes are easy to rent and can be a great, stable long-term investment, but you either need to act as a landlord or hire a management company.
Buying an apartment building complex allows you to employ the “house hacking” strategy which essentially earns you free rent while also speeding up your wealth curve, but living alongside your tenants can be challenging. And when you’re investing in a large complex or commercial property, there’s more to do.
Choosing the right type of property depends not only on your financial resources, but also on how much effort you want to invest on a daily basis.
Step 6: partnership with the right agent
Having the right real estate agent to assist you with your investments can save you a lot of work. Let’s say you and your partner have targeted 4 to 10 residential units and narrowed down the potential location to a few specific areas. What now?
A good realtor already knows all of the properties on the market that meet your specifications and has insight into the mindset of the sellers. Through their network, they also know properties that are listed outside of the market, where some of the best deals can be found.
And of course they will negotiate the best possible price for you. Don’t underestimate the value of a savvy, skilled negotiator, especially at a stage in your investment career when a few percentage points can mean the difference between a successful deal and a missed opportunity. A good broker is worth every penny you pay them.
Step 7: secure funding
If you’re a beginner in your 20s, you probably won’t be making cash-only purchases. So when you have decided on a property, you want to initiate the financing.
You have a variety of options here, from FHA and VA loans to hard cash loans to traditional mortgages. Which option is best for you depends on your credit rating, how much cash you have available and what you plan to do with the property.
Related: How to Use 10k. invested in real estate
Step 8: collect cash
Unless you set up a mortgage without a down payment, you will need some cash for the down payment. Even if it is only a 3.5% down payment, as you see with common FHA loans, it will still be several thousand dollars.
Where will that come from? If you’ve saved up, you may already have it on hand. If not, you can borrow it or rely on an injection of cash from your partner to get things started. (Remember when we said a partner would come in handy?)
Step 9: create a roadmap for the future
Once you’ve closed your investment property, it’s time to think about what you want to do with it. Would you like to sit on the property and have it valued? Do you want a quick fix and do a flip? What do you do with the winnings?
Long term, consider strategies like the 1031 Stock Exchange that will allow you to avoid capital gains taxes and invest your initial investment in an even bigger one. Once you get your foot in the door, there really is no limit to how much you can make if you make smart investment decisions. All you need is a plan.
4 Mistakes Real Estate Investors Should Avoid
Are you starting to invest in real estate? Real estate investing is a fantastic way to supplement your income or make a career, but there are plenty of silly mistakes 20 year olds make that can torpedo their dream before it gets off the dock.
Legions of experts and books are ready to tell you what to do, but what not to do can be just as important.
Like all investments, real estate financing is risky. By avoiding some common missteps, you can save yourself some headaches or even get out of tragedy.
1. Use of your name
Buying an investment property in your real, personal name is a risk that you do not have to take. When an investment fails or you face a legal battle, your personal finances are protected. You will lose the money invested but will not be put on the road.
Instead, buy real estate investments through a legal entity such as an LLC (Limited Liability Company). There are more legal entities under which you can hold investments. So, get in touch with a lawyer (which you can even do online) to find out which one will suit you best.
2. Don’t do the research
There are all kinds of websites and personalities claiming to have hot investment property tips. Someone thinks they have found the next hot property and goes all-in only to go broke a little later. There is no magic answer to what to invest in or where.
The less glamorous truth is that trends differ from place to place and it takes some research to find out what works and what doesn’t in your area. Find a niche, study, and do your homework. Knowledge is still power.
3. Out of the gate really big
Many newcomers to real estate investing see real estate investments as a multiplier of wealth and a quick way to amass a fortune. The fastest way to get rich? Invest in big real estate ASAP, right? Not correct. Enthusiasm is great, but don’t quit your job.
Without a safety net from previous successes or the knowledge that goes with it, too much too fast can lead to bankruptcy just as quickly. There is nothing wrong with starting small, building up some equity to free it up, and then repeating the process. Rome and your investments weren’t built in a day.
4. Give up
You can read as much as you can about real estate investing and do your best to avoid mistakes, but you will make them anyway. Not learning from your mistakes and letting them defeat you is worse than the mistakes themselves. Home finance can help you gain financial freedom, but it is still a process that requires determination, perseverance and sacrifice.
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