How can young investors make money from real estate?
Investing in real estate at a very young age is a smart way to build wealth, but the entry barriers are often prohibitively high for anyone in their early to mid-20s. For young people, investing in real estate can seem intimate, if not impossible. Many younger people mistakenly believe that a successful real estate investor must be “old,” especially as the housing market continues to discourage them. As a result, they decide to postpone their interest in investing in real estate until later in life. Time, on the other hand, is the most powerful and wealthy asset that young people have, and with the appropriate investment strategy, you can start to make returns.
Traditional property ownership or making an investment without owning any property both are options for real estate investing. Here are the best ways for young people to get started in the real estate investment market and build long-term wealth.
Scaling & Networking
Getting a real estate mentor and joining networking groups in your area are great places to start. Networking is essential for a successful real estate career, and establishing a large network early on will benefit you in more ways than one. As an inexperienced investor, you will need to rely a lot on the people around you. Getting help from experienced real estate industry professionals early on, such as your real estate agent, mortgage advisor, or investor mentor, can save you from costly mistakes and help you learn even faster. Beyond just the people you work with, building a network for a network’s sake is a highly valuable skill to work on as you never know where new opportunities and lessons can come from.
Also Read: Housing costs: Tips to reduce your rental expenses
Buying a house
One of the best ways to invest in real estate is to buy a house. As a young person, this may take some effort, but it can be attainable. The biggest barrier to buying a home is saving enough money for a down payment. Once you own the home, you can make things easier on yourself by renting out the property or a portion of it. Many young investors like to use a strategy called house hacking, in which their home is also used to generate rental income to offset some or all of your housing expenses. This can provide you with some cash flow but can also help you pay off your mortgage more easily so you can start investing the money you save into further growth.
Passive real estate investing
Beyond buying a house, there are numerous passive investment options in real estate that a young investor can take advantage of. These are particularly attractive because a lot of them have much more financial requirements than buying a home outright. Options such as REITs, real estate funds, or mortgage securities can provide you with returns quickly and easily. Again, you will benefit from being able to hold for a long term and you can scale your investment holdings as you earn more money. This can be a great way to invest money now to go towards a down payment later on or to generate a second stream of income beyond investments you may already have.
Real estate investment trusts (REITs)
REITs are specialized businesses that own, operate, manage, and profit from real estate assets. Most REITs are traded on stock exchanges, allowing you to buy completely online and with little capital. A real estate investment trust (REIT) is ideal for young investors who want to diversify their portfolio with real estate without committing to a traditional real estate transaction.
Diversify your portfolio
Young investors should diversify their portfolio by including commercial, retail, and residential real estate. Commercial real estate assets are known to outperform residential properties in terms of returns. Risks are spread out across a diverse portfolio, and the investment is protected from market fluctuations.
Real estate investing is difficult, especially at a young age; it takes time, flexibility, and ambition to make a profit. The earlier you begin, the simpler it will be and the better off you will be financially in the long run.
(By Atul Goel, MD, Goel Ganga Group, & Author of Real Rich)