How to Make a Lot of Money in Real Estate While Young

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If your goal is to achieve financial freedom later in life, which is the dream of many young people, Get a head start by investing in real estate young.

You don’t get rich by saving a little and tucking it under your mattress. You get rich by saving a lot, and then investing smartly, for high returns.

Here’s the thing about property investing though – it doesn’t just take money, it also takes time. You need to find houses to flip, renovate, and sell — all of these steps take time and active work.

Nor does investing only take active time spent in research and acquisition. It can also take time for your investments to passively appreciate, to grow, to compound.

Imagine you invest $10,000 every year for ten years, earning an 8% annual return, with the return reinvested each year (i.e. compounded). After ten years, you’ll have $156,455.

But if you gave it 20 years? You’d have $494,229. For twice the time, you actually end up with over three times the payoff.

After 30 years, you’d have $1,223,459. Three times as long as your original ten-year timeframe, but nearly eight times the payoff.

In other words, compounded investments produce exponential growth, if given enough time to work their magic. Which is precisely why you want to start investing at a young age.

This article is filled with tips that can help you as a young investor to get started early in your real estate journey. Here are the highlights:

Why You Should Invest in Real Estate While Young
Advantages of Investing in Real Estate While Young
Challenges You Might Face as a Young Real Estate Investor
8 Mistakes and How to Avoid Them
How to Get Started as a Young Real Estate Investor
Is a Career in Real Estate Worth it?
Can You Rent a Studio Apartment if You Are Age 18?

Why You Should Invest in Real Estate While Young

One reason to invest in real estate young is that it gives you the option to hold the properties for decades, allowing them to appreciate.

In fact, buying real estate typically involves a short-term loss, due to closing costs. But over time, real estate owners (including both investors and homeowners) gain equity.

Property owners gain equity in two ways, which happen simultaneously: 1) the property (usually) appreciates in value, and 2) the loan balance drops as the owner makes mortgage payments. The longer you own a piece of real estate, the more equity you’re likely to gain.

Which means the younger you are when you start investing, the longer you can potentially hold real estate and the more equity you can build.

But equity isn’t the only reason to start investing in real estate young.

Thus, it’s fair to say that the earlier you start your investing journey, the longer time horizon you have to realize the benefits.

Let’s say the real estate market dips right after you start investing. When you follow a long-term buy and hold strategy, dips in the market don’t really matter. You can ride them out knowing that real estate (like the stock market) always goes up in value over time.

However, unlike the stock market, you don’t have to deal with as much volatility because rents don’t change all that much during recessions. That means you still get healthy rental income even if the market value of your investment goes down.

Another important thing we want to point out is that since most people’s very first real estate investment is not the one that makes or breaks them, we would argue that simply getting started is half the battle. The younger you start investing, the longer you have to refine your skills.

It’s so critical to start to develop your skill set as early as possible. Investing in real estate is typically not just something you start doing one day because you “feel” like it. It requires an education and calculated decisions to be made. These things take time to acquire and hone.

Of course you could just go out and buy a rental property without any of the above, but we wouldn’t recommend it. Having the knowledge and confidence to do something as life changing as investing in real estate is not something that should be taken lightly.

Advantages of Investing in Real Estate While Young

While you’re young, you tend to have a more flexible personal life, without the time demands of young children or elderly parents. Which is good news, because getting started in real estate investing does take some work!

Beyond flexibility in their free time, younger adults also tend to have more flexible budgets. They don’t need to buy diapers, support a spouse, or pay for a child’s tuition.

In other words, they can put more of their paychecks toward real estate investments.

Nor is it only lifestyle spending that’s usually more flexible among younger adults. They tend to be more open-minded to unconventional housing arrangements than their older counterparts.

For example, most 24-year-olds would not balk at the idea of bringing on a housemate to help cover some of their mortgage; or rent out a spare bedroom on Airbnb; or buy a duplex, or live on one side, and rent out the other (AKA house hacking).

Not every 42-year-old feels similarly open-minded.

And whether or not you can teach an old dog new tricks, younger humans definitely tend to be more open to learning new skills. From the fundamentals of how to invest in real estate to learning how to make physical repairs to details like maximizing tax benefits, learning new skills will likely come more naturally to you in your 20s than in your 50s.

Challenges You Might Face as a Young Real Estate Investor

For all those advantages, investing in real estate young isn’t without its challenges.

Let’s start with the obvious: money. You probably have less of it at 24 than you will at 42.

And yes, getting started in real estate investing takes some capital, despite what the “gurus” may tell you. You’ll need money for the down payment, for the closing costs, for the first round of repairs if you’re flipping a house.

You probably don’t have much money as a young adult, and you also don’t have much life experience. In your early 20s, you probably haven’t bought a home yet, which means that you not only have to learn how to invest in real estate, but you also need to learn what the process of buying real estate even looks like.

Learning how to become a real estate investor is a little easier if you already know how to work with loan officers, title companies, contractors, realtors, etc.

And speaking of all those people you’ll need on your team, you probably don’t know many (if any) of them. Your network is smaller – not an insurmountable problem, but building relationships with all the right people will still take you time.

Similarly, the people you do know are probably not out there every weekend learning how to get into real estate. They’re probably partying, playing video games, and trying to meet potential mates. Which means you don’t have helpful, motivating social support from your peers.

Then there’s your credit history. Like money, you probably don’t have much of it in your early- or mid-20s. That doesn’t mean you can’t get a loan, but it does make investing in real estate young that much trickier.

8 Mistakes and How to Avoid Them

Selling or buying an investment property can be a very emotionally draining and time-consuming experience, especially for the novice real estate investor. As a result, the first-time real estate investor usually ends up making a lot of mistakes in the process. The problem is worse for those that are investing in real estate at a young age.

Here are some common real estate mistakes a young real estate investor needs to avoid:

1. Not Beginning Early Enough

Many young people wrongly believe that a successful real estate investor has to be ‘old’. As a result, they decide to put off the idea of investing in real estate young and don’t get started until a much later time. However, time is the most powerful financial asset that young people have.

Investing in real estate as a college student is the best thing a young person could do. Beginning to save early for property ownership allows them to enjoy the benefit of compound interest.

In addition, investing in real estate young means that the property owner can begin to build equity early and enjoy tax benefits. If you begin investing in real estate in your 20s, you are well on the way to building a solid financial foundation for the future.

2. Accumulating Bad Credit

In an attempt to keep up with their peers, young people are likely to find themselves spending money they don’t have to buy things they don’t really need.

As a result, many end up with a lot of credit card debts to sustain a lifestyle they cannot afford. Failing to pay off debts will result in a poor credit score, thus making it difficult to secure a loan for investing in real estate young. Young people should, therefore, avoid unnecessary debt and live within their means.

3. Living with Parents for Too Long

The comfortable life at home with mom and dad makes many millennials complacent and unable to deal with the ‘real world’ out there. As early as possible, young people need to grow up, find a job, pay their bills and begin investing in their future.

Once out of the nest, they are likely to start thinking about investing in real estate young. However, the only exception to this rule is if someone is living with their parents to get out of debt or save money.

4. Looking at the Short-Term Instead of the Long-Term

Many young investors have the notion that real estate is a get-rich-quick scheme. They expect to buy a property today and make a windfall by tomorrow. However, the reality is that investing in real estate young calls for a lot of patience and focus.

It could take several months before a rental property begins generating a positive cash flow. If a real estate investor wants to sell, they might have to wait several years before their property appreciates enough. Therefore, young people should invest in real estate with a long-term view in mind.

5. Getting Too Emotionally Involved

When making buying decisions, many young real estate investors are influenced by their emotions. Some choose to purchase property based on price or the popularity of the location while ignoring other factors such as security and future growth potential. To avoid making such mistakes, young people should consult experienced realtors before investing in real estate young.

6. Not Doing Enough Research

Many young people get into property buying or selling with a ‘know it all’ attitude and don’t look for real estate investment advice. As a result, they end up making costly mistakes in the process.

While confidence is not necessarily a bad thing, it is very important to ask questions before investing in real estate young to avoid losing money.

Here are some of the key areas of research for real estate investors:

Economic growth – Information about future growth prospects of a location can be found from government websites, tourism websites, and Chamber of Commerce websites.
Demographic factors – Investing in real estate young requires consideration of factors such as the general population growth, the average age of residents, and migration factors.
Real estate trends – Prospective buyers need to look at important market indicators such as sales to listing ratios, pricing trends, days on market, and sold prices compared to listing prices. Vacancy rates and rental rates should also be considered.
State of the actual property – When considering a specific property, investors should inspect things such as the building foundation, water heaters, fire systems, electrical systems, and plumbing systems.
Property costs – Buying real estate investments comes with a wide range of costs and expenses including property taxes, HOA fees, property management fees, legal fees, renovation expenses, rental income taxes, and mortgage broker costs. All these costs should be taken into consideration when investing in real estate young. A good investment property calculator can help figure out all these costs.

7. Not Hiring an Agent

Real estate agents usually ask for commissions that could be as much as 6% of the property sale price. To avoid this cost, some young investors choose to sell or buy an investment property on their own. This is a big mistake, especially for first-time real estate investors.

A good agent can provide valuable real estate tips on the best properties in the market, risks of real estate investing, and local property laws. Since they have experience negotiating transactions, agents can also help investors get a competitive and fair selling or buying price.

If any problems emerge during the transaction, experienced agents will be there to deal with it and ensure everything goes smoothly.

8. Failing to Review the Investment Portfolio

Many young investors assume that their work is done once they have bought real estate investments. As a result, they become apathetic and fail to pay attention to their assets.

However, investing in real estate young requires continual monitoring of the performance of assets. Investors need to track metrics such as Internal Rate of Return (IRR), capitalization rates (cap rate), gross operating income, debt coverage ratio (DCR), cash on cash return (CoC), gross rent multiplier (GRM), and Loan-to-Value ratio (LTV).

The more real estate investors understand the performance of their properties, the better portfolio decisions they will be able to make.

How to Get Started as a Young Real Estate Investor

Get Educated

The very first step towards investing in real estate is getting well educated and versed on the topic.

How could you possibly know that you even want to be a real estate investor without knowing what’s actually involved?

So many people look at the ultra-rich and think “I want to be that rich,” but what they don’t ask themselves is “Am I willing to put in the work that that person has in order to achieve what they have?”

Many people want the end result without putting in the work to get there.

Thus, first and foremost, go educate yourself. Whether that’s via free online material, books, podcasts, an online course, or seminar, just go start somewhere so you can learn what’s involved and then decide if real estate investing is right for you.

We have often found and heard from other investors that there is so much information available out there that it can be overwhelming. For that reason alone, we recommend checking out the Roofstock Academy Essentials Series. It’s a 100% free web series that can give you a taste of what’s needed to start your real estate investing journey.

Once you’ve decided that real estate investing is something worth pursuing, you can start the process of actually putting some real skin in the game.

Start Building Relationships

Begin to build relationships with the older investors who have come before you and graduated from the school of hard knocks. Let their failures teach you to avoid (or fix) your own.

There are two great places that you can start building these relationships today: locally and online.

Locally, there are probably dozens (if not hundreds) of old-time landlords and real estate investors in your area who may take you under their wing to help mentor and train you. These relationships are often simply a friendship, built over many cups of coffee and errands run for the investor.
Online, these relationships are built everyday in the BiggerPockets Forums, where investors from across the country get together to help answer questions, build relationships, make deals, and improve the lives of everyone involved.

Earn More And Save More

So you want to invest in real estate, but don’t have enough money to do so? Two great options I’ve personally used to build up some capital quickly are:

Picking up a side hustle
Cranking up your savings rate

For those who are super serious about starting to invest in real estate, they should do BOTH.

Doing both is actually a way to springboard yourself into being able to invest much sooner than doing only one of the above.

With the internet and the gig economy we live in, picking up a side hustle has never been easier. Many side hustles don’t require you to even leave your house.

There a trillion different articles and websites about how to increase your savings rate, so we won’t get into that here, but know that some great ideas are just a quick Google search away.

If you’re unable to pickup a side hustle and are already living on Ramen noodles, there are still more options available to you. One of my favorite ones is to bring in a partner who has the money to fund the deal.

Find an Investment Partner

If you’re unable to invest in real estate on your own whether due to lack of funds or experience, you can always partner with someone who has what you’re lacking.

If you are going to partner with someone, make sure that you bring plenty of value to the table. You can use your energy, grit, and hustle to find the deals and have your partner fund them.

If you’re going to bring in a partner, you need to gain some first-hand experience to prove you have what it takes to execute on your part of the partnership.

This experience could be obtained in a couple of different ways:

Volunteer to help a seasoned investor with deals in exchange for teaching you how they invest.
Go work in an entry level position for someone involved in the real estate investing industry.

Once you’ve learned the fundamentals of real estate investing, you’ll be better positioned to bring value to a potential partner.

Now you just need to either find or fund deals, depending on which piece of the puzzle you’re lacking.

If for some reason you’re averse to bringing in a partner, there is still yet another great option for you!

Start Small

Many beginner real estate investors get overexcited and try to shoot for the stars on their first real estate investment. It is important to start simple and small and gradually grow your real estate portfolio so that you don’t end up overwhelming and discouraging yourself.

You can consider starting out with a single-family home or a one-bedroom apartment as your first real estate investment. Another option to get started would be to rent out a portion of your own home and earn some extra rental income. With time you will have multiple investment properties.

For young people who may want to start investing in real estate in their 20s, you really shouldn’t have anything to be afraid of. With ambition, enough information, the right networks and mentors, patience and hard work, age doesn’t matter in your journey to real estate success.

However, the earlier you start, the better for you. With all the benefits of starting your investment at a young age, investing in real estate in your 20s will be a decision you will never regret.

House Hacking

This is a term coined by the folks over at BiggerPockets.

House hacking involves purchasing a house or a small multifamily property (duplex, triplex or quad) with extra bedrooms/units and then renting out those rooms/units to roommates/tenants to cover your expenses.

Since you’ll be living in the property, you will likely qualify for the best financing as a first time homebuyer and can often use an FHA loan to purchase the property for only 3.5% down. Consult with a local mortgage agent to determine if you qualify.

This is a great way to get started investing in real estate because you’ll:

Start to build equity (i.e. net worth) in the property via appreciation and loan pay down
Gain experience as a landlord/property manager
Gain experience as a real estate investor while simultaneously getting a place to live

Continue Growing Your Network

Learning how to become a real estate investor is about more than just working your way through your first deal. It’s about learning how to finance bigger deals, how to find better deals, how to price your property to sell profitably, and perhaps most importantly, growing your network.

Your network should include other real estate investors, contractors, realtors, wholesalers, turnkey sellers, lenders, property managers, and any other local players in the real estate industry.

There’s an old saying that your net worth is directly proportionate to your network, and nowhere is that truer than in real estate investing.

Join local real estate investing groups on Facebook (and actually participate in them). Meet people through the local real estate investing forums on BiggerPockets. Attend local real estate investing club meetings.

Most of all, ask for referrals, and don’t be afraid to pick up the phone and call them to introduce yourself. Above we touched on how you should contact lenders before you have a deal under contract – the same logic applies to other people in your network.

For example, you should have contractors in mind before you have a property under contract, so you can obtain quotes before closing and start renovation work immediately after settlement.

Investing in real estate is one of the fastest ways to generate long term wealth. The sooner you start, the sooner you can learn what it takes to be successful.

Additionally, the sooner you start, the longer you have to reap the benefits.

It is never too early to start, and starting can just mean picking up a book and getting educated. There is nothing that says once you get educated you have to invest — although, we would highly recommend it!

Is a Career in Real Estate Worth it?

Imagine working for yourself in a flexible career where you can set your own schedule with annual earning potential of $100,000 or more. There are so many reasons to choose real estate as your career.

But there are always two sides to every story, and a real estate career is no different. Below is a straight-forward look at the pros and cons of a real estate agent career.

Getting Started in a Real Estate Career is Quick and Painless

Pros: In most states, you can complete the required training, become a licensed real estate agent, and start a new career in just a matter of weeks or months (depending on state regulations).

Cons: There is an investment in time, money, and effort required. Also, it comes with no guarantees. Passing the state real estate licensing exam is difficult and demands an understanding of complex topics and a varied skill set.

As a Real Estate Agent, You Are Your Own Boss

Pros: You’re an independent contractor and control your own book of business. You make the decisions. Couple together a good attitude and solid work ethic, and there are virtually no limits for the growth of your real estate business.

Cons: You’re an independent contractor and are on your own to learn the market and the business. You are in charge of building your lead list, maintaining your client’s needs, networking relationships, marketing your business, and managing the day-to-day office needs. It’s all in your hands. Many new agents fail to recognize how much work it takes to become a successful real estate agent.

Real Estate Agents Make a Good Income

Pros: Your income isn’t limited by an hourly wage or a corporate-dictated salary range. As a real estate salesperson, your income is largely dictated by the time you invest. Grow your real estate business by adding an assistant or get the appropriate license that lets you build your own brokerage. The growth potential is huge.

Cons: At first, your cash-flow direction will be out. Most new real estate agents need a nest egg to begin their careers. Getting your first sales to come in will take some time, and it will likely be a couple months or more before you cash your first check. Depending on the market you cover and existing relationships you can farm, it can be a feast or famine situation.

Real Estate Agents Work Flexible Schedules

Pros: You don’t work a mundane 9 to 5 job. Real estate agents set a daily work schedule that works for them. Much of a real estate agent’s time is spent socializing, meeting people, and building relationships.

Cons: Having a flexible schedule in real estate means you have to be flexible to the client’s needs. In real estate, you tend to work when everyone else is not. That includes weekends. If a client calls, can you drop everything and be attentive to their needs, even if it’s a time that you normally would be spending with your friends or family?

As a Real Estate Agent, You Help People With Their Largest Transactions

Pros: Real estate agents receive genuine satisfaction from helping clients find the perfect home or sell their property at a great price. This is an exciting time for both buyers and sellers, and they look to the real estate agent as the expert to help them manage their way through the process with excellent client services.

Cons: Real estate transactions generally are one of the most stressful times of a client’s life, and you will need to be confident in your skills and abilities when things don’t go as planned. If a client leaves unhappy, whether it was due to your efforts or not, word-of-mouth spreads quickly and can affect your referral network and, ultimately, your bottom-line.

Real Estate is a Great Business

Real estate really is a great career choice. This points are not meant to scare anyone away from real estate, but is offered to be an honest look at the real estate business from both sides of success and failure.

It can be a very difficult career if the training and work ethic fails, but it can be a seriously rewarding career if you are self-motivated, hard-working, honest, and enjoy networking and helping people.

Can You Rent a Studio Apartment if You Are Age 18?

Once you turn 18, you are legally an adult. While landlords have individual policies, the legal age to enter into a contract is 18, so you can rent a studio apartment, as long as you meet the requirements of the rental agency or landlord.

Below we are going to talk about what a studio apartment is and some of the requirements involved in getting one for yourself.

What is a Studio Apartment

A studio is an apartment with only one room, aside from the bathroom and possibly a kitchen or kitchenette. This type of apartment usually has limited occupancy of one or two people and, due to the size, is not suitable for more.

These economical apartments can be appealing to first-time renters or people with lower incomes living in expensive urban areas. Since studios typically cost less than one-bedroom apartments, they are a smart option for people just starting out on their own.

Entering Into a Lease

A lease is a contract between a landlord and tenant that states the expectations of both parties. A lease includes the deposit amount, the monthly rent and any rules or regulations for the property.

Most leases tend to be lengthy and include a lot of legal terminology. If this is your first lease, discuss the lease terms with a knowledgeable adult or lawyer to ensure that you understand all that the lease entails.

Income and Credit Requirements

While you can legally rent a studio apartment at the age of 18, most landlords have income and credit requirements to lease an apartment to anyone at any age.

It’s common for a landlord to require the tenant to earn three times the amount of rent per month and to have a solid credit history to be approved. Many 18-year-olds do not have a sufficient credit history and therefore might need a co-signer to be approved for the least.

Co-Signers

A co-signer or guarantor is a relative or friend who accepts responsibility for the lease if you fail to pay rent. It’s not uncommon for a landlord to require an 18-year-old tenant to have a co-signer because of income requirements or limited credit history. A co-signer must be financially secure and able and willing to take on the burden of rent, should the tenant stop paying.

Conclusion

Learning how to invest in real estate takes careful planning, no matter where you are in life. That’s why young entrepreneurs should not be scared away by the potential challenges of starting an investing career.

Instead, learn to use your age to your advantage and start building a portfolio today. There are financing opportunities available, connections to be made, and numerous markets worth researching.

Whether it is house hacking, rental properties or wholesaling, there are several beginner-friendly entry points for young investors to break into real estate. With the right dedication, investing in real estate young can help you set yourself up for the life you want.