4 Real Estate Investment Tips For Millennials
When you think of who invests in real estate, who do you think of? Someone in their fifties or sixties? Let’s face it, those are the only people who have enough money laying around to make real estate investments, right? Wrong!
As hard as it might be to believe, Millennials are just as capable of investing in real estate as older generations. So, if you’re on the fence about real estate investing, or if you haven’t even considered it as a possibility, this article will help you understand why it is possible for Millennials to get into the real estate industry.
The Three Main Benefits of Investing in Real Estate
There are three main benefits for investing in real estate (as an individual owner):
- You keep all of the profit! — As an individual owner, any money you make off of a property, you get to keep. With this passive income, you can invest in additional properties or put it in your retirement account.
- There are tax benefits — With real estate, you have the ability to write off any expense that’s associated with a rental property. Also, you take advantage of pass-through deductions and even use a 1031 Exchange with a Section 121 when it’s time to sell your property to avoid the taxes associated with it.
- It gives you control and flexibility — When you’re an individual investor, you determine everything about your property—the what, where, when, why and how much. As such, you’ll have total control over your portfolio and the ability to only purchase properties that meet your needs and financial goals.
With these benefits in mind, here are the four things Millennials should know before investing in real estate:
#1 – Define Your Investment Strategy
For Millennials, the first step to real estate investment is the same as it is for everyone else: come up with a strategy! This strategy will serve as a backbone of sorts for your future investments. Your strategy should define where you want to buy property, how much you’d like to spend, the type of properties you want, etc.
Single and multi-family properties are the most popular investments, but Syndications and Buy & Hold Turnkey are popular, as well. Make sure to visit this blog in the ensuing weeks, because we’ll be talking more about these types of properties more in-depth.
#2 – Come Up With A Financial Strategy
Just as important as #1, you need to have a sound financial strategy before making the jump into real estate.
There are two things you need to consider:
- What Your Credit Is – Your credit score will have a dramatic effect on how much you’re able to borrow. Generally, people with a credit score over 650 should be ok. The higher your credit score, the easier it will be to get pre-approved. Having a low debt-to-income ratio also helps.
- The Amount You Need To Invest – The majority of loans work on a 20% down model. So, if you want to buy a $1 million home, get ready to put down $100,000. In addition to a down payment, you need to have money ready for things like a mortgage, home improvements and an emergency fund.
#3 – Determine a Strong Market
If you’re here in the Bay Area, then you’re lucky. The Bay Area consistently ranks as one of, if not the, strongest markets in the United States (and the world). If you’re looking to invest outside of the Bay Area, there are 4 things to consider before investing:
- The Job Market – A good job market just about always means a good real estate market. Any time an area is adding lots of jobs, there is an uptick in the local real estate market.
- The Population – This probably sounds obvious, but the better growth in population an area experiences, the better the market. With more people comes less supply, and with less supply comes higher prices. Higher prices lead to more people renting and that will bode well for you!
- Rental Demand – Continuing the point of #2, high rental demand is indicative of a strong market. One thing to do when rental demand goes up is to buy property in the areas around the strong demand. If demand continues to rise, those properties will eventually be in high demand, as well, and you’ll have made a killing because you bought when prices were low.
- The Health of a City – We don’t mean the average health of a city’s population, but we mean the actual health of a city. A city that has strong industry and is being revitalized can be a massive opportunity. Just look at Detroit. It was a once glorious city that experienced a long downturn, but it is now being reborn.
#4 – Talk to Someone With Experience
The final advice we’d give Millennials is to speak with someone who has a lot of experience investing in real estate. That person will have a wealth of knowledge and experience that will help you guide your decisions.