For the average American, their 20s and even their early 30s are joyful times filled with adventure. It is when people begin to graduate from college, secure their first jobs, get married and begin their families. Often, it is the first time people begin to think about saving for retirement.
Typically, the default for those saving for retirement is to do so by investing in an employer-sponsored 401k. Such as Roth IRA or the equivalent. Fewer people consider investing in real estate during this phase of their lives. Most assume that real estate is unattainable for people so early in their careers.
In reality, your 20s and 30s are an ideal time to begin investing in real estate. Passively investing in real estate is especially attractive to those who are just learning about the real estate industry. Or for those who simply don’t have the time, interest, or resources to invest in property directly.
In this article, we look at why investing in real estate during your 20s and 30s is so beneficial. Especially for those looking to attain financial freedom sooner rather than later.
Top Three Reasons to Invest in Real Estate
Before we begin, let’s start with a quick primer as to why people – of any age! – should consider investing in real estate.
Investing in real estate helps individuals diversify their investment portfolios
Passive Cash Flow: One of the primary benefits of investing in real estate is that most investments will generate some degree of cash flow. When someone invests alongside a sponsor in a syndicate or real estate fund, this cash flow is earned passively.
In other words, the sponsor oversees the day-to-day operations of the property and the investors, who otherwise have no management role, earn cash flow distributions according to the sponsor’s business plan.
Portfolio Diversification: Investing in real estate also helps individuals diversify their investment portfolios. Most people, especially those in their 20s and 30s. Tend only to invest through their employer-sponsored 401ks—and these plans tend to be concentrated in traditional stocks and bonds.
Investing in commercial real estate is a way of adding a relatively “safe,” alternative investment to your portfolio. This is especially beneficial for those looking to mitigate risk, as real estate tends to have a low correlation with the stock market. In the event of a stock market correction. Real estate can continue to perform well, thereby lifting a person’s overall portfolio.
Tax Advantages: Real estate is a highly tax-advantaged industry. In the first years of ownership, investors can claim depreciation (and currently, “bonus” depreciation as well). A tax statement shows this as an effective paper loss, which offsets income earned from the investment. Maximizing the value of the earned cash flow become possible, even though the property value technically appreciates.
Moreover, upon sale of the property, an investor can roll the sales proceeds into another “like kind” asset – such as a property of higher and greater value – in order to defer paying capital gains taxes.
Individuals who start investing in real estate in their 20s and 30s can continue doing this in perpetuity to grow the value of their real estate holdings while taking advantage of substantial tax deferrals in the process.
Why Begin Investing in Real Estate in Your 20s and 30s
Time is on your side
Those who invest early in their careers have time on their sides. Time affords many things (e.g., compounding growth, amortization), some of which we’ll discuss in more detail below. Real estate investing is not a “get rich quick” scheme. In fact, to be successful in real estate, it often takes years. People build equity over time, and with time, can grow their portfolios. Moreover, with time, people learn how to weather economic ups and downs. Time affords those who invest while they are young great opportunities. That is one of the best reasons to do so.
Start at 25
Start at 35
Start at 40
Compounding growth
Albert Einstein once said that “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.”
To that end, compounding growth is especially beneficial for those who begin investing in real estate in their 20s and 30s. A compounding growth calculator can be used to show how significant compounding growth can be in practice. Someone who invests $15,000 at an 8% interest rate will have $22,039 after five years.
Now, let’s say that same person invests $15,000 at the same 8% interest rate. However, they hold the investment for 15 years. Due to compounding growth, that investment will be worth $47,582 at the end of the hold period. A staggering threefold increase on their initial investment. After 25 years, that initial investment would be worth more than $102,000.
In short, compounding growth is a way to speed up someone’s journey to financial freedom. The sooner someone invests, the sooner they start reaping the rewards that come with compounding growth.
Amortization benefits the young
Let’s assume that a mortgage on a commercial property amortizes over 30 years. A person who invests in that property when they’re 20 will own the property. Being free and clear by the time they are 50 years old.
They have more time to enjoy that property being paid off (i.e., the time in which they can maximize cash flow). Versus someone who invests in a property when they’re 40. Then does not have that property paid off until they are 70 years old.
Real estate appreciation
While there is no guarantee that real estate values will continue to climb (and if they do, by how much). Real estate does tend to appreciate over time. Real estate values may go up or down in the short term, as evidenced during the 2008-2010 Great Recession. However, if someone had purchased a property in the leadup to that recession, weathered the storm, and continued to hold that property today. They would likely own a property worth more now than when they first purchased it. By 2013, the average sales price of homes sold in the U.S. had rebounded to pre-crisis levels.
Again, this shows why it is worth investing in your 20s or 30. Most who plan to own property for 10+ years will benefit from real estate that appreciates in value.
The “Snowball” Effect
Warren Buffett made this concept famous as detailed in the book by the same name. Buffett believes in having a long runway in which to build your investment portfolio. He argues that a snowball, as it travels down a steep hill, will continue to grow and grow the same way a person’s real estate holdings have the potential to do when investing early on.
Those who invest in their 20s and 30s will begin earning cash flow sooner than their peers.
For example, those who invest in their 20s and 30s will begin earning cash flow sooner than their peers.
Over time, as they pay down the debt on those properties, they can either a) maximize cash flow on debt-free properties; or b) refinance those properties with new, long-term debt.
You can re-invest the cash obtained from a refinance into more valuable real estate assets. This is what Buffett means when he talks about the “snowball” effect.
Ability to take on more risk
Most people become more risk-averse as they age. This is because they don’t have time on their sides. As people approach their retirement years, a risk investment has the potential to derail an otherwise promising retirement portfolio.
Yet, at the same time, the “riskier” deals tend to offer the most promising returns. Those who invest in their 20s and 30s will generally feel more comfortable taking on riskier real estate deals and in turn, can benefit from the upside these deals deliver.
Fewer personal commitments
There are sometimes more obstacles to investing in real estate when you’re older. As people age, they have less time, more job commitments, more family commitments, and more financial commitments. They’re more likely to have car loans, mortgage payments, children in daycare, etc. This makes it harder to both a) learn how to invest in real estate and b) find the resources to invest in real estate once other financial commitments are accounted for. Those who invest in their 20s and 30s will have fewer personal obligations, which will make it easier for them to find the time and resources to devote to real estate investments.
Learn lessons early on
Those who invest in real estate for long enough will eventually experience hiccups. They may invest at the wrong time in the market cycle, in the wrong geography, or with a sponsor who fails to meet investors’ expectations. With that said, those who invest early in their careers will have more time to learn from these mistakes than those who start later.
To be sure, there’s a learning curve associated with real estate investing. People who invest in their 20s and 30s have more time to learn the ins and outs of what makes a successful real estate deal.
They’ll also learn more about their own personal investment strategy. For example whether they prefer to invest in stabilized vs. value-add vs. opportunistic real estate.
Whatever the case may be, those who start investing when they’re young will learn valuable lessons. Those that can be applied to real estate investments later in life to maximize the value of those investments.
How to Start Investing in Real Estate in Your 20s and 30s
One drawback to investing in commercial real estate is that there can be high barriers to entry. Those who wish to purchase property independently often struggle to come up with the capital needed to acquire the asset.
The down payment and closing costs can tally tens or hundreds of thousands of dollars. This deters many investors, especially those in their 20s and 30s who have less capital at the ready.
There are other ways for young professionals to invest in real estate, though. Some of the most common ways to get started include:
“Househacking” – this is the process of buying a multifamily apartment building and then owner-occupying one of the units. Those who pursue this approach will find that they qualify for advantageous loan options (e.g., FHA loan programs that only require 3.5% down) that are only available to owner-occupants. Househacking also allows the owner-occupant to self-manage the property, which gives them hands-on operational experience that they would not learn otherwise.
Investing in a REIT – another way to invest in real estate with little capital is to invest in a real estate investment trust. Shares of publicly-traded REITs can be purchased and sold as easily as other stocks and often trade for less than $100 apiece. This is a great solution for those looking to learn more about real estate investing, the ebbs and flows of the market, and various property types. However, when someone invests in a REIT, they are purchasing shares of the entity that owns the real estate. They are not investing in real estate directly. This is an important distinction to make as there are certain benefits (e.g., depreciation) that only come with actual property ownership.
People who invest in their 20s and 30s have more time to learn the ins and outs of what makes a successful real estate deal.
Real estate crowdfunding – recent changes to federal regulations now allow real estate sponsors to engage in “general solicitation,”. This is something that had been prohibited in decades past. What this means, in practice, is that sponsors can now raise capital (debt and equity) from individuals around the world using crowdfunding platforms like Fundrise and RealtyMogul. Some of these deals are only available to accredited investors. Others are open to the general public. The latter is a great option for those looking to invest nominal dollars in commercial real estate for the first time. This is a way of passively investing in otherwise large commercial projects that are generally spearheaded by experienced sponsors on investors’ behalf.
Investing in a syndicate – most people in their 20s and early 30s are not yet familiar with real estate syndicates. Syndicates are an investment vehicle created for the purpose of raising capital for a specific real estate deal. A sponsor will pool capital from many investors and then deploy that capital into a commercial real estate project according to a pre-defined business plan.
Many of the deals featured on crowdfunding platforms use this model. Other syndicates raise money via word-of-mouth or other advertising techniques in which individuals invest directly with the sponsor instead of through a third party. In any event, syndicates are a great way for individuals to own fractional shares of high-quality real estate deals that they would not be able to access otherwise. Syndicates allow investors to earn passive income in the form of both cash flow distributions as well as a lump-sum upon property sale or refinance.
Conclusion
Investing in commercial real estate may seem daunting, regardless of a person’s age or status of their career. Some challenges, like lack of capital, can be exacerbated when someone is in their 20s and 30s. However, young investors should not be deterred. In fact, those with limited capital are often better off investing now. Being while they’re young, compared to those with more capital who start later in life. They have time on their sides and can benefit from compounding interest and other factors as listed here today.
Interested in investing in real estate as a young professional? Contact us today to learn more about the ways in which Smartland’s platform can accommodate first-time investors of all ages and experience levels.
One of the best reasons to start investing in your 20s is because the longer you own a property, the more valuable it becomes. So, if you buy a property in your 20s and hang onto it for several years, it will appreciate over time. Then, you can sell it for significant profits.
Your 20s can be a great time to take on investment risk because you have a long time to make up for losses. Focusing on riskier assets, such as stocks, for long-term goals will likely make a lot of sense when you're in a position to start early.
In reality, your 20s and 30s are an ideal time to begin investing in real estate. Passively investing in real estate is especially attractive to those who are just learning about the real estate industry. Or for those who simply don't have the time, interest, or resources to invest in property directly.
Key Takeaways. Real estate investors make money through rental income, appreciation, and profits generated by business activities that depend on the property. The benefits of investing in real estate include passive income, stable cash flow, tax advantages, diversification, and leverage.
It's not too late to start investing when you're 30 (or even after that). Your 30s are an incredibly exciting time in which most of us are starting to develop a true sense of what we want to get out of life — whether it's for yourself or the children in your life.
Many investments, such as those made in dividend stocks,1 can provide an income stream throughout the life of the investment. Twenty-somethings have some definitive advantages over those who wait to begin investing, including time, the ability to weather increased risk, and opportunities to increase future wages.
The most significant benefit of investing in your 20s is how the compensation will affect your portfolio. The compounding occurs when you reinvest your earnings and those earnings start working and earning more money for you.
Is 30 too old to start investing? It's ok if you're just starting to invest in your 30s. Statistically, you enter your peak earning years around age 35. So now is just the right time to get serious about putting money aside for the future.
If you put off investing in your 20s due to paying off student loans or the fits and starts of establishing your career, your 30s are when you need to start putting money away. You're still young enough to reap the rewards of compound interest, but old enough to be investing 10% to 15% of your income.
They should be able to discuss their career goals and how you can help them achieve those goals. Sample Answer: I want to be a real estate agent because I enjoy helping people find the right home. I have a flexible schedule, and I want to advance my career by working with a top-notch agency.
The adage "location, location, location" is still king and continues to be the most important factor for profitability in real estate investing. Proximity to amenities, green space, scenic views, and the neighborhood's status factor prominently into residential property valuations.
Too many people get bogged down in life that they don't even start investing until it's too late. Luckily, getting started in your 30s still leaves you plenty of time to save for retirement and the future.
A portfolio that's mostly invested in stocks and with a small percentage invested in bonds is a great option for people in their 30s. One good guideline is the Rule of 110, which says that your stock allocation should be 110 minus your age. So, if you're 30, then you should own 80% stocks and 20% bonds.
Potential for long-term returns. While cash is undoubtedly safer than shares, it's unlikely to grow much, or find opportunities to grow, in the long run. ...
Less Costly. One of the main benefits of a long-term investment approach is money. Keeping your stocks in your portfolio longer is more cost-effective than regular buying and selling because the longer you hold your investments, the fewer fees you have to pay.
Setting aside money every month for investing will keep you from spending that money on unnecessary expenditures. Investing your money demonstrates a concern for the future and a discipline that could make a difference during your retirement years. Many people think investing is complicated, but it doesn't have to be.
Though retirement may seem far off, saving for it as early as possible will ensure you have enough money to get you through your retirement years. In addition, investing benefits from compounding returns, which will increase your money more over a longer period of time.
The general rule of thumb is to have at least six months' worth of income saved by age 30. This may seem like a lot, but it's important to remember that life is unpredictable, and emergencies happen. If you lose your job or get sick, you'll be glad you have that savings cushion.
Many personal finance experts recommend saving at least one year's salary by the time you're 30. If you make $50,000 per year, then your goal would be $50,000.
Invest in Retirement. The biggest investment priority in your thirties should remain your retirement account. As of 2022, you can invest up to $20,500 in a 401K and up to $6,000 in an IRA. That means you can set aside up to $26,500 each year, invest it, and allow it to grow in a tax-advantaged way.
Alice Rowen Hall, director of Rowen Homes, suggests that “individuals should aim to save at least 20% of their annual income by age 25.” For example, if someone is earning $60,000 per year, they should aim to have $12,000 saved by the age of 25.
No matter how old or young you are, it is never too late to start investing in the stock market. Investing now will allow you to take advantage of compounding returns sooner rather than later. This can make all the difference when it comes down to long-term financial goals such as retirement.
Starting over may sound like a daunting task, but you have to consider how your current employment situation is affecting you mentally and physically. You're never too old for a new beginning! You'll find that the real estate world is full of people who are willing to help you reach your goals.
“90% of all millionaires become so through owning real estate.” This famous quote from Andrew Carnegie, one of the wealthiest entrepreneurs of all time, is just as relevant today as it was more than a century ago. Some of the most successful entrepreneurs in the world have built their wealth through real estate.
Investing in real estate can be successful, but going it alone can be challenging and highly risky. Joint ventures, wholesaling, and property management are just a few of the ways that investors can profit from real estate. It also takes a little savvy to become successful in this highly competitive arena.
While stocks are a well-known investment option, not everyone knows that buying real estate is also considered an investment. Under the right circ*mstances, real estate can be an alternative to stocks, offering lower risk, yielding better returns, and providing greater diversification.
Real estate investment has undoubtedly proven to be the safest type of investment. Real estate is the first choice of almost every investor who saves. Residences, hotels, commercial properties, lands. All these real estate types bring profit to the investor if they are chosen correctly.
The 1% rule of real estate investing measures the price of the investment property against the gross income it will generate. For a potential investment to pass the 1% rule, its monthly rent must be equal to or no less than 1% of the purchase price.
The three most important factors when buying a home are location, location, and location. Too often I hear people talking about making decisions based on the home itself, instead of the location, and that is a mistake. What is it about the location that makes it so vital to real estate investing?
I want to become a real estate agent because I have a passion for helping people and pointing them in the right direction. I want to help them with everything from inspections, property analysis, repairs, moving, cleaning, packing, everything involved in a sales transaction, I want to help people with it.
If you are between ages 25-29, the average is $49,388 and the median is even further behind at $7,512. If you are between the ages of 30-34, the average net worth is $122,700 and the median net worth is $35,112. Between the ages of 35-39, the average is $274,112 and the median is $55,519.
Key Takeaways. It's never too late to start saving money for your retirement. Starting at age 35 means you have 30 years to save for retirement, which will have a substantial compounding effect, particularly in tax-sheltered retirement vehicles.
So to answer the question, we believe having one to one-and-a-half times your income saved for retirement by age 35 is a reasonable target. By age 50, you would be considered on track if you have three to six times your preretirement gross income saved.
No matter your age, there is never a wrong time to start investing. Let's take a look at three hypothetical examples below. For these examples, everyone invests $57.69/week with a 7% growth rate and has an annual salary of $30,000. Ashley started contributing early at 21 but stops at age 35.
By age 30, Fidelity recommends having the equivalent of one year's salary stashed in your workplace retirement plan. So, if you make $50,000, your 401(k) balance should be $50,000 by the time you hit 30.
Though retirement may seem far off, saving for it as early as possible will ensure you have enough money to get you through your retirement years. In addition, investing benefits from compounding returns, which will increase your money more over a longer period of time.
But youth is a huge advantage when it comes to building wealth for retirement because it gives you time to maximize the power of compound interest. With compounding, you can save a little now and reap big rewards later. And in your 20s, you may not have a mortgage to pay or a family to support, so saving is easier.
Spending every penny you earn when you're young is tempting, but investing at 18 or even earlier puts you far ahead of the game later in life. You could potentially grow your investments much more, and you'll have a better understanding of the financial system.
Compared to saving aggressively for 10 years, sustained saving over a 30-year period allows you to save less each month and still achieve the same goal as intensively saving for 10 years. Starting the saving journey earlier also means you'll have more disposable funds.
Alice Rowen Hall, director of Rowen Homes, suggests that “individuals should aim to save at least 20% of their annual income by age 25.” For example, if someone is earning $60,000 per year, they should aim to have $12,000 saved by the age of 25.
The simple answer is it's never too late to start saving for your retirement, but you should think about starting to save as soon as you can. The biggest advantage working for you if you start early is compound interest, which essentially means your money can make you money.
No matter how old you are, the best time to start investing was a while ago. But it's never too late to do something. Just make sure the decisions you make are the right ones for your age—your investment approach should age with you.
No matter your age, there is never a wrong time to start investing. Let's take a look at three hypothetical examples below. For these examples, everyone invests $57.69/week with a 7% growth rate and has an annual salary of $30,000.
Make Money on Your Money. You might not have a hundred million dollars to invest, but that doesn't mean your money can't share in the same opportunities available to others. ...
Early Investing Helps You Develop Better Spending Patterns
And creating a budget is the ideal approach to changing your spending patterns since it allows you to track how much money you spend each month on things like food, utilities, rent, fun activities, etc.
Introduction: My name is Nathanael Baumbach, I am a fantastic, nice, victorious, brave, healthy, cute, glorious person who loves writing and wants to share my knowledge and understanding with you.
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