Real Estate Investing for Millennials – What You Need to Know

Being in your 20’s is the sweet taste of you. It is dope to have your own place, car, job, and friends.  Being in your twenties means you are adulting, make your own decisions, and are still learning what you are about. We express fast and furious, in the moment. Multi-tasks? Normal.

Your 20’s are a great time to begin to invest for your future

Buying a house is an American dream for most 20-somethings. According to realtor.com, Millennials are being seen as a strong force in real estate these days, especially in the high ticket (think luxury) real estate, where they received 49% of those jumbo (over $417K) mortgages last year. It looks like that trend is going to continue for 2019. That’s fire.

A couple of things affect 20-somethings more than a lot of other generations looking to invest in real estate.  It can be one of the most expensive decisions you will ever make.  You have to be thirsty to learn the ins and temperament of real estate investing and maybe willing to put in some sweat equity, and a bit of luck blesses you, you might be able to find a piece of property you can responsibly afford, improve, rent or live in, and increase your equity.

So are Millennials broke or not?

Where are 20-somethings getting that kind of money?

It made me wonder as all I keep hearing is how hard it is to make rent.  Many of my old friends went home to live with their parents as they keep saying how hard it is to make ends meet.  Just graduated and a student loan debt hanging over their head, 20-somethings many times do not realize you can not invest your way out of debt or money management challenges. Many have not learned the discipline yet to control spending habits and stick to a budget. Many more have not had to face a car payment, rent and utilities, student loan repayments (which are no longer deferred once employed), health and auto insurance on your own.

My new friends from my lead gen business, well, they can qualify for those high ticket mortgages, straight up lead gen money. And yeah, a bunch of them are 20-something Millennials. They see the future in the Internet and helping businesses grow and get customers.

There is an old adage that compound interest is the most powerful force in the universe. That applies to money you have socked away for the rainy day, the bucket list, or simple survival. Real estate investing is hard to pigeonhole, though, as compounding your cash. It runs more like simple interest, a flat return on what you put in, in the form of a rent check, or the mortgage paid. That is, if the house does not need a new roof, the tenant’s kiddo did not decorate the walls, or the renter moves out and moves it all out.

Buying real estate requires resources – like cash

Real estate investing is a skill that requires resources.  It is considered a short-term investment that requires disciplining yourself to put money away. In Jeff Rose’s Jan. 19, 2019 Forbes.com article How to Invest in Your 20’s : Financial Advisors Share their Best Tips, Eric Jansen of AspenCross Wealth Management says truth – learn that “money is a tool, not a solution to your problems.” Jansen continues suggesting since you are trading your time (work) for money (pay), make conservative decisions for short term investments like saving for a house. He suggests money market, CD’s, or savings as safer and so you know your return.

Finding savings that pay above 1% can be very challenging, though. What you need is a return on investment, or ROI, that keeps up with inflation and also provides funds for reinvestment.

It is hard for me to wrap my head around 1%, since my lead gen business regularly slay 80-90% returns. A 1% interest payment, if I even could get that, just does not cut it for me any longer. I like those high double digits, and I make a lot more.

An easier solution is what I found. I earn my money firstin a high return on investment business I own, lead gen sites. I regularly earn 80-90% profit on them, and now make a tidy high six figure income, and I am not 30 yet. You can check out how I did it here: https://www.bestrealestatedirectory.com/lead-gen/

That way I am not paying interest and nothing goes to capital like it does in a conventional mortgage.

How to invest in real estate is a mind muscle

One of the most important things you can do is study and learn the what, where, and how of real estate investing in your 20’s. Nothing beats boots on the ground in terms of gaining a grasp of terminology, picking up a little wisdom on how real estate contracts read and function, and what all the hidden costs are to owning property. Owning your own home or even better, a rental property and your core home, sounds like blue sky and dollar bills, but there things like property taxes, home owners insurance, HOA fees, utilities, and plain old maintenance that lurk beneath the surface of every property.

Real estate is usually safer than the stock market

Smartasset.com in the May 2, 2016 article Top Three Reasons 20-somethings should invest in Real Estate, pointed out that real estate can be a hedge against the market as real estate is not as volatile as the stock market. Millennials are especially uncomfortable with investing in a roller coaster stock and bond portfolio, and often keep 70% of their assets in cash. Cash does not work for you a lot, though, when interest rates are so low. Real estate can be a more stable buffer with more ability to make a profit.

We hear from the time we are born that investing in real estate is the ticket to a financial future. The difficulty, though, is either getting together the down payment, often a required 20% due to age and lack of loan history, or even meeting the mortgage payments. It’s great to buy a rental property or even your own home, but with little loyalty by companies now, what happens when you get laid off and can’t meet that bill? The bank has anther property in their portfolio.

Real estate sometimes does not require a huge investment up front.

As a millennial, you may or may not have much credit history except student loans, a vehicle, and probably a credit card. Some mortgages can be written with 20% or less down with good credit and a stable employment history with a debt ratio low enough to show an ability to meet the payments. FHA’s can be written for 3.5% if the property, and you, qualify. There are programs to start you off investing in real estate with no money, such as Rachel programs, first time buyer, VA, or USDA loans, some which require no down payment. Most do require you to live in the house, though, for a set period before you can rent out the property.

Creative options are available for buying investment real estate

Some other options are out there, like private real estate purchasing, investment real estate which often requires sweat equity including flips and repos, investment clubs where you have little say in how the money is invested but can start small, and real estate crowd funding. Crowd funding lets you start investing in real estate with little money – at least of your own.

Real estate crowd funding is the new kid on the block. The FEC finalized Title III of the JOBSAct, making it legal for anyone in any financial posture to invest in crowd funded real estate. Often those “group shares” can be started for as little as $100. Remember that when a profit is made, it is divided amongst all the members of the crowdfund, so amounts usually are small.

A really big challenge for 20-somethings dealing with real estate investment is pure experience.

Few have rented or owned property previously.  Fewer still have maintenance knowledge, can effectively manage contractors and service providers, or possess the skills to negotiate with a financial institution for a loan with limited credit history. Utilizing a management company is an option, but they tend to eat away a lot of your profits.

You need to learn all you can about real estate and real estate investing, first

Learning all you can up front about how to invest in real estate for income, how to invest in out of state rental property (challenging when you are a newbie), or even how to buy your first rental property are all topics you need to become well acquainted with. Believe it or not, Zillow and Trulia are really good sources for education on a geographical area, what median sales prices are, crime statistics, school locations (a big consideration for resale on flippers), and other topics.

Beginner real estate investing books are also helpful, as are blogs and articles (like this one) that give you information and ins and outs of the industry. Due diligence and being a wary consumer are your best friends when investing in real estate, especially for properties requiring considerable remodeling, reconstruction, or at a low price point.

If it is cheap, there is a reason. It might be a good buy. It probably is not.

A positive balance sheet and savings helps a lot

The solid truth, though, is bumping up your cash flow will help your overall portfolio, balance sheet, and expendable income. You have to learn how to increase your cash flow in real estate so it does not choke you, or worse, foreclose on you.  While it is great to think about owning a house and renting it out, and realizing that rent as extra income, few 20-somethings are flush enough to pay cash for a property, even a flipper or rehab.

Truth is, there are repair expenses, mortgages to be paid, taxes, utilities, HOA fees, and other costs that cut the amount of extra income you really have access to put towards, say, your student loans, when you are dealing with real estate investments.  And a lot of times those expenses can not wait, so having a buffer set aside to deal with them is the best solution.

It does not matter commercial or residential, things like a renter skipping out or a leasee cancelling six months early can cause major panic about how you are going to make that mortgage payment? Sometimes hidden repairs, like failing plumbing, can lead to massive repair or replacement bills. Your investment monies you did put down are not liquid, either. It is in a fixed asset and pulling it out to make a major car repair just isn’t happening.

Wouldn’t it be easier if you started with the cash first? You can.

How about making the money first so you can pay cash for a house or investment property in your 20’s?

That is what I ended up doing after trying it the hard way.

Yaasss.  So much easier.

When I graduated from college and took my first corporate, $35K/yr job, I quickly realized that there were lots more expenses to being on my own than I had thought about. I know a lot of friends my age felt the same way. I knew I had to have more income if I wanted to have a decent life style, let alone buy a condo or house. So I started looking for a business I owned that could be done outside my 40+ job.

I tried multi-level marketing, and quickly alienated most my friends and family, as well as had a lot of money tied up in products, paperwork, you name it. I kept looking around and Amazon started taking over, so I tried reselling on their platform. I made some money, not a ton, but decent, but I also was working myself to death for a slim profit margin by the time I paid for the product, shipping, packaging, and listing and selling fees. I still needed something stronger with more potential and less overhead. I mean, life at 25 was not supposed to be so dang serious, right?

Owning a high profit business can provide resources to build your stable of properties

Then I ran into an article talking about the future of Internet marketing and lead generation. I kind of knew what it was, since I worked in computers, so it caught my attention. The article talked about this Dan guy who had written training from his experience in putting together lead generation sites. That was pretty interesting, especially when he started talking numbers and having a life again. He was working the business himself, every day, while making sure he made time for family, health, and some play. And he was making serious cha-ching.  I liked those ideas, but I am always a little sus, so I checked him out.

Dan checked out as the real deal, and I realized he was not much older than me. Talking to them was free, so I figured what the heck and clicked on this link for more information:  https://www.bestrealestatedirectory.com/lead-gen/

Prepared with a list of questions for the meeting call, Dan did not sugar coat anything. He was straight up, and I felt like he was making sure I was a good fit for their working group as well. I liked the fact he was concerned about who I was, what my “why” was, and my goals were. And he was set to break the Internet.

After listening and thinking it through, I could see the numbers were easily there with a little work, and a massive amount of potential existed. I already knew from my job that few businesses really knew how to market themselves, especially on the Internet. I also knew that giving more than you get, running an ethical business, was really important to me. It obviously was to Dan, too. So I paid my tuition, did my studying, and got to work.

I never regretted making that call.

While going through the training, I wrote my first lead gen site. It took me about six hours since I had little experience. It actually was pretty easy. I still own that site, and since its pics or it didn’t happen, here it is:

 

I followed exactly how Dan said to find a customer for the site and had one signed up within the week for $750/mo, renting him the leads. Leads are when a customer is actively looking for something on the net, and already wants what you have. I just make it happen, to hook people with a need up with people who can fix it for them.

I still own this site. See, that is the sweet part about lead gen. You own the sites, like owning real estate. Except the cost of acquisition is WAY lower and the overhead is too. The same customer still rents the leads from me 4.5 years later. After those six hours (I hardly ever touched it after that) I still get an automatic deposit every month, and after some small expenses, I have cleared over $34,500 on this site in profit for six hours of work. And the customer is thrilled with the results.

Do you really want 2 a.m. tenant calls?

Guarantee if you have ever had to rip out and rehang drywall on a ceiling, or retile an entire room, you know it takes a lot longer than six hours and you are not going to get back clear that kind of money every month off rent, anytime soon. Oh, maybe in 20 or 30 years after the mortgage is paid off. Of course by then you have had to replace the roof, some of the plumbing, painted umpteen times, remodeled the kitchen costing 10’s of thousands, snaked a toilet at 2 a.m. in freezing temps, replaced the HVAC unit (another 4 digits)….

Get somebody else to do it for you. You can afford to if you own the right business.

The best advice I can give someone in their twenties wanting to invest in real estate is this – make some money first! Then if you really love demoing and eating plaster dust, have at it. But pay cash for your property and use it to diversify your portfolio. The only way to truly make money on real estate is being able to afford to make money on real estate.

You are worth more than you think at 20-something, if you want to be

I have built a high six-digit lead gen business in 4.5 years. I walked out of the corporate job and was paying all my bills in 5 months, yup, 5. So glad I did.  Yes, I had to work, especially those first months. I had to get outside my comfort zone sometimes. I had to learn to prioritize, be organized, and be focused and persistent towards my goals. Humble brag but every word is true.

And you know what? I made it. My goals are now realities. I am investing in my business and new ventures to make even more money. I am comfortable. I can afford to buy a real estate investment property, travel, and take off when I want to. I am my own boss. I like calling my own shots and making more money than both my parents combined. And it all started with clicking on the link and making a phone call.

Haven’t decided what great experience I will do this year for my birthday. I turn 30.

End the fear and get out of your comfort zone like I did. It is free, no one is going to pressure you into anything. Your time will be respected, and your questions answered. I know that is a lot more than most of you are getting at your current job.

Freedom is a mouse click away.

https://www.bestrealestatedirectory.com/lead-gen/