Summary: In this article you’ll learn about real estate investing for millennials. If you want to be able to determine your real estate investment and financial strategy, identify strong real estate markets, and learn from established real estate investors and mentors, continue reading.
Real estate investing isn’t simply for the older populations, individuals who are “financially established,” or retired folks. Instead, real estate investing is and should be a reality for many millennials. Whether you are on the fence about investing in real estate, or haven’t even considered the possibility, the following four reasons will help you to understand why investing in real estate is a great idea for millennials.
- Responsible and impactful assets.
- Real Estate has bounced back.
- Passive Income.
- Investing in your future.
Millennials And Real Estate: 3 Key Benefits To Enjoy As An Individual Owner
Millennials and investing are not two words that always go together. However, when it comes to real estate investing, they should be. On fact there are three key benefits that millennials can enjoy when they own real estate as an individual. These benefits include:
- All Of The Profit. — Whether you choose to rent out the property or want to fix it up and sell it, as the sole owner you will receive all of the profit. Keep in mind that the money earned from passive monthly rent, also offers numerous tax benefits, as well as additional investment opportunities. For example, you can use this passive income to purchase additional investment properties, and thus increase your monthly earnings.
- Tax Benefits. — As mentioned in the first benefit, there are several potential tax benefits that you can enjoy when you own real estate investment properties as an individual. One of these tax benefits is the ability to write off expenses that are associated with your rental property. You can also leverage pass-through deductions and in some cases use a 1031 Exchange coupled with a Section 121 to avoid the majority (if not all of) the real estate taxes associated with the eventual sale of buy and hold turnkey property.
- Flexibility and Control. — As an individual investor, you get to determine the “where, when, what, why, and how much” for each of your investment properties. This means that you have complete control over your portfolio, so that, with the help of a trusted investment consultant, you can purchase properties that meet your specific needs and help you achieve your financial goals.
With the above three benefits in mind, there are four things that you need to learn if you want to join the ranks of millennials investing in real estate.
1 – Determine Your Real Estate Investment Strategy
Investing for millennials begins with the same first step as as all other real estate investors … i.e. determining a real estate investment strategy. This strategy will become the backbone for determining where you want to purchase properties, what type of properties you want to purchase, and how much you want to spend on each property. With this in mind, the three main options that are readily available to new investors are: single and multi family properties, syndications, and Buy and Hold turnkey funds.
Single & Multi Family Properties
Single and multi family properties are the two most popular real estate investments for RealWealth members. There popularity is based in the following benefits:
- High demand;
- Strong real estate markets throughout the country;
- Good pricing options; and
- The opportunity for increased profitability when properties are purchased via bank sales, foreclosures, or short sale options.
In layman’s terms, a real estate syndication is used when you pool money together with other investors. For many investors, syndications offer the passive investment strategy needed to enjoy the “gift that keeps on giving.” With this in mind, there are two main types of real estate syndications: entitlement deals, and diversified single family funds (SFR).
- Type #1 – Entitlement Deals. — An entitlement deal allows you to purchase land with the plan to rezone it and build a commercial, residential, or mixed use entity. The next stage of an entitlement deal occurs when you sell the land to a developer at a higher price than the initial purchase sum. The developer will then work with city councils, planners, and the marketplace to push the plans through and begin developing the land.
- Type #2 – Diversified Single Family Funds (SFR). — Another real estate syndication option is to create a SFR. This type of syndication offers increased flexibility to buy and hold properties. It also offers the added value of shared rental cash flow and earned appreciation when the properties are eventually sold. Through diversification SFRs help to reduce associated risks.
Whether you choose to invest in an entitlement deal or SFR, the four main benefits of a syndication include:
- The ability to invest in larger properties, and subsequently enjoy the higher profit margins.
- The benefits associated with tax deferred properties.
- Increased diversification of risk.
- The numerous benefits of passive investing, including earning money from real estate properties without the time commitment that is required as a sole investor.
Buy & Hold Turnkey Fund
A buy and hold turnkey fund is the third main real estate investment strategy that you can employ. This strategy offers the opportunity for you to access professional management services, increase liquidity, and further diversify your investment portfolio. Generally speaking, these funds are run as an LLC and are built to achieve established financial goals. The turnkey fund will focus on buying and holding properties that need to be rehabilitated (and possible renovated) before they are rented. Through this strategy, you can save money thanks to the lower purchase prices, and simultaneously enjoy a 25 percent increase in rental prices once the repairs have been completed. The additional benefits of investing in a buy and hold turnkey fund include:
- Diversification by purchasing shares of a pool of properties.
- Access to a professional manager who will have a strong real estate background and the investment wherewithal needed to find and purchase properties in the right real estate markets.
- A preferred return that reduces your risk and ensures that you are paid first.
- Access to better investment opportunities without the typical financing qualifications that are associated with other investment strategies.
- The ability to enjoy several tax benefits, including a 20 percent deduction on your tax return and pass through depreciation opportunities.
2 – Evaluate and Determine your Financial Strategy
Once you have determined your real estate investment strategy, you will need to evaluate and decide on a financial strategy. With this in mind, you need to analyze the following factors.
- Your Credit Score. — Your credit score will greatly impact your ability to be approved for a financial loan. With this in mind, you will want to ensure that your credit score is at least 650 (if not higher). Keep in mind, the higher your credit score, the easier it will be for you to be pre-approved. In the ideal world, you want to have not only a high credit score, but also a low debt to income ratio.
- How Much Do You Need To Invest. — Most financial loans will require you to payt a 20 percent down payment. With this mind, let’s say that you are planning on purchasing a $100,000 investment property. In addition to the closing costs, you will need to be able to pay an estimated $20,000 down payment. In addition to the funds needed to pay for the down payment and closing costs, you should have the funds needed for a six month emergency fund. This fund should include all of your estimated monthly expenses, including your mortgage. Finally, various funds and syndications will require you to have a certain amount of cash available. The latter financial qualifications will vary based on the syndication (or fund) and your investment level.
3 – Identify a Strong Real Estate Market
Did you know that the strongest real estate markets aren’t always in the most popular cities? In fact, when it comes to real estate investing for millennials, the biggest lesson to remember is that a strong real estate market can be defined by the following factors.
- Job Growth. — A strong real estate market is synonymous with an area that has increased job growth. For example, Huntsville, Alabama might not be the first real estate market that comes to your mind, however it is one of the strongest markets in the country. The reason? Job growth. The FBI is in the process of building a large facility that will create more than 1,000 government and private sector jobs. This increase in jobs has created an uptick in the local real estate market.
- Population Growth. — In addition to job growth, population growth is another indicator of a strong real estate market. As more people move to an area, there are greater opportunities to provide rental housing to both individuals and families. The latter strategy is especially true in a seller’s market where the number of interested buyers is higher than the available for sale property inventory. In these instances, buyers will often turn to rental properties as their immediate housing solution.
- Rental Demand. — A high rental demand is also indicative of a strong real estate market. Take for example, Austin, Texas. In Austin the increase in rental demand has created a surge in the real estate market. The surge in the market has subsequently created higher property values as well as increased rents and the opportunity for the savvy real estate investor to purchase properties in the surrounding suburbs as a buy and hold investment opportunity.
- City Revitalization. — When a city undergoes a revitalization period there is typically an opportunity to capitalize on the real estate market. Detroit is a great example of a city that is undergoing a revitalization period. As the city regains its former glory, real estate investors are able to purchase homes, fix them up, and rent them out for higher than average cash values.
Identifying a market that meets the above four criteria is made easier when you work with a trusted investment consultant.
4 – Talk to experienced investors, or find a mentor
The final piece of investing advice for millennials is to speak with experienced investors and / or to find a mentor. The beauty of joining a network like the RealWealth, is that your due diligence is made easier. Not only are you provided with the resources needed to explore new and upcoming real estate markets, but you are able to speak with investors from across the country. These savvy investors can help you on your journey towards purchasing real estate investment properties. To learn more, you should schedule a strategy session to speak with an investment counselor, attend a live event, or simply join the RealWealth to gain access to the resources you need to complete the above three steps.
There is no time like the present for millennials to join the ranks of savvy real estate investors. With the help of a trusted mentor, you can learn from the best as you establish your real estate investment strategy and analyze your available finances. By following the above four pieces of advice, you can and will be able to invest in the right real estate properties to meet your current and future financial goals.