How To Buy A House At A Young Age
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Getting started with real estate investing at a young age is a great idea for several reasons. One is that it gives you the ability to invest for the long term and allows your investment to grow and appreciate.
When you are young, you have more flexibility in life, fewer commitments, and can take more financial risks. While you may be making less money, you likely have less financial responsibility. If you wait too long to start investing, family, work, and life makes it hard to learn about and invest in real estate. Aspiring investors should remember to use age as an advantage and test out multiple strategies and property types that may become more unattractive as you get older.
NFTs are somewhat new and risky, but with the right strategies and proper knowledge, they can produce a higher rate of return. Starting young will allow you to take on the risk from this type of investment without damaging your investment portfolio long term.
This type of investment has a lower barrier to entry than other physical forms of real estate investment. Purchasing a fixer-upper makes owning a property more attainable than owning a newly built home for most young people. However, with this comes a great deal of work and potentially a lot of extra added costs that are often not foreseen. While the returns on investment can be favorable, there can also be a lot of risks involved.
Owning a rental property is an excellent way to invest in real estate while building wealth and generating passive income. The potential rate of return is strong due to a combination of income and equity appreciation. It is also important to keep in mind that owning an investment property can take on added work, maintenance, and costs that are unexpected and can at times be of inconvenience unless you hire a rental manager. Appliances and other household plumbing could break down at unexpected times, which you have to be responsible for and readily available to fix and pay for.
A real estate investment trust (REIT) is best for young investors who want portfolio exposure to real estate without a traditional real estate transaction. Despite the positives, REITs present some drawbacks. Including the high risk of losing your investment and the lack of control compared to physically assessing the property you are investing in.
Real estate investing platforms allow you to join others in investing in a larger group of commercial or residential properties. The investment is completely online, where you can access a dashboard to track your investments. This is a great option for young people that want to avoid investing in physical real estate and provides the opportunity to gain exposure to investing while generating passive income through yielding interest.
However, many of these platforms have specific criteria for eligible investors regarding income and net worth, which are likely to be another barrier for young people. Whereas Connect Invest has made these platforms accessible to individuals who do not meet these criteria, allowing investors to begin with only $500.
Real estate investing is not easy, especially at a young age it takes time, flexibility, and ambition to make your return on investment. The younger you get started, the easier it will be and the better off you will be financially in the future.
Investing in real estate can seem intimidating or even unreachable for young people. On one hand, homes tend to be pretty expensive so people tend to become homebuyers at older ages. This is partly due to life choices, like wanting to own a home for your family to grow in. But it is also very much a financial issue. Older people tend to be more established in their careers, earn more money, have more savings, have a more established credit history, and other factors that can make buying a home easier.
If you are on the younger side and interested in starting in real estate investing but think you need to wait, think again. There are just as many options for young investors as there are for older investors. Though you may need to take different approaches in some cases, you can invest in real estate at a young age.
If you are looking at homeownership stats, young people unsurprisingly make up the lowest percentage of homeowners. This is due to factors mentioned before like being less financially established at a young age but is also because, from a statistics perspective, people generally tend to age upwards out of age brackets so the number of homeowners will concentrate at the upper end.
Across Canada, around half of first-time homebuyers are under 35, though Statistics Canada also notes that young Canadians are entering the housing market at a lower rate than previous generations when they were the same age.
In investing, time in the market is key to getting the biggest returns and young real estate investors have more time than anyone. In general, homes in Canada have tended to appreciate pretty consistently for the last few decades and, barring any sudden and unexpected shocks to the market, this will likely continue to be the case. This means that in many instances, the cheapest time to buy a house is usually right now.
Another big benefit for young real estate investors is the amazing number of options in real estate. From different markets and property types to alternative investment options, you have a lot of choices where you want to invest. Plus, another benefit of being younger is that you have a lot more time to try out different options, see what works for you, and decide on how you want to build your portfolio.
In terms of options, younger people with fewer responsibilities may find they have more free time to devote to trying new things and working on their investments. For options like flipping homes, a young investor may find that, physically, they are more willing to do the hard work at a younger age than an older investor might be able to.
Another big benefit for the young investor is the stability that owning real estate can have, especially if you are buying a home as your primary residence. On the lifestyle side of things, there are obvious benefits to owning your own home.
The biggest barrier to buying a home is saving enough money for a down payment. More and more young people are taking gifts from family as a way to jumpstart their entry into the market. This is a great option if available, but obviously, this is not going to be realistic for everyone.
One benefit of looking at a home purchase from an investment perspective is that you have options to help make the purchase a little easier. For example, if you aren't necessarily looking to live in the home you buy, you have a lot more choices for locations and property types. Remote ownership and a property management company can even make it possible to invest at a distance. You can also choose different property types. A young investor may be more comfortable investing in single-family homes as opposed to something like a multifamily property with a higher purchase price.
Once you own the home, you can make things easier on yourself by renting out the property or a portion of it. Many young investors like to use a strategy called house hacking, in which their home is also used to generate rental income to offset some or all of your housing expenses. This can provide you with some cash flow but can also help you pay off your mortgage more easily so you can start investing the money you save into further growth.
However, being young can have some effect on your ability to get approved for a mortgage. For example, if you have existing student loan debt, this can affect the debt to income ratio that your lender will use to approve you. Other factors such as young people not having as strong of credit history can come into play. These are not deal-breakers, but you should keep these things in mind as you attempt to get the best rates for your mortgage.
Beyond buying a house, there are numerous passive investment options in real estate that a young investor can take advantage of. These are particularly attractive because a lot of them have much more financial requirements than buying a home outright. Options such as REITs, real estate funds, or mortgage securities can provide you with returns quickly and easily.
If you plan to invest for the rest of your life, the chances are very high that things are going to change in your lifetime. New strategies, products, regulations, and more, are being created all the time. To be a successful real estate investor, you have to have the foresight to recognize and capitalize on new opportunities. As a young person, you will be even more suited to adapt quickly to new trends so use that to your advantage.
The current economic climate, even with record-low interest rates on mortgages, may not help to spur a major reversal in the trend. It has become common for young adults to choose living at home in the past few years due to financial challenges. In 2018, about 25 million Americans ages 18 to 34 were already living at home, per a Pew analysis of data from the Census Bureau. The Covid-19 pandemic has compounded the personal finance struggles of many younger Americans.
Millennials are the most educated generation in American history but many still carry the burden of student loan debt. The Pew Research Center found that the number of households with student loan debt doubled from 1998 to 2016. The median amount of debt millennials carry was $19,000, higher than the $12,800 Gen Xers carried.
Along with carrying expensive student loans, millennials are choosing to rent for longer in locations that tend to more expensive. The Urban Institute found that nearly half of households headed by people 18 to 34 were rent-burdened, meaning that they are paying upwards of 30% of their paycheck just to cover rent.
The report points out that more educated households move to cities with an already highly skilled population. Take cities like New York or San Francisco, known as centers of finance and innovation, and also known for being incredibly expensive to live in. 59ce067264