2016 Grads – Start investing in real estate!
With college graduation right around the corner, 2016 graduates should strongly consider investing in real estate as soon as they can. I’ve invested in real estate for many years but I wish I started sooner. I bought my first house when I was 25, a year after I graduated from college, but didn’t buy my first rental property until I was 35. If I had the chance to do it over, I wouldn’t have waited 10 years to buy my first investment property.
One great thing about rental properties is the longer you own them, the better investment they become. And, when you are young you have more flexibility, less commitments, and have more tolerance for risk.
Rental properties are a great investment when compared to other investment vehicles. We are all taught to use the stock market as the way to invest and build wealth. They say we need to invest in individual stocks, mutual funds, index funds, or REITs. The problem with investing in the stock market is we are depending solely on stocks to increase in value, and we have very little control over whether the stock goes up or down.
With real estate you invest for cash flow, not appreciation. If the asset appreciates, that’s a great thing, but smart investors don’t invest in property hoping it will appreciate.
Class of 2016
Cash flow is the money you make from rental properties every month after all expenses are paid. The cash flow also usually increases over time as rents go up and the mortgage (if there is a mortgage on the property) goes down as it is basically being paid by the tenant. Of course there are tax advantages with rental properties also that you do not get with stocks and mutual funds.
There are great opportunities to buy properties with little money down when you are young. One great strategy is to buy a multifamily property with 1 to 4 units and live in one of the units to qualify as an owner occupant. You can buy it with the use of an FHA loan with very little money out of pocket. After you have lived in the unit for 12 months, you can rent out the entire building and repeat the process.
Like any investment, investing in real estate is not without risk. Your best defense against buying a bad investment is to make sure you buy at the right price. You must know the market, or work with someone you trust knows the market and the business. You must calculate all expenses and income form the property as closely and conservatively as you can. You must know your numbers going in and add a cushion factor so you assure yourself you will have positive cash flow.
Investing in real estate at an early age can be very rewarding and lucrative, and set you on the path of retiring early. I know it is difficult, when you are just graduating from college, to plan for your financial position in your 50’s, but it you do, and you talk with people you trust, it will definitely pay off in the end!
At EJCP, we can help you plan the real estate portion of your financial future. We are real estate consultants and real estate brokers, so get in touch with us and we will be happy to help in any way we can.
We wish you a healthy, happy and prosperous future!