Real Estate Investing for Millennials: 4 Things To Know

Real estate investing isn’t simply for 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 understand why investing in real estate is a great idea for millennials.

1. Responsible and impactful assets.
2. Real estate has bounced back.
3. Passive income.
4. Investing in your future or retirement.

Millennials And Real Estate: 3 Key Benefits To Enjoy As An Individual Owner

1. All Of The Profit. Whether you rent out a turnkey property or buy a property to flip, as the sole owner, you keep all the profit. Keep in mind that passive monthly rent also offers numerous tax benefits and additional investment opportunities. For example, you can use this passive income to purchase additional investment properties and thus increase your monthly earnings.
2. Tax Benefits. There are several potential tax benefits that you can enjoy when you own real estate investment properties as an individual. One of these benefits is the ability to write off expenses 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. Only in specific situations does this apply; generally, it requires the property to have served as your primary residence for part of the time you owned it, not just any rental property. It’s a genuinely powerful strategy when it applies, but don’t assume it works on a standard buy-and-hold rental. Talk to a CPA who understands both 1031 exchanges and Section 121.
3. 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 or early retirement.

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 starts with the same first step as for all other real estate investors: determining a real estate investment strategy. This strategy becomes the backbone for deciding where to buy properties, what types of properties to buy, and how much to spend on each one. With this in mind, the three main options that are readily available to new investors are single-family and multi-family properties, real estate 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 investors. Their popularity is based on the following benefits:

1. High demand;
2. Strong real estate markets throughout the country;
3. Good pricing options; and
4. The opportunity for increased profitability when properties are purchased via bank sales, foreclosures, or short sale options.

Syndications

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).

1. 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.
2. Type #2 – Diversified Single Family Funds (SFR). Another real estate syndication option is to create an 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:

1. The ability to invest in larger properties and subsequently enjoy the higher profit margins.
2. The benefits associated with tax-deferred properties.
3. Increased diversification of risk.
4. 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 lets you 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 possibly 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:

1. Diversification by purchasing shares of a pool of properties.
2. 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.
3. A preferred return that reduces your risk and ensures that you are paid first.
4. Access to better investment opportunities without the typical financing qualifications that are associated with other investment strategies.
5. 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, analyze the following factors.

1. 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 that 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.
2. How Much Do You Need To Invest. Most financial loans will require you to pay a 20 percent down payment. With this in 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 required 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 your estimated monthly expenses, including your mortgage. Finally, various funds and syndications will require you to have a certain amount of cash available. These financial requirements will vary based on the syndication (or fund) and your investment level. See our complete guide to financing for real estate investors.

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 out-of-state real estate investing can offer stronger, more profitable markets for investors. Here are the key factors to look for:

1. Job Growth. A strong real estate market is often synonymous with an area with strong 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 building a large facility that will create more than 1,000 government and private-sector jobs. This job growth has created an uptick in the local real estate market.
2. 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 more opportunities to provide rental housing for individuals and families. This is especially true in a seller’s market, where more buyers are interested than there is available inventory. In these instances, buyers will often turn to rental properties as their immediate housing solution.
3. Rental Demand. High rental demand also indicates a strong real estate market. Take, for example, Austin, Texas. 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.
4. 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 indiviuals looking to build wealth through real estate is to speak with experienced investors and/or to find a mentor. The beauty of joining RealWealth is that it makes your due diligence easier. Not only are you provided with vetted turnkey rental properties, syndication opportunities, and an unbiased investment counselor, but you also have access to trusted resources, free weekly real estate investing webinars, and access to a community of investors who you can meet at in-person events and property tours. These savvy investors can help you on your journey towards purchasing real estate investment properties. Simply join RealWealth to gain access to the resources you need to complete the above three steps.

Final Thoughts

Now is the time 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.