Content of the material
- What are the roadblocks for teen investors?
- Debt: Is It Good Or Bad?
- Bad Debt
- Good Debt
- 3. Use your spare time wisely
- Next Steps
- Investing strategies you can start with
- #1: House hacking
- #2: Wholesaling
- #3: Multifamily rental properties
- What Are the Different Investments You Can Make?
- Scaling Networking
- Partnering Up
- How to start investing in real estate
- 1. Get Educated
- Three Pillars of Income
- Advantages to investing in real estate young
- Challenges Of Being A Young Real Estate Investor
- Start Sooner Rather Than Later
What are the roadblocks for teen investors?
Unfortunately, many investment accounts and options are only available for people 18 and up. Getting involved in real estate depends on the state, but at least in New York City, people need to be 20 years old to apply for a real estate license.
But even before you can invest, you need to build credit, and that can be its own barrier. To open a credit card or take out a loan in the U.S., applicants need to be at least 18. Even though 18 is still technically a teen, it limits what investments teens can make at a younger age.
Change the way you look at money before you turn 20 and become an FI freak! Most teenagers are only told about one financial path: Work until you’re old and then retire. But what if you want to spend your adult life traveling, creating, or bettering the world instead of working all day, every day? First to a Million: A Teenager’s Guide to Achieving Early Financial Freedom—coming soon from BiggerPockets.
Also since teens can’t open credit cards or take out loans, it does make the process that much more difficult for teens to make investments and begin their portfolios.
Luckily, there are ways to work around a lot of these issues. If you arm yourself with the right knowledge you can start to build the portfolio that will get you on the right track.
Debt: Is It Good Or Bad?
Bad debt is buying something that you cannot immediately afford that will decrease in value over time.
If you buy a $300 pair of Gucci sunglasses on a credit card and take a year to pay it off, you’ll end up spending much more than $300 on those glasses with interest added in.
You probably won’t ever be able to sell them for more than you paid for, and you’ll lose money in the long run.
In contrast, good debt allows you to make a profit off of the things you went into debt for. If you buy materials for a business with credit and you make a lot of money, you’ll be able to pay off your debt and walk away with more cash in hand then when you started.
Using credit like this allows you to keep your own dollars in your pocket or use them for other purposes, like investing or saving.
Using debt as leverage to boost your money-making and investing abilities truly is a wealth-building strategy.
Most people who own businesses or property have used the bank’s money to their advantage.
3. Use your spare time wisely
Bogiatzis suggested forgoing those days at the beach and to start working and saving. Picture: Getty
Finding that balance between working and saving for a property while attending school or university can be a struggle.
But Bogiatzis said that giving up holidays and working on days off is crucial.
“Just work hard, give up your school holidays, because it will always pay off in the future,” he said.
So, you know the benefits of investing, and as a teenager, time is on your side. This post has also laid out exactly what steps you can take to start. What are you waiting for? Get out there and start building wealth! Your future self will thank you for it.
Investing strategies you can start with
The key to investing as a teenager is using your time and your limited finances to your advantage. Learn to work with what you have to get more opportunities. Here are investing options, to begin with.
#1: House hacking
House hacking is renting out a part of where you are living. It can be a bedroom, a garage space, or even a basement. You can convert any of these areas to livable spaces and generate monthly rental income. It is also a great idea to reduce your living expenses.
Before house hacking, understand what it takes to be a landlord. Have a business mind to gain fully from this venture. Set boundaries to build a professional relationship with your tenant. Carefully screen who to live with, probably a responsible classmate. A disciplined resident eases property management and maintenance.
Wholesaling real estate is another brilliant strategy to break into real estate investing with minimum capital. It does not require you to purchase, fix or manage any property. Your job is to hunt for lowly priced homes. Get the house under a contract. Look for an interested buyer, especially investors in house flipping. Assign the contract to the buyer.
Your return is the assignment fee paid by the buyer. The process sounds straightforward, but it is not. You must have an extensive understanding of your market and networking capabilities. The advantage is you will gain real estate knowledge in a brief span.
#3: Multifamily rental properties
In this lucrative strategy, you buy a multifamily home. Say you begin with a duplex. Use an FHA mortgage loan to buy it. You only need to have a down payment of 3.5% of the listing price. Live in one unit and rent the other. The monthly rental income received will offset mortgage payments.
A small multifamily home is a good place to start as a teenager because of minimum management responsibilities. To get the best out of this option, do a complete analysis of your expected cash flows.
Buy a property with a positive cash flow. After accumulating enough funds, you can rent the duplex and buy a triplex. Soon or later you will own a range of properties.
What Are the Different Investments You Can Make?
Just like the different subjects at school, there are also different investments that you can make. A few common ones are stocks, ETFs/index funds, bonds, real estate, and crypto. Let’s talk about what exactly each one of these is.
Perhaps one of the greatest benefits of investing young is that you have time to break into the industry at your own speed and lay the right groundwork for a successful career. Many new investors of all ages are hyper-focused on landing their first deal and securing their first property. While this is a monumental feat, it is not nearly as important as establishing the foundation for a future real estate business. Young investors should pay particular attention to creating a network and establishing strong business practices.
A great place to start is getting a real estate mentor and joining networking groups around your area. Be consistent as you try to break into the industry and focus on building lasting relationships with other real estate professionals. This should include real estate agents, contractors, other investors, real estate brokers, and more. Networking is key to a successful career in real estate, and building an expansive network early will help you in more ways than one down the line.
When it comes to your business, take extra care to develop your business plan and branding. Create core values and a mission statement for your company, and choose a business name that works for you. It can be a good idea to secure the social media handles and domain names, even if you are not at that stage yet. Remember that the work you are putting in now could greatly help you as your real estate business expands throughout your career.
Real estate business partnerships can be mutually beneficial for multiple reasons. A potential partner can bring financing solutions to the table as well as connections and experience. Partnering up with someone can help alleviate some of the stress and requirements of handling a business on your own. If you are running into obstacles that you do not think you can manage independently, this can be a great option for you and your business.
How to start investing in real estate
Feeling discouraged? Don’t throw in the towel just yet.
Learning how to invest in real estate is not rocket science. Start with a simple question: How do you want to invest in real estate?
There are plenty of ways to invest in real estate, from buy-and-hold to house hacking to REITs to flipping houses for a living to rental properties. Decide on your personal financial goals first, and it will be clearer to you how to start investing in real estate.
If you’re looking to build capital quickly, consider flipping houses as a first real estate investing strategy. The turnaround is relatively fast, and it can help you quickly overcome some of the challenges outlined above. (Recommended reading: How to Flip a House in 8 Steps.)
Another advantage to flipping houses when you’re getting started in real estate investing is that financing can be straightforward and relatively easy. Case in point: in addition to quick settlements, Kiavi finances up to 90% of the purchase price on flips with hard loans, and 100% of the renovation costs. Kiavi also has experts to help your business in crafting a house flipping business plan.
But whether you finance your house fix and flips through Kiavi or another lender, make sure to talk to your lender before you have a contract signed. Line up your financing beforehand, so that when you put a deal under contract, you’re not left scrambling to figure out how to fund it.
Having a lender in place will also free you up to focus on finding deals, finding contractors, and the other fundamentals of learning how to invest in real estate.
1. Get Educated
The best approach is to learn all that you can with the free resources available for your immediate consumption. You need to learn the basics, but you also have to ask the right questions when presented with information.
While you may be bombarded with images of expensive real estate investment seminars, that is not a requirement to be successful in real estate investing. You can learn the basics from useful free guides online to get a jump start on the basics. There are plenty of real estate books, podcasts, and free information online as a good place to start. You can also speak with other real estate investors.
Here are the main types of properties and investments available for real estate investment. Each type of investment has its own nuances that you should understand before you invest.
- Vacant Land
- Single Family Homes
- Small Multifamily Properties
- Large Multifamily Properties
- Commercial Real Estate
- Mobile Homes
Once you learn about the different types of options for the real estate listed above, you will want to think about the one that fits your budget, time, and requirements.
You will also want to learn how to properly evaluate a neighborhood in order to make the best investment. You may not be familiar with the city or locality where you are investing, so you will definitely want to check out how to evaluate the locality or neighborhood you are investing in to make an informed decision.
Three Pillars of Income
Income comes in three flavors: active, passive and interest. Let’s look at each of these.
By utilizing these pillars of income, you can have money flowing to you from different sources and, in time, achieve true wealth.
Advantages to investing in real estate young
While you’re young, you tend to have a more flexible personal life, without the time demands of young children or elderly parents. Which is good news, because getting started in real estate investing does take some work!
Beyond flexibility in their free time, younger adults also tend to have more flexible budgets. They don’t need to buy diapers, support a spouse, or pay for a child’s tuition.
In other words, they can put more of their paychecks toward real estate investments.
Nor is it only lifestyle spending that’s usually more flexible among younger adults. They tend to be more open-minded to unconventional housing arrangements than their older counterparts. For example, most 24-year-olds would not balk at the idea of bringing on a housemate to help cover some of their mortgage; or rent out a spare bedroom on Airbnb; or buy a duplex, or live on one side, and rent out the other (AKA house hacking).
Not every 42-year-old feels similarly open-minded.
And whether or not you can teach an old dog new tricks, younger humans definitely tend to be more open to learning new skills. From the fundamentals of how to invest in real estate to learning how to make physical repairs to details like maximizing tax benefits, learning new skills will likely come more naturally to you in your 20s than in your 50s.
Challenges Of Being A Young Real Estate Investor
Before committing to your first investment, it is important to consider the challenges you may face along the way as a young investor. By familiarizing yourself with the potential obstacles, you can help make sure you are prepared for any potential obstacles. Here are some of the challenges of being a young real estate investor (and how to overcome them):
Turning A Hobby Into A Business: While it may sound obvious at first, it’s important for investors to treat their new business like the business it is. Consequently, far too many new investors treat their first venture into entrepreneurship like a hobby. According to Ann Martin, Director of Operations of Credit Donkey Credit Card Processing, new investors must learn to treat their investments like a business. “By taking your real estate investments seriously, you’ll help ensure good returns,” says Martin.
Lack Of Resources: Many young investors blame their inability to get started on a lack of resources. Some even report finding opportunities but complain they don’t have the money to take advantage of them. Others are too afraid to get started because they think they need more money. If you don’t get started, you won’t have any more than you do now. And there really are ways to invest in real estate with no money down. It’s just a matter of learning the right strategies and tactics. Have you considered a private money lender? Truth be told, a lack of capital should never be an excuse with all that is available out there. You need to know where to look and be prepared when an opportunity presents itself.
Not Being Taken Seriously: While youth is frequently considered a strong asset in business, many young entrepreneurs fear they won’t be taken seriously. Unfortunately, it is a legitimate fear, but not one that can’t be worked around. Know that there are many circles in which others are specifically looking for those that are 30 and under. Opportunities are there for younger investors, but you need to be willing to put in the time to gain experience. Let your hard work be your resume. It also wouldn’t hurt to hire a veteran mentor or to partner up with a more experienced investor.
Self-Doubt: Everyone that considers doing something different runs into the fear that they are insane for believing they can do it or should try it. Such feelings often sneak in right before the leap is made or after the initial excitement begins to wear off. Recognize that this is a way your brain sabotages you into inaction. Those in the business call it analysis paralysis. Don’t let this happen to you. Anticipate it, and realize the need to work through it to see results.
The Process: If you haven’t been through the real estate transaction process yet, buy a home. Owning your own home creates a great financial foundation and will kick start your investing. It will also teach you a ton about the process of investing purely for profit.
Lack Of Established Credit: Younger real estate investors often have to face the reality that they don’t have well-established credit. Maybe you are fresh out of school, still in school, or have just been strict about paying cash for everything. Credit can play a role in some types of investing and in business. However, you don’t need great credit or any credit to get started investing in property. Don’t let this excuse rob you of your potential.
Student Loan Debt: Whether you are in college, fresh out, or dropped out for real estate purposes, there is a good chance you’re carrying some student debt. It is important to recognize that it can throw a wrench in your debt-to-income ratio, but there may be no faster way to pay off that debt than real estate investing.
Expectations: Buying and flipping houses is often made to appear very easy. However, it is easier said than done. New investors will quickly learn that they need to start marketing for deals, learn how to evaluate properties, and write offers. Some expect to be doing a dozen deals a month right out of the gate. Money can come fast and easy in real estate, but it can take some time to build up a pipeline and close deals. The better you understand what’s really involved in getting a deal and what realistic volume is, the faster success will come.
Connections & Relationships: One of the myths about the wealthy one percent is that they were born with money and connections. Some are, but there are even more millionaires and highly successful real estate players that have worked their way up from the bottom. Connections and relationships are some of the easiest things to build. You may need to learn or hone some communication and rapport-building skills, but nothing is stopping you from getting out there and making new contacts today. Build contacts, and you will be surprised at where some of them end up taking your business.
Finding Customers: Stop looking for people to sell to, or for deals to fall into your lap. Start looking for as many people as possible to help with their real estate and finance problems, and everything else will fall into place.
The What’s Next Trap: If you keep getting stuck on what you need to do next, you’ve skipped the most important step in getting into real estate investing: a business plan. Create a system that works for you, one that is tailored to your goals. Use it as a reference when you get stuck.
Start Sooner Rather Than Later
If you want to be a teenage investor — and you absolutely should if you can — ask your parent or guardian to set up a custodial investment account. You’ll have time to learn the investment ropes and build up a small portfolio. That will give you a head start when you reach adulthood, and if you find investing to be interesting, you can check out our full how-to invest guide for beginners and go pro.
Trust me; it will be better than getting a new car as a graduation present.