investing

A Guide to Real Estate Investing in Your 20s and 30s

What’s one goal most people want to accomplish in life? Financial freedom.

It’s no secret that real estate investing is a great way to build wealth. Yet most people don’t start investing in real estate until they are between 45 and 65. When it comes to real estate, you probably won’t get rich overnight, but over time, it’s a sure way to build wealth and to achieve financial independence.

So why don’t more people consider investing in real estate at a young age? Just think: Young real estate investors have the opportunity to achieve financial freedom long before retirement age.

If you’re considering investing in San Diego real estate in your 20s or 30s, read on to learn more about common concerns, financial benefits, and how to get started.

Jump-Start Your Knowledge of Real Estate Investing

Investing in a property in your 20s or 30s is exciting and, yes, it can be overwhelming. But with some research and a better grasp of the real estate market, you can be well on your way to understanding your best options for real estate investing.

First, do your research. Get your hands on and pour into real estate investing books, listen to podcasts from real estate experts, read about investing online, and follow real estate experts on social media. Here’s a brief list of some of our favorite real estate investment sources for beginners:

  • BiggerPockets
  • Rental Rookie Podcast
  • Real Wealth Show Podcast
  • Building Wealth One House at a Time by John Schaub
  • The Book on Investing in Real Estate With No (or Low) Money Down by Brandon Turner
  • Every Landlord’s Legal Guide, by Marcia Stewart, Ralph Warner, and Janet Portman

Next, make sure you’re following the current market news and trends in real estate investing. Pay particular attention to changes in landlord-tenant laws, rent regulations, investment property taxes, as well as top real estate markets for investors and other general housing market news. All of these will affect how you should search for potential properties and investment opportunities.

Factors of Great San Diego Residential Rental Property Investments

When searching for your first real estate investment property, finding the right one depends on a few key factors, including:

  • Location: Know your market area. Search Zillow or Redfin for current market analysis in the city you’re looking to invest in, including median home prices, average time houses spend on the market, etc.
  • Purchase Price: Learn how to value properties. Investopedia has a great article to get you started.
  • Rentability: What is the profitability of your potential investment? Analyze rentals and competition in the area to get an idea of costs and potential profit.
  • Expenses: Does the property need renovation? Calculate your projected expenses of repairs and vacancies.
  • Appreciation: What is the estimated appreciation in value and for paying down the mortgage?

Real Estate Investing Options

There are many options for real estate investing while young. Here are a few of the most common types:

  • Single Family Homes – A single detached unit, completely separated from other dwellings by open space on all sides. SFHs cost more but offer private spaces, like a yard, garage, etc.
  • Multi-Family Homes – Two or more units, these could be duplexes, triplexes or apartment buildings with more units. As an investor, you have to account for vacancies and maintenance for multiple units when creating your budget and rent prices.
  • Commercial Real Estate – Office buildings, retail complexes, mixed-use residential and commercial properties, etc. These are more costly and require more money up front, but they also generally require long-term leases from tenants—lowering your risk on investment.

Beginner Option: Residential Real Estate for Young Investors

Although there are many different properties for young real estate investors to consider, we recommend starting small with residential real estate. This isn’t to say that commercial real estate for young adult investors (think: retail or office building) isn’t a possibility, but starting small can give you time to learn what it takes to be a successful investor/property manager/landlord. Plus, residential properties are more affordable and generally have fewer tenants to manage.

Consider these residential properties for your first real estate investment:

  • A condo or townhouse
  • A single-family home
  • A small apartment complex (duplex or triplex)

Another important consideration is the condition of the San Diego rental property you’re interested in. Fix and flip properties, for example, may require extra time, effort, and money in order to renovate and rent out (or sell), but the potential return on investment makes these a great option for young investors. You can purchase a property at a lower price, invest in renovations and repairs, and then yield higher rent when you put it on the market. Make sure you set a budget and stick to it.

Types of Investment Strategies

The benefits of real estate investing are cash flow, taxes, mortgage principal paydown, and appreciation. As a young real estate investor, the most common ways to build wealth through real estate is appreciation and cash flow.

Real Estate Investing Strategy: Appreciation

By definition, appreciation is an increase in the value of an asset (i.e. your real estate property) over time. How much the property appreciates each year depends on factors like the local real estate market and value adds to the home, such as upgrades and renovations. It is based on the fair market value of comparable homes for sale in the neighborhood. According to the National Association of Realtors, the average annual rate of appreciation is 3.7% (after adjusting for the fact that homes get bigger over time).

Real Estate Investing Strategy: Cash Flow

Cash flow has more immediate returns. Cash flow is the profit you make from a rental property every month after you’ve paid all the expenses. Your cash flow on a rental property increases over time because rents can increase while your mortgage remains the same. Plus, once you pay off your mortgage, your cash flow increases significantly. While there’s no guarantee with any type of investment, cash flow investing lets you receive some return early to hedge against issues with the investment later.

When considering real estate investing in your thirties and twenties, aim to invest for cash flow.

Where Do I Get the Money to Invest in San Diego Real Estate?

By now you have a better understanding of real estate investing and insight into a good beginning approach. But the most common concern for young adults investing in real estate is figuring out where to get money/down payment to fund the investment. Maybe you just graduated from college or grad school, and you have student loans and other bills—how will you be able to afford to invest in real estate while young?

Real estate investing for young adults has great potential to help you build wealth over time, but there are a few things you’ll need to do in order to acquire a loan:

  • Have a good credit score (pay off credit cards, pay bills on time, etc.)
  • Pay off your loans, such as student debt, as quickly as possible
  • Save for a down payment (this doesn’t have to always be 20% or 30%, as we’ll discuss below)

The Down Payment

Not all lenders require the investor to give a 20% down payment. If you purchase a home as owner-occupant, to which some lenders offer loans with no down payment, most lenders will require you to live in the property for a certain amount of time (usually 12 months) before renting the home out. If you’re purchasing a multifamily property, such as a duplex, you may be able to live in one unit to fulfill this requirement, while renting out the other unit.

Your Loan Options

First-time buyers or young adult real estate investors have many funding options, including:

  • Government – An FHA loan requires only a 3.5% down payment, a good option for young real estate investors.
  • Bank – Full-service banks offer loan services along with checking and savings, so you can potentially have everything in one place.
  • Private Lender – Mortgage companies or private money lenders are examples of private lenders who are generally more flexible than banks in terms of loan approval. Private money lenders, specifically, can help with fast closings for quick acquisitions.

Ready to Invest in a Residential Property?

When you’re ready to take the next steps towards purchasing an investment property in San Diego, CIVIC is here for your financing solutions. Civic Financial Services is a respected private lender offering streamlined services, fast closings, and aggressive rates. CIVIC does not provide traditional financing (i.e. for a house you intend to live in), rather, if you plan to purchase a rental or fix and flip property as an investment, we have several financing options for you. Give us a call at 877-472-4842, and we’d be happy to sit down and discuss how CIVIC can partner with you to make your real estate investment goals come to life. Contact us to find out more about our services and how to get started investing in your 20s and 30s – or beyond!

Also Check Out: 4 Ways to Find Off-Market Deals

Loan Status