Real estate investing can be a lucrative way to grow your wealth, and starting in your 20s gives you a head start on building your portfolio. But before jumping into this venture, we’ll discuss the steps you need to take to ensure you are prepared to invest in real estate in your 20s.
Determine how you want to invest and how much you can afford
There are several ways of approaching real estate investing, each of which has pros and cons that merit close study. Of course, there is buying and selling properties and renting them out. Alternatively, if you don’t want or can’t afford to purchase a property just yet, you can invest in real estate investment trusts or REITs, companies that own and manage income-generating real estate properties and whose shares trade on the stock market. REITs are required to distribute at least 90% of their income to shareholders in the form of dividends, so they could be an attractive investment for people who want a steady and constant return on investment.
Once you’ve figured out how you want to invest, next on the list is to make an honest determination of how much you can afford. Take stock of your finances, from your income to your spending, and crunch the numbers to figure out the amount you can realistically shell out for your investment. Banks offer home loan pre-qualification forms and home loan calculators, which can aid your assessment.
Get your finances in order
The first step in buying real estate is to start saving money for a down payment. This may require cutting back on expenses and creating a budget to save a certain amount of money each month. Another strategy you could take is to increase your income by looking for a higher-paying job or taking on a side hustle, depending on your capabilities and free time.
Just as important as saving money is ensuring that your income will be able to support future loan repayments. Mortgages can span 20 years, making them one of the biggest financial undertakings most people make. Stable employment is crucial to covering mortgage payments in a timely manner. In addition to that, consider whether your existing debt – like a car loan and credit cards – will get in the way of your ability to invest in real estate. Lenders will look into your credit history, so diligently managing your debt will improve your chances of securing a real estate property.
Find properties for sale
Start searching for properties in your target area that meet your investment criteria, which should include factors such as location, security, the potential for value appreciation, and the costs involved. You can use reputable online resources, real estate agents, and networking to find properties.
If you’re not in a rush, consider buying a property in the pre-selling stage. Pre-selling properties are those that have not yet been constructed. You can expect to wait years before turnover, but the advantage of buying at this stage is that you get to lock your desired property in at a lower price.
Do your homework
Learn as much as you can about real estate investing by reading books or credible articles online, attending seminars and other educational events, and talking to experienced investors whenever possible. This will help you understand the different types of investments, financing options, and legal requirements and discover what to watch out for. Before signing any contract, read the fine print to make sure that the terms of the deal are advantageous for you. And when you visit the property, inspect it closely, preferably with professional help, to identify any defects before you close the sale.
Final thoughts
Don’t bite off more than you can chew
As discussed above, it’s important to do extensive research before diving into the world of real estate investing. Shiny ads may entice you to buy the hottest properties and then leave you struggling to pay off enormous loans, or worse, force you to withdraw because you’re unable to keep up with the cost. Beginning your real estate investment journey in your 20s will give you a lot of time to build your portfolio, so don’t be afraid to start small and then expand later on as you gain more knowledge and experience.
No investment is 100% risk-free
Finally, keep in mind that investing is inherently a risky undertaking. Consider your risk tolerance and take it into account when deciding which investment strategy to take. Learn as much as you can about real estate investing, and consider obtaining professional guidance – from a mortgage broker, for example – to make informed decisions. Your 20s are a time for learning and experimenting, and taking advantage of these years – in a careful, intelligent manner – can help you lay the groundwork for a successful future.
To find out if you’re ready to consider investing in property, speak to a Maverick Finance Broker who’ll be able to walk you through the process. As always, all of us at Maverick Finance are here to support you on your investment journey.
Maria Papa is a senior property and finance expert specialising in home loans, investment loans, self-employed loans, alt doc loans, car loans, personal loans, and loan protection. She has offices in Sydney, Melbourne, and Manila. If you have questions, you can call Maria at 0430 144 008 or email her at mpapa@maverickfinance.com.au.
Disclaimer: Your full financial situation will need to be reviewed prior to acceptance of any offer or product.