Updated: Jan 9
If you’re in your 30’s or older, you probably have some fond memories of your 20’s. That’s the decade when most people graduate from college or begin working or studying for an advanced degree, get married or begin a family, purchase their first home and land their first “real” job.
That “real” job pays a fairly good salary, so it’s also the time when people buy a newer vehicle, plan vacations and purchase furniture. You may have your own memories of things you planned or bought in your 20’s, but for most people investing in real estate is not on the list. That’s too bad, because an early start in passive investing in real estate is a very, very smart move. Why? Because it is the ideal platform to build wealth over time that will ultimately fund your retirement. Unfortunately, most people in their 20’s don’t think about retirement or start planning for it.
What is Passive Investing?
If you are not familiar with passive investing, a definition would be a good place to start. Basically, passive investing in real estate is a strategy designed to supplement your income without having to be actively involved in the actual real estate deal and all that it entails. That would include finding the right property, negotiating the price and arranging the loan, finding other investors, managing the property and ultimately selling it. It’s a “buy and hold” strategy, where the rental property is purchased with the intent of holding on to it for a period of time, hoping it will appreciate as it generates passive income from rents.
The fact is most people, regardless of age, don’t have the expertise or the time needed to put together a real estate deal and do all the work that is required to make it successful. That’s why most passive investors invest with sponsors, often called syndicators. These sponsors are the lead investors, and have the knowledge and experience to locate a real estate property, perform the due diligence required to ensure it’s a good investment and ultimately put the deal together with other participating investors.
Time is On Your Side
The younger you start investing, the longer you will have to amass wealth. There are many advantages to investing in real estate when you’re in your 20’s. First, you aren’t bound by the constraints of someone who is older, constraints like having young children or elderly parents who require time and care.
Another advantage of investing in your 20’s is that you won’t have the monetary constraints of spousal support, pre-school tuition or daycare and the need for larger living accommodations. That means more of your income can be placed in your real estate investments.
The major advantage of starting real estate investments while you’re younger is the amount of time you can wait for the property to appreciate. If a multifamily property has a hold period (the length of time between the property’s purchase and sale) of 7 years, you’re more likely to agree to that deal than if you’re in your 50’s or older.