Need a push to make the leap into buying your first piece of Real Estate? Here are 10 good reasons why starting early can help you in the short-term and in the long run.
The Top 10 Mistakes 20-Somethings Make Regarding Real Estate
You probably think I’m just a bit crazy for including the phrase “20-something” and “real estate” in the same title.
Okay, maybe you have a point. At this point in life, many 20-somethings are more interested in when the next game of Call of Duty will start than the best way to start building their financial future. However, there are those of us who want more out of life and understand the immense power of time that we have in building wealth.
As a real estate fan, and one who acquired dozens of properties in my early twenties, I want to focus specifically on the mistakes that I see many young people making today regarding real estate and offer some real world strategies for overcoming these concerns.
Whether or not you own any property yet, these tips should help you navigate the often muddy (but often profitable) world of real estate.
1.) Living With Mom And Dad Too Long
Admit it, as you are reading this, someone’s face is coming to mind.. and maybe it’s yours?
If you are staying with Mom and Dad simply to escape the reality that you are grown up, it’s time to grow up and get a job, start paying your bills and meet the world. The only exception I make to this rule is if you are living at home to save money or get out of debt.. but if that’s you, don’t use your freed-up cash to spend on frivolous things or work less hours. Accomplish your goals as quickly as possible and get on with your life.
2.) Not Doing Your Homework
Many 20-somethings believe homework ended when school ended, but when it comes to buying real estate, as either a home or as an investment, it all begins with homework. Knowing what makes a good deal a good deal, what makes a good location a good location and so on are extremely valuable skills to have. These skills are not impossible to obtain, as there are thousands of books, podcasts, blogs and more that can teach you how to invest in real estate at a young age.
3.) Believing “Real Estate” Is For The Old, Rich, And Boring
Yes, real estate is for old boring folks with a lot of money.
However, it’s also for the young, the hip, the middle-aged and every other kind of person who wants a killer smart way to use real estate to build serious wealth. With hundreds of ways to invest in real estate, from buying your own home to buying investment properties, there is no shortage of options for you.
4.) Not Buying With Flexibility In Mind
Those young people who do buy real estate often times buy real estate without realizing that the life they live now is VERY different from the life they’ll probably live next year or in the next decade. As a result, they often buy homes that don’t accommodate change. For example, buying a small, one-bedroom condo may fit your budget.. but how long can you live in a one-bedroom condo?
This same mistake often causes people to buy real estate too early. If you are confident that you’ll be moving out of the area in a short time, think hard about buying any real estate unless you plan to rent the property out using a property manager.
5.) Maximizing Your Debt Based On Two Incomes
It’s a tragic love story…
Boy meets Girl, and the two fall in love. Boy and Girl suddenly realize they have extra cash due to the dual incomes and decide to max out their debt potential and buy a ridiculous home and pack it with things to fill it.
Then Baby comes, and Girl decides to stay home to raise Baby. Suddenly, the duel income is no more. Boy and Girl find themselves in a financial crisis, unable to pay their bills, and spend the next 40 years trying to escape the cycle of debt they’ve created.
Don’t be Boy and Girl. Look toward the future, and determine how much you can really afford to pay.
6.) Buying Only Based On Price
If you grew up with a “garage sale” mom, like I did, you probably were trained to recognize a deal and snatch it up before anyone else could. Many young people use this same principle when shopping for a home or investment property. “Just buy something cheap,” is the only concern.
However, what many 20-somethings forget is that price is only part of the equation. How is the neighborhood? The schools? The growth potential? There are areas in America where you can buy a home for under $5,000.. but do you really want to buy in these areas?
Price is vital.. but it’s not the whole picture.
7.) Variable Interest Rates
A variable interest rate is a rate that changes with the market which causes your payment to increase as well.
This can be dangerous for any homebuyer or real estate investor, because there is no guarantee where the future is headed. However, because we are living in a time of historically low interest rates, there is really only one direction they could go: up. Lock in a fixed-rate mortgage now and when rates rise, you’ll be set with the same payment for as long as you own the loan.
8.) Not Renting Out Rooms
When you buy a house at a young age — especially if not married — a homeowner can save an exceptional amount of money on their expenses by renting out rooms in their home to others. Not only does this offset your bills, but it also gives you some incredible on-the-job training for potentially becoming a landlord someday.
9.) Not Starting Early Enough
I’ve made mention of it several times, but let me just reiterate here: your strongest financial asset as a young person is time.
By getting your first property at a young age, you gain the ability to let the market sort itself over time. Yes, there are ups and downs in the market, but those who hang on the longest tend to do the best. So don’t wait until you are old and retired to start buying real estate.. start buying it today to help you retire before getting old.
10.) Not Considering A Small Multifamily
Finally, I want to end with a personal favorite that most young home buyers ignore: small multifamily properties. I’m referring to duplexes, triplexes, or fourplexes that exist in nearly every area of the country. These properties may not only have less competition, but also, if bought for a good price, you can get your tenants to pay all your expenses, allowing you to live for free.
Courtesy of The Huffington Post, November 22, 2013