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Want to Be Rich AF? Start Investing In Real Estate In Your 20s

women with coat in the city

There are many ways BAUCE women can create multiple streams of income and one prominent way is to invest in real estate. Did you know that most self-made millionaires made their money through property investments? Investing in real estate can serve as a great way to increase your net-worth, create cash flow and invest in companies that manage real estate. Like everything it takes time and patience and a willingness to learn.

Real estate can seem confusing in the beginning but if you know the basics you will be well on your way to creating a lucrative cash-flow positive income stream. In order to be rich, you have to find ways to diversify and compound your earnings overtime. Yes, you can own stocks and have side-hustles, but real estate is one of the best ways to increase the value of your financial portfolio. For one, it’s the easiest way to leverage a bank’s money to make a down payment, get a mortgage and start offloading  your debt. There are actually specific loans available for owner-occupants (people who live in a multi-family home for a specified amount of time before renting) that allow you to put no money down or only 5% of the total cost. However, rental properties do require management and maintenance which homeowners have to be mindful of and budget for.

But we aren’t going to dig too deeply into that today – we are going to start with the basics. There are four ways real estate investors make money.

(1) Cash Flow Income: This investment focuses on buying real estate property for the purposes of collecting money from rent. A tenant will pay you to rent your property for a specific amount of time.

(2) Real Estate Appreciation: This is when a property increases in value because of a change in the land around the property. This also includes the investment you make over time in your real estate property to increase its value and make it more attractive to renters.

(3) Real Estate Related Income: This type of income is generated by specialists who make money through commissions from buying and selling real estate. This also includes real estate management companies; they keep a percentage of rent in exchange for running the day-to-day operations of the property.

(4) Ancillary Real Estate Investments Income: This income can come from things like vending machines in office buildings of laundry facilities in low rent apartments. This type of investment can be viewed as mini-business within a bigger real estate investment.

We highly recommend that if you are seeking to invest in real estate to increase your overall net-worth that you chose properties that will provide cash flow income because they will provide you with the least hassle. They will also offer you enough of a return to reinvest in new properties (which increases  your financial portfolio) or extra pocket-money to buy something nice. The sooner you begin making this type of investment, the sooner you can begin compounding interest on your earnings and reach millionaire status.

The second option listed, real estate appreciation, is also known as “house flipping” where an individual buys a property at a low cost (often times this can be homes that have been foreclosed) and fixes it up and resells it for a higher cost. As you know, the house flipping movement can be an extremely lucrative lane, especially if you have the ability to turn old homes into re-purposed mansions. However, we would only recommend this for women in their twenties if (1) you have a large amount of disposable income that you can invest into a property that will not earn you money until it sells since no one will be occupying it during repairs and (2) you are a handy-girl who has experiences building fancy treehouses or you have access to a super affordable team of contractors that can do the repairs for you. Remember flipping homes requires investment in order to see a return on your investment so if you’re not able to shift your coins around to make this happen then start with a simple property that you can rent to one person or family.

You may be thinking – well what about the vending machine! That’s a cheap way to get started! It is, but it also has lower returns than investing in a property and requires consistent maintenance. Given our current culture around healthy eating, you might find that unless you pack that puppy with healthy snacks in a highly-trafficked area where people will b ehungrily “lounging” around, no one will be eating your food and you won’t be making any money. You’ll also to maintain the machine on a regular basis to ensure that it’s constantly stocked with fresh food or drinks and that the cash is refilled to give customers the appropriate amount of change. Unless you have a lot of spare time or experience in retail marketing and understand how these type of “mini-businesses” work, we would recommend you avoid this option.

Now there are several different types of real estate investments a BAUCE can make.

Residential real estate investment: These are properties such as houses, apartment buildings, vacation homes, townhomes etc. where a person or family pays you to live in the property.

row of colorful apartments

Commercial real estate investment: These are properties like office buildings and skyscrapers. You can purchase a small building with individual offices and lease them out to business owners who would pay you rent to use the property.

Industrial real estate investment: This investment consists of all land and buildings utilized for industrial activities. Everything from industrial warehouses leased to firms as distribution centers over a long period to storage units, car washes, and other special purposes real estate that generate sales from customers who temporarily use the facility.

Real estate investment trusts (REITs): These are companies that own, and in most cases, operate, income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, and hotels. When you invest through a REIT, you are buying shares of a corporation that owns real estate properties and distributes its income as dividends.

Retail real estate investment: These are properties that are used exclusively to market and sell consumer goods and services. They range from shopping centers, strip malls, individual stores, pop-up shops etc.

Mixed-use real estate investments: This real estate investment blends residential, commercial, cultural, institutional, and industrial uses together. For example, a person can buy a building in a residential area create a storefront on the first floor and then lease each floor above out to small businesses who are all independently in business for different things.

Now, which one of these real estate investments do you think is the least arduous for a person in their 20s to get into? If you guessed residential then you guessed right. Although homes and condos come with their own set of legs when it comes to legalities and property taxes, commercial and industrial properties are much higher and usually need a larger down payment to secure actual ownership. If you have the ability to purchase a multiple-family unit (where you live in one portion of the home and the other person lives in another) you’ll find that being able to collect rent and deal with any issues with your renters is a lot easier as a landlord. The second route you could take is purchasing rental property in another city or state but be keen about this as you’ll need to fully understand the investment laws in that area. Furthermore, if you are not able to easily commute to your rental property by car, bus or train then you may need to consider hiring a property manager (close friend or family) that is able to assist with repairs or any issues that may arise in the home when you are not around.

Another key thing to note is who you decide to rent your property to. Renters can either make or break your experience as a landlord. If you rent to a young family, be aware that you will be responsible for safeguarding the home for children. If you rent to loud or noisy people who like to party, be aware that you might be fronting a lot of out-of-pocket costs to repair home damage if you don’t include a specific clause in your lease agreement with your tenants. Be sure that you are thorough with your search for tenants as you are with your search for a rental property — the quieter (and less destructive) the better for your overall cash flow in the end.

Remember, if you’re thinking about investing in real estate, you should never buy investment real estate in your own name. If something were to go wrong and you find yourself slapped with a lawsuit and your personal name is attached this will also mean your personal assets will be impacted. Instead, when you are investing in real estate you should consider creating a Limited Liability Company (LLC) or Limited Partnership (LP). You can create a different LLC for each real estate property you purchase and by creating these legal structures you will create asset separation. It is indeed possible to create these legal entities on your own but if you need help you should find an attorney who specializes in this area of law.

We also recommend these additional resources to help you learn more and to get started with this journey:

1 Comment

1 Comment

  1. Coppin

    June 5, 2017 at 7:14 pm

    Good read. I think everyone should try to get some sort of real estate into their wealth portfolio.

    Although, I disagree with buying in your own name not being a good idea especially when just getting started. If you have no money what are they going to get in a lawsuit? Plus there is another strategy that’s been given the name house hacking. Where you would need to buy in your own name. Its a great way to get started with real estate and property management. Your insurance would take care of any litigation issues. Now once you start building a portfolio, and accumulating assets, I wholeheartedly agree that you should start keeping your name off the public record through LLCs and other entities.

Go ahead, boo. Tell us what you think.

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