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Many opportunities exist for young adults to start investing in real estate with every level of experience. The basics of investing include purchasing, owning, managing, renting, and selling properties. For young investors, the easiest forms of real estate are residential and commercial properties.

Here are some of the simplest ways for young adults to begin real estate investing.

 

 

 

Starting Small: House Hacking

One of the simplest ways to begin real estate investing is house hacking. House hacking involves purchasing a property, and living in part of it while you rent out the remaining space to tenants. This strategy allows young adults to live in a home while the tenants cover the cost of the mortgage.

For example, a young adult might purchase a duplex, live in one unit, and rent out the other. The rental income will help cover the mortgage, property taxes, and maintenance costs. Over time the property appreciates and the mortgage balance decreases, allowing the young investor to build equity.

 

 

 

Leveraging FHA Loans

The government has backed loans for first-time home buyers called Federal Housing Administration (FHA) loans. An advantage to FHA loans is the lender only requires 3.5% of the house cost as a down payment. This can be a game changer for young people who have savings built up.  To qualify, you must have a credit score above 580 among some other conditions.

Young adults can leverage FHA loans to purchase multi-unit properties, of up to 4 units. This allows them to live out of one unit while renting out the others. Strategically leverage FHA loans to turn your dreams of real estate ownership into a reality. 

 

 

 

Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts (REITs) offer a more hands-off approach to investing. REITs are companies that own, operate, or finance real estate. Young investors can buy shares of REITs, similar to purchasing stocks.

Young adults investing in REITs have exposure to real estate investing without the property management aspect. The diverse portfolios or REITS also mitigate the risk associated with single-property investments.

 

 

 

Peer-to-Peer Real Estate Investing

Peer-to-peer (P2P) real estate investing is when you invest a small amount of money into several real estate projects. Young investors have the opportunity to pool their money with others to invest in larger real estate deals.

Several investing types are available in P2P real estate: real estate loans, rental properties, and real estate equity. Each investment opportunity has its advantages and disadvantages.

  • Real estate loans offer fixed interest and loan terms. However, there are no cash payouts regularly, as you need to wait for the completion of the term.
  • Rental income offers cash flow and capital gains as the property value increases. Rental incomes, however, are often low-interest and not as easy to diversify.
  • Real estate equity offers high interest rates with a smaller financial commitment. However, you are taking a higher financial risk with a longer commitment.

 

 

 

Student Rental Properties

College towns often have a higher demand for student rental properties. The steady influx of students needing housing drives the demand. Buying a rental property and renting to students will provide you with a steady rental income.

Student housing comes with its challenges including a higher turnover rate and more frequent maintenance. Managing the property is crucial for it to remain profitable and well-maintained.

 

 

 

Fix-and-Flip

For a more hands-on approach to real estate investing, the fix-and-flip may be a great option. This method includes purchasing an undervalued property, updating the property, and then selling it for a profit. This approach needs someone who can spot undervalued properties, has good project management skills, and knows the cost of renovations.

Even though fix-and-flip investments can make a lot of money, they also come with higher risks compared to other real estate investments. Ensure you have a contingency plan for potential setbacks.

 

 

 

Real Estate Crowdfunding

Crowdfunding is similar to P2P investing as it allows individuals to invest in real estate with minimal investment. These crowdfunding platforms aggregate funds from several investors to finance properties or real estate developments.

Crowdfunding provides the opportunity to invest in larger projects that are normally not available to individual investors. There is also the advantage of professional management and developers overseeing each project.

Real estate investment offers many opportunities for young adults willing to take calculated risks. There are many pathways to enter the real estate market without needing substantial capital. Young investors can achieve financial growth and stability by starting early, staying informed, and building a strong network.