Updated: Jan 9, 2021
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.
While there are many advantages, there are some challenges involved in investing in real estate when you’re younger. The most obvious challenge is money, or lack of it. In your 20’s you haven’t had time to builds a large amount of savings. After all, you haven’t worked very long yet in order to sock away a good portion of your income.
Although investing in real estate does require capital, there are ways to get involved with little or no money if you are creative and willing to work for it. The other disadvantage is you probably don’t have a lot of knowledge in the area of investing in multifamily properties. So get out there are start learning. Read books, listen to podcasts by successful sponsors, get to meetups and conferences and network with other young investors. It’s the smartest way to learn enough to be able to perform the effective due diligence needed once a deal comes your say.
Saving Money for Investing
If you’re really committed to starting your multifamily property investing in your 20’s, you’re going to have to make some personal sacrifices. In order to have money to invest, you’ll need to start saving money so that you’ll be able to participate in syndication, which is how most passive investors purchase multifamily properties.
You can start by making saving a key priority in your life. There isn’t a magical way to save money, but there is a process involved. It can be somewhat stressful, as sacrifices have to be made. However, the motivation is that you’ll be participating in a real estate investment that can help you build wealth at a young age and help you plan for early retirement.
Creating A Budget: Key to Successful Saving
How do you start? With a budget! Budgeting is critical to being able to save. Finding your exact monthly income and expenditures provides a clear picture on what money you’ll have available to save. Once you know the amount that’s available, move it into your savings account at the beginning of each month. Most people tend to put the money into savings at the end of the month, but that’s a huge mistake because they often find something more “important” to spend it on during the month and the money never gets saved.
While budgeting and saving are key ways to accumulate money to invest, another option is to increase the amount of money you earn each month. That may mean a part-time job to get addition income, and even if it’s only a few extra dollars each month, it’s money you can put directly into your savings. Use your knowledge and skills from your full-time work to bring in that extra income, or consider a different type of job just to earn additional income.
Here’s something else to consider: while most people want to buy a home as quickly as possible, it’s not something you should do if you’re planning on investing in a real estate deal. An investment property will help you make money, while buying a home only means you’ll be spending money on it every month. Just postpone the home purchase until you’ve successfully invested in a multifamily syndication. The fact is paying rent is much less expensive than paying on a mortgage loan.
While I’ve been encouraging you to save as much as you possibly can, there’s one area where spending some money can help you over the long term: improving your educational status. Why? Because education is the best way to boost your career options and provides a good reason to ask for a serious raise. It takes some serious money to get additional degrees or complete one you’ve started, but the payoff in the long run is well worth the expense.
If you’ve been able to save money to invest but you come up just short of the amount that’s needed, then ask family or close friends to lend you the difference. The fact that you’ve saved enough to “almost” meet your goal shows you are committed to being successful and that you have the discipline needed to pay back whatever amount of money you’re asking to borrow. That way you won’t have to postpone buying into a syndicated deal if a good one happens to come your way.
The earlier you begin investing in real estate, the earlier you begin to build wealth and plan for an earlier retirement. Imagine being able to retire from the workforce at 50, or at times, even earlier. You’d be able to pursue your passions and have enough money to live comfortably without being tied to a full time job, working for someone else. That’s the goal. If you have the desire, it’s achievable if you’re willing to do what’s necessary to get there!
About the author
Ellie is the founder of Blue Lake Capital, a real estate company specializes is multifamily investing throughout the United States. At Blue Lake Capital, Ellie helps investors grow their wealth and achieve double-digit returns by investing alongside her in exclusive multifamily deals they usually don't have access to.
Ellie is the host of a Unbelievable Real Estate Stories, a podcast that brings the true stories behind the deals, from the most successful real estate investors around the globe. Ellie started her career as a commercial real estate lawyer, leading real estate transactions for one of Israel’s leading development companies. Later, as a property manager for Israel’s largest energy company, she oversaw properties worth over $100MM. Additionally, Ellie is an experienced entrepreneur who helped build and scale companies by improving their business operations.
Ellie holds a Masters in Law from Bar-Ilan University in Israel and an MBA from MIT Sloan School of Management.