You just graduated college! Congratulations!
What are you going to do next?
Probably go to Disney World. Or go backpacking through Europe. Or try and turn that internship into a steady gig.
Whatever you’re looking to do, celebrating your graduation by getting out of your parent’s house is likely at the forefront of your mind.
Whether you have an action plan in place or you are seriously flying by the seat of your pants, I’ll bet there’s one piece of advice you never thought you’d get fresh out of school. Here it comes. You ready?
Invest in real estate.
I know you don’t have kids. I know you don’t have a fiancé. I know you don’t have a five-year plan let alone a five-minute plan.
But hear me out.
Here are 5 benefits to investing in real estate when you’re young.
You want to get out of your parents’ house. Well, you’re going to have to live somewhere. You might as well make some money off your current living space.
Whether you’re considering the purchase of a condo, a small house, or even just a two bedroom apartment—owning often does not cost more than renting.
While rates for owning vs renting differ from demographic to demographic, oftentimes the difference between a rental fee and mortgage payment is only about $500. This can be made back by literally one tenant renting the bedroom down the hall from yours.
Even if you do not make a profit off of your first investment, that single tenant will pay the difference of what it would cost you to own. You’re literally making headway to owning your property paying what you would be paying if you were only renting. Add in another tenant and you’re living rent-free—meaning you can then move into another place and rent your old room to a third tenant.
Do you see where I’m going with this?
You just went from earning the difference to a $500 profit.
2. Your Age
Interest compiles. The longer you hold an investment, the longer it appreciates value. It’s simple math.
If you were to invest $5,000 when you were 20, by the time your were 60 your investment would grow to over $15,000 (based on a 5% interest rate). Let’s say you were 30. That same $5,000 would yield around $12,500 by age 60. If you were to do the investment at age 40 you would see a yield of only $10,000.
This same principle applies to the value of the house you invest in. Not only will value go up as you renovate the property, but your revenue will increase exponentially if you continue to invest your earnings into further real estate property.
3. Learn by Doing
The best way to learn a skill is to immerse yourself first into research and second into the application. Learning to run a business is as much learning fundamental theory as it is applying shrewd communication and problem solving to real life scenarios.
The same is true for real estate.
While most Americans go from graduation to renting to getting a steady job to getting married to investing in a single home, the process of waiting is actually hurting their home purchasing ability. While their credit is (hopefully) growing more established, most Americans make the mistake of not researching how to buy a home until they are swamped with dozens of other responsibilities.
The traditional model is not a bad one, but investing when you’re young offers you the time to do shrewd research and really learn the real estate world before you jump into it from a personal perspective.
4. FHA Loans
Most 20-somethings do not have the best credit records—if they have a credit score at all. The loan process can seem a little daunting, but the government has created programs to help those with low or no credit make investments into homes.
FHA loans are there to help those who do not have the 20% down payment for a property be able to invest anyway. The only drawback to the FHA loan is that it has a stipulation that requires you to live on the property you are taking a mortgage on.
However, this stipulation is easily circumvented if you implement the idea displayed in the Convenience section of this article. You will want to make sure that you have your loan paid back before you move off your property though.
5. Future Economy
While the current house buying market seems bleak according to the news, this is actually a benefit for the shrewd real estate investor.
The real estate market often offers depreciated prices for homes in “distressed state”. These are those homes that are on the verge of foreclosure due to a long delinquent mortgage. Young realtors and investors alike need to research these properties to determine which and where to invest.
Investing in the first distressed home is never the wisest move.
Due to your age and your position, taking time to research the market and really know the value of the house (based on past holdings) will help you understand the future of that house’s economy. You can calculate what you are going to pay—both in mortgage and repairs—and weigh that against inflation rates the projections for the home or apartment values in your chosen neighborhood.
Doing your homework will afford you the knowledge to say “yes this is a good investment” or “no, I’ll keep looking.”
At the end of the day, investing in real estate is something every college student should consider. Not everyone is cut out to be a business person or landlord—-but hiring out property management services from companies like Greensquare Raine&Horne Property Management can help.
There’s no better time to learn that when you are young and looking to be free—both in location and financially. Real estate investment is a good way to achieve both of those goals.