Investing in real estate can seem intimidating or even unreachable for young people. On one hand, homes tend to be pretty expensive so people tend to become homebuyers at older ages. This is partly due to life choices, like wanting to own a home for your family to grow in. But it is also very much a financial issue. Older people tend to be more established in their careers, earn more money, have more savings, have a more established credit history, and other factors that can make buying a home easier.
The downside of this is that, as with any investment, the longer you allow your money to grow, the greater your wealth will become. This is especially important in real estate where people tend to hold onto their assets for a long time. The issue then for young investors is to find the ideal middle ground – to be established enough to buy real estate but to also do so early enough to benefit from as many years of appreciation as you can.
If you are on the younger side and interested in starting in real estate investing but think you need to wait, think again. There are just as many options for young investors as there are for older investors. Though you may need to take different approaches in some cases, you can invest in real estate at a young age.
Legally speaking, you cannot own or buy property in Canada until you are at least 18 years of age. Ultimately, this will not present much of a barrier to most investors as very few people under the age of 17 have the financial capabilities to begin investing. Similarly, you will need to be at least 18 to access most passive real estate investment options such as buying shares in REITS or real estate funds.
There are ways for parents to hold property or investments on behalf of their minor children, but the management of these investments remains solely with the parents. The bottom line is, as long as you are an adult in the eyes of the law, you are free to invest in real estate.
If you are looking at homeownership stats, young people unsurprisingly make up the lowest percentage of homeowners. This is due to factors mentioned before like being less financially established at a young age but is also because, from a statistics perspective, people generally tend to age upwards out of age brackets so the number of homeowners will concentrate at the upper end.
According to Statistics Canada from the most recently available census data on the topic, the age breakdown of Canadian homeowners is as follows:
The trend then drops off with Canadians 65 years and above owning homes at a rate of 74%. This difference is likely explained by decisions in old age to sell homes or pass on ownership to family members.
Across Canada, around half of first-time homebuyers are under 35, though Statistics Canada also notes that young Canadians are entering the housing market at a lower rate than previous generations when they were the same age.
In investing, time in the market is key to getting the biggest returns and young real estate investors have more time than anyone. In general, homes in Canada have tended to appreciate pretty consistently for the last few decades and, barring any sudden and unexpected shocks to the market, this will likely continue to be the case. This means that in many instances, the cheapest time to buy a house is usually right now.
It also means that you will have many years to grow your investment. Because of the exponential way that compounding grows value, if you double the growth time of your investment, for example, you gain far more than double the returns. Should the real estate market turn around and you temporarily lose value in your home, a long-term investor can more easily weather the storm and come out on top in the end.
This growth in appreciation can also help you to build a bigger portfolio faster. Getting a headstart on growing equity now means you will be able to leverage equity sooner and expand your portfolio even further.
Finally, if you plan to invest in rental properties, there may very well be some period before your property becomes truly profitable. By starting early, you set yourself up to maximize the number of years you can earn money from your rental down the line.
Another big benefit for young real estate investors is the amazing number of options in real estate. From different markets and property types to alternative investment options, you have a lot of choices where you want to invest. Plus, another benefit of being younger is that you have a lot more time to try out different options, see what works for you, and decide on how you want to build your portfolio.
In terms of options, younger people with fewer responsibilities may find they have more free time to devote to trying new things and working on their investments. For options like flipping homes, a young investor may find that, physically, they are more willing to do the hard work at a younger age than an older investor might be able to.
Another big benefit for the young investor is the stability that owning real estate can have, especially if you are buying a home as your primary residence. On the lifestyle side of things, there are obvious benefits to owning your own home.
But beyond that, you may also be setting yourself up for financial stability. For example, many homeowners draw from their home equity line, providing them with accessible money at low-interest rates, which can come in handy when you need cash fast. Rental property investing can also present cash flow opportunities to increase disposable income.
Also, buying a home and making regular on-time mortgage payments to your lender will help you establish a great credit score. This can come in handy later when getting other loans, potentially for future investment properties.
Naturally, one of the best ways to invest in real estate is to buy a house. As a young person, this can take some effort, but it can be attainable.
The biggest barrier to buying a home is saving enough money for a down payment. More and more young people are taking gifts from family as a way to jumpstart their entry into the market. This is a great option if available, but obviously, this is not going to be realistic for everyone.
One benefit of looking at a home purchase from an investment perspective is that you have options to help make the purchase a little easier. For example, if you aren't necessarily looking to live in the home you buy, you have a lot more choices for locations and property types. Remote ownership and a property management company can even make it possible to invest at a distance. You can also choose different property types. A young investor may be more comfortable investing in single-family homes as opposed to something like a multifamily property with a higher purchase price.
Through smart saving practices and a careful choice of property, you may be able to find an affordable deal for your first property.
Once you own the home, you can make things easier on yourself by renting out the property or a portion of it. Many young investors like to use a strategy called house hacking, in which their home is also used to generate rental income to offset some or all of your housing expenses. This can provide you with some cash flow but can also help you pay off your mortgage more easily so you can start investing the money you save into further growth.
However, being young can have some effect on your ability to get approved for a mortgage. For example, if you have existing student loan debt, this can affect the debt to income ratio that your lender will use to approve you. Other factors such as young people not having as strong of credit history can come into play. These are not deal-breakers, but you should keep these things in mind as you attempt to get the best rates for your mortgage.
If you are a first-time homebuyer, you should not neglect to take advantage of any benefits, incentives, or rebates that may be available to you. These benefits can help you pay less money down, collect tax benefits, pay less closing costs, and more. Most importantly, by lowering the barrier of entry to your first home purchase, they allow you to potentially buy sooner than you would otherwise be able to.
Just note from a real estate investment perspective that some programs for first-time homebuyers like the First Time Home Buyers' Incentive will be required to be paid back, which will cut into your return on investment. Also, note that some of these incentives will not be available to first-time homebuyers who are looking to buy a property purely for investments or rentals. Prospective buyers should talk to a mortgage advisor who can help you understand what options are available to you.
Beyond buying a house, there are numerous passive investment options in real estate that a young investor can take advantage of. These are particularly attractive because a lot of them have much more financial requirements than buying a home outright. Options such as REITs, real estate funds, or mortgage securities can provide you with returns quickly and easily.
Again, you will benefit from being able to hold for a long term and you can scale your investment holdings as you earn more money. This can be a great way to invest money now to go towards a down payment later on or to generate a second stream of income beyond investments you may already have.
Finally, here are some general tips to keep in mind as a young real estate investor. Overall, while it’s possible to get started young, you will need a certain level of dedication and a certain mindset to help you thrive. As you continue on your real estate investment journey, keep these tips in mind to increase your chances of success.
When it comes to investing, your knowledge can be as valuable as your money. When starting young, you may not have the life experience, let alone the investment experience, of your peers in the field. You should do everything you can to learn as much as possible as fast as possible. Remember to always keep learning – even the experts are learning more every day.
As an inexperienced investor, you will need to rely a lot on the people around you. Getting help from experienced real estate industry professionals early on, such as your real estate agent, mortgage advisor, or investor mentor, can save you from costly mistakes and help you learn even faster.
Beyond just the people you work with, building a network for a network's sake is a highly valuable skill to work on as you never know where new opportunities and lessons can come from.
If you plan to invest for the rest of your life, the chances are very high that things are going to change in your lifetime. New strategies, products, regulations, and more, are being created all the time. To be a successful real estate investor, you have to have the foresight to recognize and capitalize on new opportunities. As a young person, you will be even more suited to adapt quickly to new trends so use that to your advantage.
If you are investing for the long term, it’s never too early to start thinking about what your strategy should be. You should also not assume that your work as an investor begins and ends with your first home purchase.
From the start, try to plan how you want to scale your investment portfolio and what your long-term goals are. Keeping this in mind all the while can help focus your efforts and help you make better decisions in the long run.
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