If you’re a Gen Zer who’s been turning to alternative investments, the old standby of real estate can still square with your plans to supercharge returns.

You don’t have to earn a high income or hold a lot of capital to get started with real estate investing in your 20s. From crowdfunding to house hacking, there are a number of ways to invest early and build the financial future you want. 

Here are some reasons to begin investing in real estate and potential strategies to follow.

Why Start Real Estate Investing in Your 20s?

Out of all the reasons to start real estate investing in your 20s, there’s one that cuts right to the bottom line: The earlier you invest in a property, the more you’ll get out of it. It’s what’s known as compounding appreciation. Over time, the equity you hold in your property tends to grow. While that’s happening, you might even increase your cash flow by renting it out. 

Beginning a real estate investing journey in your 20s has other benefits. You’re more likely to have fewer responsibilities at work and home, giving you the flexibility to research and manage your properties. With fewer responsibilities, you also might accept more risks, and as a twentysomething, you have more time to recover from any setbacks you might experience. Your early start also gives you a leg up on other investors who get going a lot later in life.

Common Real Estate Strategies for Investors in Their 20s

Depending on your financial situation and investment goals, you can kickstart your real estate investing in many ways. However, first check that your financial life is in order. Make sure you’re not carrying heavy credit card debt, you’ve established an emergency fund to cover three to six months of expenses, and you’ve learned about real estate and the market you want to target.  

Once you’re ready, here’s how to invest in real estate in your 20s:

1. House hacking: You can buy a home or multiplex, live in it, and rent out a room or another unit. This can lower your down payment to 3.5% with a Federal Housing Administration (FHA) loan. Credit requirements are also lower.
2. Rental properties: You’ll need a lot more capital for rental property investing, and you’ll need to handle getting tenants and maintaining the property, unless you hire a property manager.
3. Real estate investment trusts (REITs): You can get exposure by buying shares of a REIT that owns and operates income-generating properties and pays a periodic dividend. It’s a hands-free way to invest in real estate.
4. Real estate crowdfunding: Using investing apps or platforms like Fundrise, you can pool money with others to invest in real estate projects, sometimes with as little as $50, and you don’t have the hassle of property management.
5. Short-term rentals: You either need a lot of capital up front or you can buy a fractional share of a vacation home. Owning a rental gives you a vacation home to rent out the rest of the year. Alternatively, you can share all responsibilities in a fractional rental.
6. House flipping: You can find a house that is undermarket and needs repairs, fix it up and add upgrades and sell it later for a profit. A hard-money loan can finance the deal, but it will come with a higher interest rate than a conventional or FHA loan.
7. Wholesaling: This involves signing a contract to buy a home under market, finding a buyer to reassign the contract for more money and profiting from the difference between the initial contract and the one with the buyer.

How to Afford Your First Investment Property

Young investors are often short on capital, so it’s important to budget and save for a down payment, prioritizing your goal to invest.

Depending on your status and strategy, you can find savings through an FHA or VA home loan instead of a conventional loan that might require you to put down 20%. However, if you live in the property you purchase, you may qualify for a down payment of 3.5%. If you’re a military veteran, you might qualify for 0% down. Improving your credit score can also result in favorable financing terms.

To afford your first investment home, consider joining with family or friends to raise the money for a rental property. If you can’t qualify for a home mortgage, you can explore seller financing and lease-to-own options. 

With seller financing, you make a down payment and sign an agreement with the seller, who extends financing to you. Lease-to-own allows you to rent the property with the option to purchase it through rent payments.

Tips for Building a Long-Term Real Estate Portfolio

The advantage of real estate investing in your 20s is that time is on your side. Starting early gives you time to learn and turn it into a lucrative business.

You may start small, but you can reinvest your profits to purchase more properties and scale your business over the next 10 or 20 years.

A successful real estate business takes planning, building the right team of professionals and staying informed about the local market. It also requires patience and persistence to generate passive income, build wealth and find financial freedom.

Take the First Step to Real Estate Investing in Your 20s

Starting real estate investing in your 20s gives you the advantage of time to gain experience, maximize compounding appreciation and jumpstart passive income. You may have more flexibility to successfully launch a real estate business and more time to recover if a deal goes south, and you don’t need to be wealthy to get started. 

Youth is your superpower. Consider taking the first step toward success by studying real estate, researching markets, saving for a down payment, building your credit and planning your first strategy.

Frequently Asked Questions