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Real Estate Investing For All Ages
By Jeff Riddell
In the next few articles, we’ll talk about the approach of different age groups to real estate investing. Let’s start with the 20-35 age group; let’s call them beginning wealth builders or BWBs. Unless they won the lottery or inherited a lot of money, BWBs are usually capital challenged. Most people in this age bracket are finding it difficult enough to make a down payment on a home, let alone enough to make an investment real estate down payment. But for those who have the discipline to swing it, this is the place to start because the power of leverage and compounding will benefit them the most. Those BWBs who didn’t win the lottery or inherit a lot of money will probably start their real estate investing careers by buying a rental house. John Schaub says in his book Building Wealth One House At A Time that:
Houses are not complicated, and they’re not scary. Their performance is predictable. They produce income when rented, and house rents have a long history of increasing. Likewise, house prices have increased at an average annual rate of roughly 5 percent for about as long as we can measure. Some years houses go up at a much higher rate, and occasionally, they do not go up at all and even drop in price.
Buying rental houses is as basic as it gets in real estate investing and John Schaub’s book tells you how to do it.
Another approach to getting started in investment real estate is to buy a home for your own use (mortgage terms are sometimes better for owner occupied properties anyway) and later convert it to a rental property when you are ready to move up to your next home. If you live in your home for two years and then turn it into a rental, you can still claim the Section 121 exemption when you sell it, but only if you resell within 36 months following the date you moved out and the tenants moved in.
Duplexes are similar to houses; you can start small and the additional advantage is that you might live in one side and rent the other side until you accumulate enough money to make a down payment on your own home. As you can imagine, however, living next door to your tenant has both advantages and disadvantages.
Even mobile homes can be attractive. You can buy smaller ones and target lower income persons as tenants. Weekly rent collections are suggested for these, though.
Stand alone single tenant industrial buildings may also be within their reach. “Industrial” is a wide array of rental properties that are not residential, retail or office; such properties are plentiful in many areas. Some were built by business owners who wanted to own their shops instead of renting but time moves on and such buildings are purchased by investors who turn them into rental properties. Unfortunately, some industrial property owners suffer business reversals that cause them to sell to free up cash—they become tenants once again.
Not very many BWBs have the money to buy office buildings, shopping centers or apartment buildings when they start out. Don’t bite off more than you can chew—especially if real estate investing will be your part time job. John Schaub’s book has a chapter called “Eight Steps to Quitting Your Day Job” but let’s not go too fast; houses are just a great way to start. The point is: Get started early; the longer you are a real estate investor, the better you will be at it. Wealth building takes time. Next article: Middle Age.
Jefferson F. Riddell is a Florida Board Certified Real Estate attorney with thirty-five years of experience assisting people with a variety of residential and commercial real estate matters. U.S. 1031 Exchange Services, Inc is a 1031 exchange qualified intermediary (QI) and a member of the Federation of Exchange Accommodators (FEA). As President of U.S. 1031 Exchange services Jeff has been facilitating 1031 exchanges for more than twenty years. Jeff has been awarded the Certified Exchange Specialist (CES) certification. Jeff may be reached at 941-366-1300 or via email at jeff@us1031.com [2]. www.us1031.com [3]
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