If you were to ask ten different people for investment advice, you’d most likely get ten different answers. Despite the diverse responses you might get, you’ll probably notice at least one commonality amongst them: start investing early. It’s good advice, but it only answers part of the puzzle; the other half is where exactly to invest your money. There are numerous options like a money market account or the stock market, but for a millennial, the best bet may be investing in real estate.
Why Should Millennials Consider Investing in Real Estate?
Traditionally, a person’s first investment stop is the stock market. It makes sense; there’s a chance to get a decent return on your money, and it’s easy to buy, sell, and move stocks and bonds around. However, the stock market does not offer quite as high of a ceiling as investing in real estate.
When you invest in real estate, there is potential for even higher returns than in the market, favorable tax benefits, and the chance to leverage your investment. Plus, if you buy the right investment property there’s less risk; your return is not tied to the success or failure of the company whose stock you purchased.
“The stock market can be a bit volatile, and it’s not necessarily the most passive investment,” American Real Estate Investments Managing Partner, John Larson said. “You can put your money in the hands of a financial advisor but how do you know it is being managed properly? You could trade stocks on your own, but now you need to commit a considerable amount of time and energy to see attractive returns. I always gravitated towards real estate because it is easy to understand and will always be in demand. Everyone needs a roof over their heads. If you invest in real estate the right way and choose the right market, there’s a lot of money to be made.”
Where Should Millennials Be Investing in Real Estate?
How successful a real estate investment is can come down to property location. It can be tempting to purchase an investment property solely because of a low price, but you must remember you get what you pay for in real estate. If you buy a house in a distressed area because it’s inexpensive, you may be taking on more risk than if you bought something that costs more in a more thriving part of the country because you have to deal with property damage, possible evictions, break-ins, etc.
Instead, look for investment areas where there’s always going to be a need for housing like a college town. There will always be a new crop of students coming in every year, so there’s no need to worry about your property being vacant for too long. Another target for real estate investing is anywhere there is a lot of job opportunities—in other words, a location that is enticing for people to live and has market demand.
“Don’t be fooled by the sub-$100,000 property in distressed areas around the U.S. because a spreadsheet is not (actuality),” Larson said. “I’d focus on markets where you see a lot of growth, where you see a lot of millennials moving. You as a millennial should know more than anyone where your peers are flocking to. It would be a good idea to look for investment opportunities in those markets because those are the areas that are in high demand and are thriving.”
Much like a new stock market investor might work with a financial advisor, anyone new to investing in real estate does not have to go it alone. Companies like American Real Estate Investments help millennials, or anyone interested in investing real estate, buy homes in good areas that will attract middle to upper-class tenants that it feels comfortable holding on to for the long run.
“Although it may look like your rate of return is a little less on a spreadsheet, it’s more of a safe and stable return, like a blue-chip stock,” Larson said. “Millennials can come to somebody like me, and I’m going conduct the professional renovation and make sure the property passes all the third-party inspections, so the investor knows they are getting a fully renovated, rent ready property.”
The goal for any investment regardless of the type is the same: to get a financial return. Stocks, bonds, gold, and money market accounts could accomplish that goal, but with a little research to find the right property, in the right location, investing in real estate could significantly increase your odds of a getting an even better return on your investment.
“In markets like (Dallas) with the most corporate headquarters in America, it’s still a pretty affordable market,” Larson said. “In Texas, you’re going to be able to ride the appreciation, and that is where the real money is made in this business; from the equity earned investing in the right market.”
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This article is for informational purposes only. For information specific to your investment situation, consult with a qualified tax adviser, CPA, financial planner or investment manager.