Is there an age requirement for peole who want to buy an investment property? Do you have to be a certain age to own and operate a rental property? What if you're retired, are you too old to buy and invest in real estate?
There are many reasons that make real estate investment an attractive option. One of them is that there is basically no age limit. Just think about it. Anybody can do it. Latin Dad is 62 years old. And young people fresh out of college can get their foot in the door with real estate investing, too. Sure, buying real estate is not a risk free endeavor, but it's also something both young and old can do.
Although age is not a limiting factor, it is, however, a variable that will affect how you invest. A retired couple and adults in their twenties will have different strategies in how they wish to invest in real estate.
Idea: Take a look at investing in college towns or perhaps an age restricted community or condo. These are specific real estate investing markets and strategies that many investors follow.
Younger people will obviously have much more time in their lives to spend towards investing, which means that they will have more years to wait for an investment to appreciate. They can wait 10, 20, even 30 years to cash in on their investment and still be young enough to enjoy their profits. For example, a 25-year-old buys a house for $200,000 in a growing neighborhood; pays off the mortgage in 30 years; sells the house at that time for $400,000 at age 55. This person can now retire, take a trip around the world, send their kids to a top university, buy a new car, or whatever else he/she desires.
Being young and therefore having more time in life to invest means that younger people can afford to take more risks. If an investment falls through, for example, they have an entire lifetime to recover from their financial blow. In other words, they have decades of incoming-earning years ahead of them, so that a busted investment will not ruin them financially as it might with an older person.
With so many years ahead, there will also be ample opportunities to learn about the real estate business. A younger person’s attitude may be more focused and geared towards making a profit, especially if real estate is the exclusive revenue source. But on the same token, younger people tend to be habituated to a certain lifestyle limited to either residence with parents or apartments. So if one wishes to buy a property and live in it to earn a profit, changing mindsets to house occupation can be a bit intimidating and indeed a drastic lifestyle change for someone at such a young age.
There are special loans and breaks available for first-time homeowners that are not offered to others; these terms can be advantageous and turned into profits. For example, lenders might be willing to decrease the amount of your down payment (e.g. from 20% to 10%) but at the same time increase the length of your repayment period. The extra interest you pay on your mortgage, however, is tax deductible, so you will be able to enjoy significant tax savings.
Starting at a younger age can be a valuable learning experience as well, especially if you do not possess many of the skills that are involved with renovations (e.g. plumbing, electrical, repair skills, etc.) and property management (tenant relations, lease agreements, financial matters, etc.). These are crucial skills and areas of knowledge you should have, so starting out young will allow you to learn these, slowly but surely.
Therefore, being young will allow you to invest more sweat equity into a property that many older people may not be able to perform due to health issues, physical handicaps, or other limiting factors. For example, younger people can save money by becoming a laborer, contractor, or property manager. They have the physical ability to work long hours, lift heavy objects, and even build houses. This is why it’s probably best to start small, then work your way up, gradually taking on larger projects with each skill you earn. You’ll build confidence, skill, and valuable credit that will allow you to make larger investments in the future.
Also, think about the freedom that a younger age affords. Without a growing family or an existing mortgage, young couples or singles have the flexibility to relocate to various parts of the country, places where they think growth is yet to come. They won’t be bound to a certain part of the country due to familial obligations (e.g. a kid in college) or financial limitations (e.g. existing mortgages).
So far, the benefits described have been for younger people in their 20s and 30s, but that does not mean that the older generation doesn’t have its own perks.
Those in their 40s, 50s, and 60s have the main benefit of age working in their favor—with age come many benefits that younger people do not have. For starters, investors nearing retirement age have an entire lifetime of capital and equity in their pockets. This means that these people have established a good credit history throughout the years and have also built priceless equity in their homes. Therefore, they will have more leverage if they wish to enter the investing arena, and lenders will be much more comfortable with giving them great loan agreements.
Occupying those later years in life means that you can possibly have gained valuable skills that younger persons need to learn from square one. For example, people who are at least partially skilled when it comes to home improvements will have a huge advantage over those who have no experience whatsoever. Plumbers, electricians, carpenters, and other practitioners of these types of skills (whether fulltime laborers, handymen, or hobbyists) will not only have a head start but also valuable insight in how to improve a property. For instance, a carpenter, or someone who tinkers with carpentry in his/her garage, might be able to construct new cabinetry in the kitchen for a relatively low cost, while in the meantime save money on labor expenses.
Aside from technical know-how, there is other experience that an older age can offer. At an older age, you have probably witnessed other people's investments, and can learn from those experiences. For example, maybe you have a friend who sold his property in what's now a popular ski resort area, but he sold it BEFORE the prices skyrocketed.
Maybe he regrets having ignored the signs—celebrities quietly buying vacation homes, developers taking interest, etc. You can learn from his mistakes by finding out what he did wrong, and then avoiding that. In other words, learn from others' mistakes. People make mistakes all the time. The more people you know, the more mistakes you have to learn from, and that gives you an edge!
Speaking of knowing people, during a lifetime an older person has the opportunity to build extensive social networks that can include all sorts of people in various professions that will prove useful with investing. Friends, acquaintances, or colleagues can become important business partners, help you secure certain deals, or save you costs by providing discounted labor. For instance, maybe your best friend is an experienced electrician and can do all your electrical work for a low cost, in addition to providing you with crucial insider information that extends above and beyond his contractual agreements. If you do not know anyone who can help you work on your properties, we’d suggest using a site such as Corkd.com that allows you to search for professional help at a discounted rate. No matter who you go with, check out the person or firm’s reputation carefully as you don’t want any big surprises.
With so many benefits on both ends of the age spectrum, how can middle aged folks fit into all this? Well, as you age and move further away from the starting end of the spectrum and enter closer to the other, you will lose the benefits of the former and pick up those of the latter. Typically, in these middle years, people are concerned primarily with stability, especially if they have a family to support. But investment is still possible—the priorities are just different.
In these years, it's best to focus on saving money, little by little, and planning for the future. It's also a good idea to build a social network, and find out who's investing. Follow their stories and see what you can learn, so when it's your turn to take a dive, you know what you're getting into. Put in other words, this is the best time to invest in your mental equity, and to prepare your investment resources (e.g. knowledge, experience, social networks).
Regardless of how old you are, though, it’s important to use your age to your advantage. Knowing that you have an edge because of the stage of life you're in, and knowing exactly what that edge is, will make you a better investor. You should always remember what strengths you have and how your age works in influencing that. For example, there’s no need to feel frustrated because you may not have the credit or equity you need to make an eagerly desired investment. Focus on your current strengths and what you can do now to make that kind of investment later. Besides, you need to think within reason and have realistic expectations. Obviously, there’s nothing you can do to affect your age.
But this is not to say that age is a limiting factor. Some people might be luckily endowed with many of the benefits that people in either age bracket might possess. If so, then great! Use that to your advantage and build other areas of expertise. This will make you a stronger and more successful investor in the future.
TIP: Ideally, a young investor should partner up with an older investor, so that all of these benefits can be realized. As a young person, you can benefit from the leverage and wisdom of someone more experienced. As a more mature person, you will be better off with the enthusiasm, vitality, and flexibility of a young person.