You’re young and enjoying life. Business is steady, and you get what you want when you want it. Debt, though, is still an issue. Between credit card and student loan payments, even as a thriving entrepreneur, you’re living paycheck to paycheck.
So, you probably think that financial planning and investments are issues to handle later – but they’re not. The sooner you begin to develop savings and investment habits, the better off you’ll be. You may think that means buying stocks, bonds, and mutual funds. Those aren’t your only options.
You should also consider investing in income property. There are many professionals out there, like Than Merrill, that can help you learn more about real estate investing, but here are seven smart reasons why this is a good idea.
You are Young
You’ve heard about compounding interest. It means that a dollar invested in your twenties generates more income than a dollar invested in your fifties. Assuming you re-invest the income in each case, the dollar from your 20s has 30 extra years of income-generating power. That’s one way of saying that when you’re young, time is on your side. You have time after work without the responsibilities you’ll face with marriage and family. You’ll have time to try new ideas and recover from financial mistakes. And time to decide if the demands of income property fit your personality and skills. If not, you’ll be able to move to other things at less of a cost than if you were older.
You’ll Diversify Your Portfolio
Income property complements investments in stocks, bonds, and mutual funds. It can generate revenue even when times are tough because people need a place to live, whether the economy is in a boom or recession. Some would argue that volatile economic times are good for income real estate (because more people believe headlines like this one).
You Can Earn More Income
Once you’ve bought property and found tenants, you’ll soon get a steady stream of rental payments. If you selected your property well, rent payments should cover the property’s insurance, maintenance, mortgage (principal and interest), and taxes while leaving extra funds for reinvestment. Don’t spend this money frivolously; you’ll need it for upgrades to your existing properties and investment into new ones.
You Will Learn to Save
Once you decide to invest in income property, your lifestyle immediately changes. You will need to start putting money aside to make the first investment. After that, your planning expands beyond day-to-day living by necessity. You will learn to manage your cash flow to have funds available for lump-sum payments such as property taxes and insurance. Even your income taxes become more complicated, as you learn about setting aside rental income to make estimated income tax payments. It’s good training for life and business.
You Can Get Financing
Maybe you can’t afford a commercial high-rise apartment complex. Starting small is better, especially for your first property. Say you want a small single family house in which you plan to live. You can get an FHA loan that requires a one-percent down payment instead of the typical 20 to 35 percent. As your property’s value grows, you’ll be able to use its equity to finance other purchases conventionally.
You Have Options
You might think that the only properties you can afford are buildings in less than desirable neighborhoods that need significant renovation. It’s true that such opportunities exist, but so-called “distressed housing” exists in upper-income suburbia too. Properties you buy with an FHA loan must pass a home inspection to protect you from needing inordinate repairs. However, if you can afford it, a good option is to consider designing your property from scratch with a reputable builder.
You’ll Begin to Put Down Roots
If you buy and/or live in income-producing property, you’ll have a stake in the community. You can use its municipal services and offer housing to its citizens. You will also have to interact with local government as you plan and make renovations and improvements.
Owning income property can build a bridge from the carefree, live-for-the-moment lifestyle to a sobering, yet satisfying, life of adulthood. It’s not just a source of extra income; it’s a way to make your mark.
Abigail Clark is an up-and-coming freelance writer, writing on behalf of Darling Homes. She graduated from The University of South Florida with a bachelors in marketing, minoring in journalism. When she isn’t up to her neck in coupons she is enjoying the outdoors fishing. She loves doing reviews for technology, home products and beauty products.