Why Investing in your 20s Can Be the Best Decision you Can Make
Updated: Oct 10, 2019
“If you don’t want to regret your life later, then begin to invest your time, begin to measure your life. Measure your life by the products and by the results you produce!” – Sunday Adelaja
One rule that I have learned from life is that everyone should start to invest as soon as they can. What I have learned from my parents is to start to invest in my 20’s because the dividends pay off in the long run. The dividends are not just financial, but in the quality of life they are able to have as they got older. Investing in their 20’s gave them the power of choice today. Choice is perhaps one of the most valuable dividends we can ever have in our lives.
I am not here to tell anyone where they should invest. You may choose stocks, bonds, 401ks, or whatever makes sense to you. I just know that investing in real estate makes sense to me. Here are a few things that I have learned:
Safety Net of Banks and Credit Unions Financial advisers will tell us that we need to put a certain amount of money in a savings account, usually around 6 months of salary, in case something happens to our job or in the workplace. This is our safety net and it makes perfect sense. However, banks and credit unions pay very low interest rates on the money we invest with them. In fact, the interest rates are so low that they often don’t keep up with the increases in cost of living. A dollar I put into a bank or credit union today will have less value or buying power in 5 years. You see, when we put a dollar in a bank we are actually paying them for keeping a certain amount of our funds safe and liquid/readily available. So, while banks and credit unions are paying us a small amount of interest to use our money for their investments (they mostly invest in real estate if you think about it!), in reality, we are losing money each and every day because our returns or dividends are so low.
The mistake that most people make is to put too much money in the bank. Why do people do this? Risk tolerance and comfort. I will be the first to admit that it makes me feel great when I see the balance on my savings account increase. There is great comfort in knowing that the money is there should I need to use it. This makes me feel great emotionally. However, we need to look at the financial piece of investing, not just the emotional piece, and realize that any bank savings account investment over our “safety net” just doesn’t add up financially. This is what lead me to investing in real estate.
How to Get Started in Real Estate Investing in Your 20’s Investing in real estate in your 20’s is not as hard as you think, but it will take time, persistence, and dedication. You can be an investor part-time, but you can not have a part-time mindset. What do I mean by this? As you keep your full-time job, in your time off from work you will need to work full time to invest in education and gain as much knowledge about real estate investing as possible. If you treat investing as a hobby, it will be a hobby. If you treat investing as a business, it will be a business. Many people want to be an investor, but only a few truly are. Education in yourself is always rule number one for real estate investors.
While you are educating yourself, start to network. Hopefully you will be fortunate enough to find a group of people who are willing to work with you and even provide you with opportunities to invest. Depending upon the group or the project, you may find out that they are willing to take some smaller investments to help people out and get started in their personal investment plan. Our company, for example, has provided many opportunities for people who are just starting out to invest in many of our deals.
Cash Flow is Key For investors starting out in their 20’s, cash flow, or the money you earn from rental properties after expenses, is key. You see, tenants pay rent and rents tend to increase year after year, usually keeping up with or exceeding the cost of living increases. Where you may be earning 1% or less from a bank, it is not uncommon to see an 8% or more cash flow return on your investment from multifamily rentals each year. If you think about it, 8% is higher than the cost of living, better than the returns from the bank, and allows you to increase your overall wealth more quickly. In addition, there are often tax benefits, which I am not going to discuss today, that allow you to decrease your tax liabilities. Savings banks don’t provide this.
What About the Risk? There is risk in any investment, whether it is stocks, bonds, mutual funds, or real estate. What I find attractive about real estate investing is the proven track record. Yes, you can lose money if things go wrong or it is a bad deal. There are many investors out there who will try to get you to invest in their deal and it turns out to be a disaster. This is why rule number 1, investing in yourself, is so important. With any and all investments, you need to educate and do your homework into the investment before you commit funds. This helps to mitigate the risk.
Find a group of investors with a proven track record over years. Experience speaks for itself. It is important to speak with the investors and ask them hard questions. You want to know how many deals have they run? Have they run the deals from beginning to end? Do they invest in their own deals? What have been their successes? What was their biggest failure and what did they learn from that? How do they invest in themselves? Don’t be afraid to ask the hard questions as many people portray and sell themselves as experienced investors, but as you ask questions and pull back the layers, you may find that they really are not as they are portraying themselves. Sincere investors are not only approachable, but completely transparent about their track record.
Finally, real estate investing is not a get rich quick scheme. It is a solid investment approach that takes time, step by step, to build upon your financial foundation and wealth.
Final Word Investing in your 20’s is critical. Through real estate investing, I am building wealth each and every day as I continue to work my full-time job. The returns on my investments are well above what I would receive if I had left it in the bank. While I am aware that there is risk with each investment, I also fully research and analyze each investment to minimize the risk.
Investing in my 20’s makes sense to me because I have more flexibility with less commitments. This is the time in my life when I can take a bit more risk, try to increase upon a foundation of wealth, and allow the dividends to pile up. For me, there is no better time to invest than now.