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High housing prices coupled with a soaring cost of living and whopping student loan debt might make buying property before age 30 seem like an unattainable dream — but it doesn’t have to be if you start early enough.
Business Insider asked two experts who work with young adults for their advice on what 20-somethings should do to own real estate by age 30. Turns out, it all starts out with three key steps.
These steps can generally be applied to anyone looking to buy real estate for the first time, no matter their age — but some of the specifics are tailored to young adults looking to buy before they’ve had a significant amount of time to accumulate wealth.
Step 1: Research properties to establish a goal.
As with every financial plan, you need to first establish your end goal, Douglas A. Boneparth, CFP and president of Bone Fide Wealth, which offers financial planning and advice to high-net-worth millennials, told Business Insider.
In the case of buying real estate, understand what it is you want to purchase so you can assign a dollar to it, he said: “What kind of property? Commercial or residential? What’s the price range? How to finance? Know everything about what it is that you want.”
If you’re looking to buy your own house, the median home value in the US is $226,800, according to Zillow. But that number will fluctuate depending on your location — and if you’re looking to own property with the intention of making passive income.
Regardless of property type, the steps are the same. Laurence Jankelow, who has helped many 20-somethings manage their property investments as the cofounder of online property management platform Avail, advises his clients to start by looking at properties so they get a feel for what they cost.
And there are other factors to consider, too. The cost of a rental property is typically cheaper in the winter, reported Business Insider’s Tanza Loudenback, citing data from HomeUnion. In some of the country’s biggest metros, a winter buy could increase your overall return on investment by as much as 36%, she wrote.
Read more: Here’s exactly what millennials should be doing every five years to become rich, according to a financial planner
Step 2: Quantify how much you’ll need to save for a down payment.
Once you’ve established a target number for your down payment, do the math to figure out how much you need to save consistently each month — and keep in mind you can always increase that number to reach your goal more quickly if you start earning a higher salary, Boneparth said.
Let’s look at an example: If you’re purchasing property at $200,000 with a 20% down payment, you need to come up with $40,000. You’ll then need to divide that lump sum by months. If you’re 25 and looking to purchase in five years, you’ll need to save roughly $666 a month for the next 60 months. But, keep in mind — that doesn’t cover additional closing costs like mortgage taxes and title insurance.
If your goal is to buy in four years or less, Boneparth recommends saving cash in a high yield savings or money market account. “When saving for the short term, there is no reward attractive enough to outweigh the risk of losing the principal,” Boneparth said.
If you have five to seven years to save — an intermediate goal — a mix of cash or less risky investments like bonds or high-quality stocks is worth considering, he said.
Read more: We did the math to calculate how much money you need to save monthly to buy a home by 35
Step 3: Amp up your real estate knowledge.
Since homeowners need experience but can’t obtain it until they actually own the property, it’s now time to become as knowledgeable as possible about homeownership, Boneparth said. As a first-time buyer, it’s important to become educated on things like tax advantages, liability, how to own the property, or even why you might want to start out small, he said.
If you’re buying a home, you might want to know things like how to shop around for the best mortgage rate, that school districts matter regardless of whether or not you have children, or how much maintenance can be expected.
If you’re looking to own income-producing real estate, Jankelow suggests looking into a multi-unit and living in one of the units. Being your own tenant in your first rental property makes it easier to get a loan and allows you to be onsite when maintenance is needed, he said.
He also suggests educating yourself on the option of buying a fixer-upper — the significantly lower price tag of a fixer-upper will mean that you may have enough money for a down payment even after paying off student loans. “Live in this property for at least two years so banks are more willing to finance your next (and nicer) property,” he said.
There are also the benefits of partnering with someone like a family member, he said — if you’re splitting the down payment, you’ll likely be able to afford it earlier.