Real estate investing is all the rage, with financial experts and investors raving about how much money you can make.
While that may be true, investing strategies are different at different stages of life, having to do with things like how much income you’re earning, where you’re at in your family planning and how close you are to retirement.
GOBankingRates spoke to a few real estate experts, who explained the best real estate investing strategies for different stages of life.
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Early Working Years: Laying the Foundation
In your 20s and 30s, the primary focus for most people when it comes to real estate is purchasing a first home.
“This is when you learn about buying a home and how home equity works over time,” said Andrew Fortune, realtor and owner of the real estate brokerage Great Colorado Homes.
This is also a good time to learn about real estate investing and make some contacts to learn from, Fortune suggested. “You’re not going to have as much capital and time in these years, so you’ll need to budget wisely, but don’t wait to get started.”
He explained that these years were invaluable to him as a real estate investor. “This is when I learned the most about the process and used that information years later to make much more money off of real estate.”
Buying a first home is also a crucial step in building equity and credit, according to Peter Lopiper, a real estate investor and founder of LI Houses Wanted. Here are a few strategies to consider at this stage, shared by Lopiper.
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Buy versus rent: For those who can manage it, buying is generally the better option long term. Even a modest home can appreciate over time, building equity and offering tax benefits.
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Location, location, location: If you’re buying your first home, think long term. Look for neighborhoods with strong growth potential, proximity to jobs and a solid school system, even if you don’t have kids. These factors drive property appreciation.
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Consider a multifamily home: If you’re open to being a landlord, purchasing a duplex or multifamily home can offset your mortgage costs by renting out units. This strategy allows you to build wealth faster while maintaining affordable housing costs.
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High-Earning Years: Diversification and Growth
It’s much easier to invest in real estate when you have some working capital and good credit, Fortune said, which tends to be the case by your 30s and 40s. “When I entered the high-earner stage of life, I was able to relax and wait for more lucrative opportunities.”
Here, when your earning power is typically at its peak, it’s time to expand your portfolio beyond your primary residence, Lopiper said. “At this stage, the goal is to diversify and maximize returns on investment,” he explained. Further, he recommended following these tips.
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Upgrade your primary residence: If your financial situation allows, upgrading your home can provide a more comfortable living situation and greater equity as markets continue to appreciate. Larger homes in desirable neighborhoods can serve as valuable assets in your portfolio.
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Invest in vacation rentals and investment properties: Investing in short-term rental properties in popular tourist destinations can generate substantial passive income. The rise of platforms like Airbnb and Vrbo has made vacation rentals more accessible than ever. However, be sure to research local regulations and seasonal demand before diving in.
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Seek rental properties in growing markets: Another option is to invest in rental properties in up-and-coming neighborhoods. Markets with strong job growth, affordable housing and increasing demand can yield steady returns. This generally takes research and time to determine.
Pre-Retirement: Building Long-Term Stability
As you approach your 50s and early 60s, it’s essential to focus on stabilizing your investments and generating passive income streams, Lopiper said. “At this point, your primary concern may shift from aggressive growth to safeguarding wealth and preparing for retirement.” Here are some of his recommendations.
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Downsizing or relocating: If your children are grown and have moved out, or you don’t have any, it may make sense to downsize to a smaller home. Downsizing not only reduces living expenses but also frees up capital that can be used for other investments, including additional real estate opportunities.
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Increase passive income: Expand your portfolio of rental properties, focusing on long-term tenants in stable markets. Commercial real estate or multifamily units are often attractive for investors at this stage, providing consistent income without the volatility of short-term rentals.
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Do a 1031 exchange: A 1031 exchange allows you to defer capital gains taxes when selling a property, so long as the proceeds are reinvested into another “like-kind” property (similar value and type of property). This can be a valuable tool for expanding your portfolio without the immediate tax burden.
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Intergenerational co-housing: Another option in the pre-retirement phase is intergenerational co-housing, according to Scott Waters, a real estate agent and Realtor with REAL. “This involves creating living arrangements that combine multiple generations, sharing expenses and responsibilities while fostering community,” he said.
Retirement: Financial Freedom and Legacy Planning
Once you reach retirement, your real estate strategy should focus on generating reliable passive income and simplifying your estate. “Real estate can play a vital role in providing financial stability during your retirement years,” Lopiper said. He suggested the following possibilities.
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Real estate investment trusts (REITs): For those who want the benefits of real estate without the hassle of direct property management, REITs are an excellent option. You can invest in these companies that own, operate or finance income-producing real estate, offering you a way to invest in large-scale real estate portfolios while earning dividends.
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Turnkey properties: Consider investing in turnkey rental properties — that is, those properties that require minimal effort on your part. These properties are typically fully renovated and managed by property management companies, offering a hands-off approach to real estate investing.
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Estate planning and legacy: As part of your estate planning, real estate can be a significant asset to pass on to your heirs. Establishing a trust or legal framework for your property investments ensures that your assets are managed and transferred according to your wishes.
Lifestyle Properties
Don’t forget that retirement is a time when you should be able to enjoy your life to the utmost. Waters recommended, “Embracing the idea of lifestyle properties such as homes that accommodate hobbies (e.g., gardening or woodworking) [that] can enhance personal enjoyment while maintaining value.”
Knowing the differences in needs and possibilities at each stage of life can help you pick the best real estate opportunities for yourself.
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This article originally appeared on GOBankingRates.com: First Homes to Vacation Rentals: 5 Real Estate Strategies for Every Stage of Life