In the last post of this series, we explained why you don’t have to be a developer to invest in real estate in California. Today, we’ll debunk a more serious and somewhat related myth: some people are just too young to invest in real estate.
First, let’s look at some of the reasons people think young people can’t invest in real estate in California.
• The cost is prohibitive.
People often think young people might be able to make other, non-real estate investments more easily because they are less costly. The opposite is true. In reality, even working college students with a few thousand dollars in cash on hand can invest in land. Why not invest in the stock market instead? Doesn’t it seem less expensive? Think again – creating a well-diversified portfolio takes resources, and a good stock market investor holds many different kinds of stocks.
• Young people can’t make responsible choices about illiquid assets.
Some advisors steer young people away from land because they thing young people don’t know what they’re doing and will make the wrong choices. To us, this just seems a silly. Young people are often more cautious with their money than established investors are, and in our experience, they are the hardest workers when it comes to researching their purchases and consulting with all the advisors they can find.
Perhaps young people are advised against buying land because investment advisors think that they will lack patience, wanting to sell the asset too soon. Here again, they are wrong; young people are more patient, as they have more time to watch their assets appreciate.
• Young people should be investing in high-risk, high-return products.
The idea that young people should never invest conservatively comes from the perception that all young investors are wealthy businesspeople or children of dynastic wealth. In fact, plenty of middle-class young people are eager to start saving for retirement and their children’s education, and these are not investors who have nothing to lose. The best investment portfolio for a young family includes at least one long-term, illiquid investment.
We’ve shown the mistaken logic behind the reasons people think young people should not invest in real estate in California. But are there good reasons to think young people should invest in real estate?
Young people are ideal land bankers. In California, land banking can yield profits over 20, 30, and 40 years, and the longer an investor can wait, the higher the profit is likely to be. Young people can wait. Further, land banking is an ideal low-risk and low maintenance investment for a young family or a young professional who travels often. Unlike other types of real estate investing, it’s easy to continue to hold a job while being a land banker – as most of us have learned, the same isn’t true for people who manage residential property. In the end, it’s never too early – and a person is never too young – to plan ahead.