investing in rental properties at a young age

buy rental properties youngThere are many challenges to buying rental properties when you are young, but also many advantages. The biggest challenge to buying rental properties is getting enough money to pay for down payments, repairs and reserves. However, there are many ways to buy rental properties with little money down and it is easier to buy with less money down when you are young. When you are young you can be more flexible, you don’t have as many responsibilities and you have more time. When we get older we have many more responsibilities, less time and we are not willing to make as many sacrifices in our living situation.

How much money do you need to buy a rental property?

The biggest challenge to buying a rental property is saving enough money for the down payment and other costs of a rental. As an investors you will have to put down 20 percent or more when dealing with traditional banks. I usually spend at least $30,000 on the rentals I buy priced around $100,000 after I put 20% down, repair the home and pay for carrying costs. I like to buy homes that need repairs, because I am getting a great deal on those homes and I will make more money in the long run. You do not have to spend $30,000 on a rental property if you can be flexible in your living situation.

Here is a more detailed article on the costs involved in buying rental properties. 

How can young investors buy rental properties with little money down?

The easiest way to buy a rental property with little money down is to buy as an owner occupant. An owner occupant usually has to live in a home for one year to satisfy the owner occupancy requirements. The tough part about buying as an owner occupant is many people don’t want to live in the houses they use as rental properties.

If you have a spouse and kids it will be tough to convince them that they should live in a rental property for a year and then move out, possibly to another rental property. If you are young and do not have a family it will be easier to live in a rental property for a year; in fact it might be an improvement over your current living situation!

Here is an article that describes how you can make one million dollars buying rental properties with the owner occupied strategy.

Young investors have more flexibility to move multiple times

When you buy a rental property as an owner occupant and live there for a year, you can move out of the property. The next move for many investors is to buy another rental property and repeat the process. This strategy takes a lot of moving and flexibility and most families do not want to move every year. When you are young with nothing to tie you down (and less stuff) it is much easier to move every year. The great part about buying as an owner occupant is you can keep buying houses with little money down. You also do not have to spend money on repairs right away, because you can slowly repair the house while you live in it. There will be requirements pertaining to the condition the home must be in to get owner occupied loans.

Young investors have more time to learn how to buy rentals

It takes time to learn how to buy rentals properties; what strategy you want to use, where you want to invest and to learn about your market. As we get older we have less and less time. You get married, have kids, have a job and it is tough to find time for your kids, let alone your own hobbies or learning how to invest. Younger people often have more time to learn and educate themselves. Even if you are young and have no possible way to buy a property, you can still learn how to invest in rentals and develop a strategy that fits your goals so that when you can buy you are ready.

I like to be a very positive person, but that does not mean I do not plan for the worst case scenario. Another advantage to being young is you have more time to recover if you make a mistake or run into bad luck. If you buy a rental property when you are 25 and end up losing money on the rental or even worse losing that rental property, you have a lot of time to recover and build. If you are 60 and lose a rental property or make a bad investment, it is much harder to recover.  I am not saying you should not invest when you are 60. I think any age is a great time to buy rental proprieties, but the sooner you buy the better.

Here is a great article on whether you need to go to college to be a Realtor.

Young investors only have to convince themselves to invest in rentals

There are many people with negative beliefs about rental properties and real estate. Those beliefs are not always founded on facts, but hearsay. Convincing someone to change their beliefs is not easy no matter how favorable you think your argument is. When you are young without a spouse or children, you only have to convince yourself that investing is a great idea and will help you financially. When you get married and have children you will have to convince your wife, children and possibly your in-laws that investing is a good idea. If just one of those people has a belief that real estate investing is dangerous and could hurt the family, you make never be able to change that belief.

If you invest in rentals or real estate at a young age and make money with investments, you won’t have to worry as much about convincing someone it is a good idea. You will have proof that you made money and your loved ones will get to know you as someone who is a real estate investor.

Why do the returns on rental properties increase as time goes by?

The longer you own rental properties, the better investment they become. Here are a few basic advantages of buying rental properties when you are young and holding them long-term.

  • Cash flow: Cash flow increases with time as rents rise and mortgage payments stay the same or mortgages are paid off. Rents will not always increase and it may take years, but historically rents have always increased.
  • Appreciation: I do not count on appreciation to make money, but houses also appreciate over time. The longer you own a home the more it appreciates. If you get a loan on a house then the gain in appreciation is multiplied. As an owner occupant you might only put $5,000 down on a house, but it could appreciate $20,000 in one year. A house may also decrease in value over the short-term, but if you own it long enough, it will increase in value.
  • Tax advantages: You are allowed to depreciate rental properties over 27.5 years, which saves a lot of money on your taxes. You can also complete a 1031 exchange into another investment, which could allow you to sell for a huge profit without paying taxes.
  • Build passive income: Over time one rental property may not make you a ton of money, but if you buy multiple rental properties you can make a lot of money. I own 14 rentals and they make me over $6,000 a month. The sooner you start buying rentals, the more you will be able to buy.

How much money do you need to buy a rental property as an owner occupant?

The amount of money needed to buy a rental property will vary on the property and the loan program. I discuss various loan programs here, but most owner occupants should be able to get a loan with 5 percent down using conventional, 3.5 percent down using FHA and no money down using VA or USDA. There will be closing costs associated with the loan, which can run from 2 to 5 percent, but you can ask the seller to pay those for you. If you buy a home that needs repairs, you will have to spend money making those repairs, but you don’t have to do it right away. You could repair the house as you live in it saving time and money over hiring a contractor.

I usually do not recommend doing the repairs on investment properties yourself if you do not live in the property. If you try to make the repairs on an investment property yourself, it often takes much more time and costs you more money in the end over hiring a good contractor. If you are living in the home it is easier to make the repairs, because you are always there and taking more time to make the repairs will not cost you money since you can’t rent out a single family house for a year anyway.

If you use a no money down loan and make repairs while you live in the home, you could buy a rental property with no money and then spend less than $5,000 in total on repairs depending on what you fix. If you have to use a higher down payment loan then your costs will increase, but it will be much less than buying as an investor. Remember with less money down it will be harder to get positive cash flow on a home because of the higher mortgage payments.

How can young investors qualify for a loan?

The biggest challenge for young investors is qualifying for a loan. The good news is that it is easier to qualify as an owner occupant than an investor. With current lending guidelines you will need a steady job, good debt to income ratio and good credit to qualify on your own. Many young investors cannot qualify for a loan on their own because they have bad credit, too much debt or they do not make enough money.  There are options for those who cannot qualify!

  • Kiddie Condo loan: A kiddie condo loan allows relatives to co-sign on a property. The co-signors credit and income will help to qualify for the loan.
  • Regular co-signor: Depending on the loan program, any co-signor may be able to help with poor credit or income.
  • Seller Financing: Seller financing is when the seller of the home loans money to the new buyer. It is rare to find seller financing in my area, but it can be a great deal for both parties in certain situations.
  • Partners: Many investors are looking for a place to earn higher returns than a CD, but want more security than the stock market. Real estate provides collateral and some investors may be willing to loan money on real estate, because it is safer than the market.

If you cannot find any options to qualify for a loan, you can still learn about investing and start working on qualifying. It is better to know as soon as possible what you have to do to qualify for a loan, than to wait until you are ready to buy and find out you have to wait 18 months to get a loan.

Buying a multifamily home as a young investor

I like to buy single family homes for a number of reasons, but mostly because they give me better returns in my area. It may make more sense to buy a multifamily property depending on your market and situation. Investors can buy a multifamily property as an owner occupant if it is 4 units or less and they occupy one of the units. You would have to live in one unit for a year, but you can rent out the other units as soon as you buy the property. In many cases, the rent from the other units will cover the mortgage payments and let you live in the property for free. Once the year is up, you can continue to live for free or move into another property and repeat the process.

Why is it harder for people to invest in rental properties when they are older?

Many people have the plan to invest in rental properties once they have become settled in life.

“When I have a great paying job, a family and a nice house then I can use my extra money to invest in rentals.”

The problem is that the older we get the more responsibilities we have and the more money we spend. The nice house, the nice cars, the family all costs a lot of money! We also have much less time than we used to because of the great job, the nice house and the family. It is not a given that you will have a lot of extra money when you get older. However, rental properties are a great way to give yourself extra money when you are older without having to depend on a job to produce income. I love the cash flow my rentals produce, even though I make much more income from flipping and my real estate team.


Most people wait to invest in rental properties or to do any investing at all until later in life. Young people tend not to think about their future or feel it can wait to start building passive income. I think it is actually harder to invest later in life, because we all have so many responsibilities, less time and more to lose. The sooner you start investing, the better off you will be later in life and we get older sooner than we think. Here is a great article with more detailed information on why rentals are so awesome.

For more information on how to buy the best rentals which will make the most money, check out my book: Build a Rental Property Empire: The no-nonsense book on finding deals, financing the right way, and managing wisely. The book is 374 pages long, comes in paperback or as an eBook and is an Amazon best seller.

15 thoughts on “investing in rental properties at a young age”

  1. Do you think this is doable as a young person making much less than $75k / yr? Obviously it would take longer to start and probably longer between purchases until it really gets going but right now I’m a college student and I make about $40k / yr at the moment

  2. Hey Mark, great article. I recently came into a disposable amount of income that I really want to invest in rental property. Only problem I see is that I live in NYC, and I want to invest in my hometown of Detroit. All the articles of advice i’ve seen recommend being an owner occupant of your rental unit. Am I out of luck?

    • If you have money, there is no reason not to buy as an investor. The owner occupant role is usually for those who have little money.

  3. Great article – confirmed what I have been thinking. I am 19 and still happily living at home, going to college part-time, and working a full time professional job. I have zero debts and nothing but cash flow. I’ve not done so well in the stock market and I just see more upside than downside in investing in property early.
    Question: What’s your advice on paying off one property before buying another, how much cash to keep in reserves, etc? Especially at first?


    • I think if you are just starting you don’t need to pay off a house before you buy more. It would take a very long time to buy many properties. Usually 6 months reserves for mortgage, taxes, insurance is a good number.

  4. I think that this article is very misleading. There are serious drawbacks and risks to investing in property as an asset (not commenting on buying one to live in long term). Firstly, buying property means you have broken the first rule finance: diversify. If you buy one or multiple properties without other investments you are exposing yourself to the enormous risk or a single market. If you put your money into a well-diversified portfolio, you are actually taking less risk than buying a house, because your money is spread across all markets. Do not fall for the myth that house prices always go up: The U.S., Spain and Ireland showed us how they can crash. Second point: Equity consistently outperforms property over the long term, usually by about 3:1. Long term equity prices go up for fundamental economic reasons, such as new technology. There is no real reason for property to go up over the long term. Long term (and I stress long term) property prices show no relation to demographics or the amount of land left in the country. Thirdly, if you buy property, you usually need a mortgage. This is essentially borrowing to invest. Would you do this with equity? Probably not, and yet you want to with an asset which is riskier, as it doesn’t have the same opportunities to diversify. You also have to pay mortgage payments with compound interest working against you; if you invest in equity and reinvest the returns, compound interest works in your favour.
    Final point: Property is illiquid. If you find yourself in need of some cash, you can always sell 2% of you portfolio of equities, these days at very little cost. If all your money is in property, you will find it very hard to sell 2% of the house because you need a little more cash this month.
    I hope I’ve at least put some doubt in your head as to the merits of property here. I’m not saying you can’t make money off property investments, I’m saying its not worth the risk compared to other types of investment.

    • Hi John, thank you for the detailed comment!
      I see this argument a lot from stock market guys. The key component you are missing is real estate investing is not all about appreciation. It is about cash flow. The market goes down for property and that is okay because if you invested right you are still making money every month with cash flow. The appreciation is a bonus. To use your stat that the market out performs real estate 3/1 is not true. That is only based on house values, not the return from rental income. That is like saying you can’t count any dividends you receive when figuring returns on stocks. In order for your argument to be accurate a landlord would have to buy a house for cash and then never ever made any money on the rent that comes in. A virtually impossible situation.
      Here is an article about it.

      For your mortgage point, that is actually a huge advantage for real estate. When you cash flow with a mortgage it increases your returns substantially. Tax advantages, equity pay down, appreciation all are magnified. Leverage is an awesome tool if used right with real estate. You have to make sure you buy houses or apartments that cash flow, not just any house and call it an investment. Here is an article with more details.

      For the liquidity you are right. It is easier to cash out on stocks or funds. But the higher returns and more control I have with rentals far out weigh the disadvantages for me. We didn’t even talk about buying below market value, which is a huge advantage for real estate, that cannot be done with stocks or funds.

  5. oh yesss…tell me about it! 26 years old and 7 properties. I am loving it. I don’t know why most young folk doesn’t realize the power of real estate. most of young folk just wanna be cool instead of focusing on building wealth i guess…

  6. Great read Mark! I’ve been reading and following you for sometime now, and this article struck a cord with me, because I m (we) actually doing it right now. A little advice, if you are still single and young, do it now, like Mark mentioned in the article, but if you are married; like me. Well, you have put on your best sale hat. Do the selling to your wife or partner, if you have kids, sell to them too, that’s what I did, lol. Took a bit to paint the long road picture but it’s all worth it, we now living at our 2nd rental home practically for free, by rent out the lower unit, and live up top. We hope to repeat the process again by end of next year. Cheers!

  7. TYPO CORRECTED…: I can testify: this is the smartest financial move I made in my life at 23 (I am now 53). I bought a duplex (2 appartments: i rented one & I live in the other one). It was bloody expensive but I was able to pay it off + pay for a cottage out in the country by the time I turned 45. Weekly payment made to the bank + approximately 10% at the end of each calendar year. Francois in Montreal, Quebec, Canada

  8. I can testify: this is the smartest fionancial move I made in my life (I am not 53). I bought a duplex (2 appartments: i rented one & I live in the other one). It was bloody expensive but I was able to pay it off + pay for a cottage out in the country by the time I turned 45. Weekly payment made to the bank + approximately 10% at the end of each calendar year. Francois in Montreal, Quebec, Canada

  9. I have been reading all of your articles you have been writing and they have been helping tremendously! I’m 18 and I hope to be as successful as you someday. It’s going to be a little harder in California but I feel I can get it done. Keep up the writing!

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