How Millennials Can Achieve Financial Freedom Through Real Estate

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Ryan Boykin | March 13, 2019

Contrary to the narrative about millennials that social media tries to make us believe, studies show they are cash-savvy – and they’re saving more and buying less than previous generations. In fact, this group represents the bulk of adherents of the FIRE (Financial Independence, Retire Early) movement, where people try to save at least half their income to achieve financial freedom, and in some cases, early retirement.

According to Liz Thames, author of “Meet the Frugalwoods: Achieving Financial Independence Through Simple Living” and a prominent advocate of the FIRE movement, the concept hinges on three main elements:

  • Expenses
  • Income
  • Time

To build a solid financial foundation for all of your financial goals, such as retiring at a relatively young age, living comfortably, providing for yourself or your family and not being married to your job, you should understand that investing your savings is just as important as the action of saving. One of the best ways to build steady wealth is to invest in real estate, and you don’t have to be inherently wealthy or hold an MBA to get started.

Through conservative spending, smart investment and prudent saving, millennials can use real estate as a pathway to financial independence. Below are four ways to use real estate to start growing your future nest egg:

  1. Be a borrower

You don’t have to put a 20 percent down payment on a home to get into the game. Government loans exist for the very purpose of helping first-time buyers become home owners. In fact, you can often buy a house with just a three percent down payment. So, if you’ve fallen in love with a house, townhome or condo and you have reason to be confident of the neighborhood’s future, don’t let a smaller-than-ideal cash savings keep you away from buying.

  1. Live For Free By Taking In Tenants

To help ensure your monthly income exceeds your total monthly expenses, consider doing what many early investors do after college graduation: buy a home and rent out a few of the bedrooms. Your rental income might cover as much as the cost of your mortgage every month, meaning you can essentially live rent-free in your own home.

Again, as long as you’ve done your homework on location and you’re reasonably sure of your ability to find renters, this is an excellent option. Not only will you eliminate one of your largest monthly expenses by getting other people to pay for it, but you’ll also build equity in the process.

  1. Invest in a Rental Property

Perhaps you’re already a homeowner. You’re not looking to move and maybe that savings nest egg of yours is a little bigger. This is an ideal time to begin investing in a rental property in order to increase the second of those three FIRE elements: income.

Millennials in this financial situation should look into purchasing a townhouse, single family home, duplex or fourplex (a building divided into four apartments). By renting out each of the units, you’ll again be covering your mortgage plus building equity in the property. However, because you’re now renting out entire units rather than just rooms, your asking price can be a good deal higher. If the location is right, you could be making money each month – just by collecting more in rent than your monthly mortgage payment. Rental properties provide steady passive income each month.

  1. Partner up

Maybe you’re focused on that third element of the FIRE movement – time – because even a three percent down payment for a piece of property wouldn’t be fiscally responsible. To decrease the number of years it will take to realize a consistently higher income than expense, you could share a real estate purchase with a financially like-minded partner(s).

By partnering, you will reap all of the benefits of your combined down payment savings. This can lead to fewer upfront fees and no private mortgage insurance (PMI). It also means you can divide landlord responsibilities once you start renting, while still gaining the benefits of a paid mortgage every month, a property that’s in your name building equity and, of course, additional monthly income.

These four methods can help you achieve your financial goals through real estate investment and ultimately, give you the freedom to retire early or pursue other interests, whatever they may be.