As millennials settle into their careers, ramp up their savings, and pay off student debt, they’re looking toward the future. For 30-40-year-old professionals, investing in real estate is a common topic of interest. However, many young investors consider real estate investing in its more active format:
These real estate investing avenues are not always the best option. An alternative to active real estate investing is passive real estate investing. It’s always been frustrating to us that few 30-40-year-olds know about the wonder of mortgage pools and passive real estate investment strategies. There are numerous reasons why this form of investment is ideal for the 30-year-old working professional.
As mentioned above, real estate investment costs can be a lot when you’re still paying off student debt and saving. The idea of using all of your savings to buy a home and then end up “house poor” turns many millennial investors off the idea of home ownership—at least for a few more years. Imagine buying your first home with all your savings, and then the water tank breaks, you have to upgrade the electrical, or you need to replace the exterior windows. Homeownership is expensive, and for professionals just starting to invest, the cost means they often can’t diversify their portfolio as everything goes into real estate.
Numerous young professionals are savvy investors with higher risk tolerance. Investing in property and leveraging it to buy more property and rent apartments or homes for long-term tenants or Airbnb guests can be attractive. However, owning the property and renting it out to people who don’t take care of it can be both stressful and expensive. If you’ve ever worked in property management or as a landlord, you know it’s not all it’s cracked up to be. Some young professionals know they don’t want the stress of managing a rental.
Another real estate investment strategy is buying and flipping homes. If you’re considering this, you likely have the skills to do it independently—this is not the case for many young investors. In addition, as interest rates increase, homes are sitting on the market longer and losing some of their value. This kind of investing can be very risky as markets shift.
For many 30-40-year-olds, home ownership is the next milestone on the list. Unfortunately, as interest rates climb and the average cost of a home in Victoria sits at 1.1 million, this feels like a pipe dream for many.
Working professionals would need to save close to $80,000 for a 10% downpayment on an $800,000 home (which doesn’t include any renovation, moving, inspection, or closing costs). These numbers are alarming, considering the average income of a single professional in Victoria is between $46,000 and $63,700 a year, and the average cost to live in Victoria for an individual is about $32,500 per year. By these numbers, it would take2-6 years to save the downpayment if you saved everything.
Despite how this might look, many 30-year-old investors understand the value of real estate investment and are actively trying to invest. Luckily, there’s another way to add real estate to your investment portfolio without the $80,000 price tag.
The minimum initial investment with Cooper Pacific is $5000. That’s a lot less than $80,000!
The commitment for investing through a MIC like Cooper Pacific is one year. While your investment is growing in the mortgage pool, you can take that year to save more money towards a down payment. In this way, you’re making your money work for you.
There are many reasons why 30-40-year-old professionals are taking their time to enter the real estate market. Perhaps you’ve already purchased your first home, and you’re wondering how you can further invest in real estate without leveraging the equity in your home or saving another downpayment. Mortgage pools are the answer.
This alternative investment type allows savvy investors to invest in a pooled fund of private mortgages. An ideal solution right now as interest rates increase. Investing in a mortgage pool puts you on the beneficial side of an interest rate spike.
Another benefit of investing in mortgage pools is that they can help you combat the negative impacts of inflation. As a general rule of thumb, you want to invest in a way that is comfortable for your risk tolerance but is ideally generating a rate of return higher than the average inflation rate. The historical rate of return for Cooper Pacific’s first mortgage MIC fund, since its inception in 2013, is 5.36%. Comparatively, the average inflation rate from 2013-2021 is 2.12%.
Don’t wait to invest in real estate when options are available to make it more accessible to investors at any age. If you’re wondering how to get started with passive real estate investing through a MIC, we’re here to help. Jordan on our team is available for questions or concerns. Get in touch with us today.