The 40-Something's Guide to Start Investing in Real Estate

So you are in your 40s and have decided to invest in real estate. You likely feel late to a party you didn’t know was happening. Twenty-somethings have a real estate portfolio to envy, and all you have is a 529 for your kid’s college fund.

Your parents only stressed the importance of having a stable job with an employer-matched 401(k) and never taught you the importance of building passive income. As a result, you have built your career with an impressive W-2 that seems hard to rebuild through an investment portfolio.

I hear you and can relate. I have spent 20 years building my professional career, getting a master’s degree, and investing dutifully into retirement and college savings accounts. My first rental property came at age 38. Then the next came at age 40 and the most recent investments at 41 and 42.

I am here to let you know you are not late to the party; you are right on time and have many advantages younger investors can only dream of.

Guide to Investing in Real Estate in Your 40s

1. Leverage your network

By now, you have been working in the corporate world for two decades or more. You have been with multiple companies and met thousands of people in a variety of fields. Your contacts are likely working professionals, too, and come from all parts of the country. This gives you a nationwide network to tap into.

This network can serve you in a number of ways. You can easily find experienced realtors, attorneys, CPAs, lenders, contractors, and other key professionals to contact when building your team. If your circle of contacts doesn’t include highly educated professionals, you need to elevate your network.

As the Jim Rohn saying goes, “You are the average of the five people you spend the most time with.”

For the sake of this article, I’m going to assume your network is more advanced than a bunch of drinking buddies. Your enviable web of connections is filled with peers who are well paid and well educated.

This is helpful for finding business partners, private money lenders, and sources of capital. This group is also probably interested in ways to add real estate to their investment portfolio, too. Let them know what you are up to. You will be surprised by how many tell you they want to do the same thing.

2. Rock your money skills

At this point, you have likely made it to middle management or the executive suite and have the paycheck to prove it. Your healthy and steady employment status will make qualifying for a loan a smooth and easy process. Lenders love to see strong employment history and income. They are more likely to be willing to offer you favorable loan terms in return.

You probably also have a few extra dollars at the end of each month at this point. The kids are out of daycare, their college savings accounts are starting to grow, your student loans are paid off, and you are starting to feel like a real adult for the first time. You may be considering using this extra cash to buy a bigger house, upgrade from your Nissan to an Audi, or get that boat for the lake.

Before you do, think about using this extra money to buy income-producing assets instead. While it may feel great showing off shiny new things to your friends, you are likely better off using your extra money to buy rental property instead.

Additionally, if you have been smart with your money, your credit score and debt-to-income ratio are also in check. These are all big advantages to building your real estate portfolio. Access to capital, whether from your own pocket or through your network is wider now than when you were 25. Use this to your advantage.

3. Flaunt your assets

Your steadily growing portfolio of assets can be an excellent source of funds for investing in real estate. If you have been in your home for a few years and have built up equity, you have a great source of funds for down payments through a line of credit. This can be a low-cost and renewable source of cash to build your portfolio. And because you are using the funds for real estate, the interest you pay is tax deductible.

Beyond your home, you can leverage the retirement assets you have been investing in throughout your career. While I don’t advocate for redeeming retirement accounts early and incurring penalties and taxes, there are a couple of options you can consider.

If you have a Roth IRA account from early in your career, the cash contributions you made can be cashed out tax and penalty free as long as the account is aged 5 or more years even if you are younger than 59 years old.

Also, because you likely have 401(k) rollovers from prior employers, you have the option to transfer those funds to a self-directed IRA custodian who allows you to invest that money in real estate. There are many things to consider when setting up a self-directed IRA. Do your homework when selecting a custodian, understand the risks involved, and clearly define how you intend to use this source of funds before selecting an SDIRA custodian.

A word of caution on using your retirement assets to buy real estate: I advocate using real estate investments as part of a diversified investment portfolio and comprehensive financial plan. You can be left with penalties, tax liabilities, and no safety net by cashing out all of your retirement account early.

Be sure you do not leave money on the table or put your financial well-being at risk.

4. Use your wisdom

After four decades on earth, you have faced many big life decisions. You have been through the ringer at work, tested in your relationships, and experienced loss. These experiences have given you the perspective you lacked in your 20s and 30s. From this perspective comes wisdom.

This wisdom will come in handy when investing in real estate. Analyzing deals, deciding which opportunities to pursue, evaluating potential partners and team members, and negotiating contracts are just a few areas where your life experiences will benefit you.

Irrational decisions are a thing of the past. You, my friend, are positioned for thoughtful consideration and level-headed decision making.

Through your life experiences you have learned to take the emotions out of decisions. This is beneficial when deciding when to walk away from a potential purchase or partner. Leave emotional decision making behind. Now is the time to stick to the numbers and your strategy. But don’t worry, you are ready.

5. Explore your options

You have been smart with your money, invested wisely, held a steady job, and now have additional investing options. You can invest in properties directly, but this isn’t your only option.

If you enjoy working and don’t have the time to invest directly, you can serve as a source of private capital to other investors. You can do this through private equity or debt and can invest passively without quitting your day job. Your financial station in life can be attractive to other investors looking for capital or a personal guarantor for their loan.

Another option is to invest through crowd funding. By now, you may qualify as an “accredited investor,” which allows you to invest in non-registered securities. To be classified as an accredited investor, you must have personal income of $200,000, or $300,000 for joint income for the last two years, with the expectation of earning the same or higher income in the current year.

An investor can also be considered accredited with a net worth over $1 million, either individually or jointly with your spouse. There a couple other ways to qualify, but these are the two main criteria.

You now have access to several crowd funding platforms, where real estate investment opportunities are pre-vetted and available for you to passively invest. You also have the option of investing on the equity side of the property or the debt side, depending on your preferences and desired strategy.

Summary

You may be stressed thinking of starting to invest in real estate in your 40s. I know the feeling, trust me.

Retirement is less than 20 years away (if you are lucky) and you are scrambling to make up for lost time. However, your stage in life makes you well-positioned to act swiftly and soundly.

Use these advantages to build a strong and profitable real estate portfolio to round out the financial plan you have built since leaving college.

If you have the resources and network in place to begin investing in real estate, is anything else holding you back? How can I help you get started?

Let me know in the comment section below!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.