{"id":104382,"date":"2018-12-14T12:44:47","date_gmt":"2018-12-14T19:44:47","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=104382"},"modified":"2024-02-19T14:49:30","modified_gmt":"2024-02-19T21:49:30","slug":"how-to-invest-in-real-estate-later-in-life","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/how-to-invest-in-real-estate-later-in-life","title":{"rendered":"What to Know if You&#8217;re Beginning to Invest in Real Estate Later in Life"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">Crafting a long-term real estate investing strategy is like making an alloy. First, you take raw materials like investment capital, savings from job income, ability to obtain financing, risk profile, and most importantly, time. Then, you mix them in the right proportions to create a finished product that is stronger and more flexible than the individual parts that went into the process. Essentially, you are taking brittle iron ore, adding heat to melt impurities away, then finally adding carbon to produce mighty steel. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">So when someone asked me whether age should factor in the decision of how you should invest in rentals later in life, the answer had to be <em>yes<\/em>. Age strongly impacts two of the most important raw materials of any real estate investing strategy: time and risk profile. But how exactly? <\/span><\/p>\n<h2>In Real Estate, Time is FAR More Valuable Than Money<\/h2>\n<p><span style=\"font-weight: 400;\">If I gave you a choice between the following two scenarios, which one would you pick? <\/span><\/p>\n<ul>\n<li><span style=\"font-weight: 400;\"><em><strong>Scenario A:<\/strong><\/em> You are in your early 30s with $10,000 in savings and the ability to save another $10,000 per year from your income<\/span><\/li>\n<li><span style=\"font-weight: 400;\"><em><strong>Scenario B:<\/strong><\/em> You are in your early 60s with $500,000 in savings and the ability to save another $50,000 per year from your income<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Let me tell you what option investors that fall in the Scenario B have told me they would pick: Scenario A, hands down. Why? Because, in real estate investing, time is far more valuable than money. It\u2019s not even a close contest. Let me explain why. <\/span><\/p>\n<p><em> <strong>Related:<\/strong> <a href=\"\/renewsblog\/invest-in-rentals-later-in-life\/\" target=\"_blank\">5 Smart Ways to Start Investing in Rentals Later in Life<\/a><\/em><\/p>\n<p><span style=\"font-weight: 400;\">At its core, money has three basic functions: <\/span><\/p>\n<ol>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"><em><strong>Means of exchange:<\/strong><\/em> We receive it for goods or services we provide to our employer or customers, and we spend it on goods and services we need. <\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"><em><strong>Security:<\/strong> <\/em>We refrain from spending it and keep it as emergency savings to provide peace of mind in an uncertain world. <\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\"><em><strong>Investment capital:<\/strong><\/em> We invest it and earn a reasonable return for the risk we are undertaking to stave off the effects of inflation.<\/span><\/li>\n<\/ol>\n<p><span style=\"font-weight: 400;\">So, you see, once we have taken care of day-to-day purchases and have saved up adequate reserves, the only thing that\u2019s left to do with money is invest it. Or put differently, money will naturally flow to where it can earn a return. &#8220;Lenders lend,&#8221; as my mentor <a href=\"\/renewsblog\/author\/jeffbrown\/\" target=\"_blank\">Jeff Brown<\/a> has brilliantly said. If you can bring to the table opportunities for invested capital to earn good returns, you don\u2019t even need to look for the money. It will find you. Also, if you can scale your opportunities, you can always find money to pull them off. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">On the other hand, you can\u2019t make more time. You can\u2019t scale it. You can\u2019t buy it. You get what you get, and you don\u2019t throw a fit\u2014like my five-year-old told his brother last week. Age inversely impacts the time horizon that you have available to make your strategy work, which in tur<\/span>n reduces the options at your disposal.<\/p>\n<p>For instance, the more time an investor has available, the more compounding works in their favor. To begin with, the investor with more time needs to bu<span style=\"font-weight: 400;\">y a smaller asset value because they can take better advantage of compounding appreciation rates multiplied by their leverage factor. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Moreover, the more time the investor has available, the more they can let cash flow and debt pay-down do more of the heavy lifting in creating the equity required to generate the cash flow they need at retirement. In contrast, the investor with less time has to rely on her capital and her savings rate to do most of the heavy lifting. In other words, if you have more time, you can execute a capital growth strategy. If you don\u2019t, your strategy is limited to investing for immediate or short-term yield.<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-76738\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/02\/habits-hold-back-success.jpg\" alt=\"habits-hold-back-success\" width=\"702\" height=\"336\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/02\/habits-hold-back-success.jpg 702w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2016\/02\/habits-hold-back-success-300x144.jpg 300w\" sizes=\"auto, (max-width: 702px) 100vw, 702px\" \/><\/p>\n<h2>Risk Profile Naturally Shifts to Conservative Later in Life<\/h2>\n<p><span style=\"font-weight: 400;\">As we age, our risk profiles naturally shift toward the conservative end of the spectrum. That\u2019s not to say that someone who\u2019s naturally risk-seeking becomes conservative but rather, they become <\/span><i><span style=\"font-weight: 400;\">more <\/span><\/i><span style=\"font-weight: 400;\">conservative. This shift is primarily initiated by the shrinking available time to accomplish your goals. \u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">If you have 30 years until retirement, you can make a bad investment move (or two), lose money, and land back on your feet. You have time to make it all back, to turn it around. That option just isn\u2019t available to you if retirement is three to five years away. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Whatever move you make, you have to weigh it well and make sure that it will produce the results you need. There are no rehearsals, no do-overs. When you think about the limited time available, there\u2019s an instinct to compensate for lost time by taking more risk in your investing. You\u2019ve got to make up ground so you should throw caution to the wind and pursue high-yielding investments. That\u2019s exactly the wrong thing to do in this moment. Don\u2019t forget that risk and return are best friends: They go everywhere together. So when you\u2019re considering a high-yielding investment, you\u2019re also accepting a riskier investment. From a long-term investing standpoint, the only ways to get a higher return on your investment is to either get more cash flow for the same investment or pay less for a cash flow stream. Both of those scenarios lead to the same outcome: A higher-risk investment. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Some investors are successful at squeezing better cash flow through better management and renovations, but in the end, rents, like most things in life, tend to regress to the mean. Put simply, the market rent is the market rent. \u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In order for a rational seller (who\u2019s not in distress) to sell you the same stream of cash flow for a lower price, he must be selling you a lower grade property. If not, he\u2019d be acting against his self interest. <\/span><br \/>\n<em><br \/>\n<strong>Related:<\/strong> <a href=\"\/renewsblog\/tragedy-borrowed-goals\/\" target=\"_blank\">Inspirational Success Stories Are Great\u2014Unless They Lead to Goals You Never Wanted<\/a><\/em><\/p>\n<h2>In Conclusion<\/h2>\n<p><span style=\"font-weight: 400;\">Age impacts how you invest in real estate later in life because it impacts two critical elements of any investing strategy: time and risk profile. Time is a far more valuable resource than money because you can\u2019t make or buy more of it. The time you have available to invest is directly proportional to the options you have available. Appreciation, leverage, and debt pay-down lose some of their magic when given insufficient time, as more of the heavy lifting must be done by your capital and savings. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Our risk profile naturally shifts to the conservative end of the spectrum later in life, as our opportunities to make mistakes and recover decline. There\u2019s a natural impulse to make up for lost time by seeking high return assets that can produce results in a short amount of time. Don\u2019t heed that call\u2014it will lead you to riskier investments. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">So how do you proceed from here with limited time? Since real estate strategies are like making alloys, your goal is to produce the best results with the ingredients available. Time can be limited, and there\u2019s no way to get more. But you can play to your strengths by leveraging other ingredients that favor you. For instance, you might have more capital to start with than someone 30 years your junior, so you don\u2019t have to wait to save capital and can complete your acquisitions quickly. In the same vein, your savings rate might be higher every month than someone who still has to save for college or pays exorbitant childcare costs. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Like the old Chinese proverb says: The best time to plant a tree was 20 years ago. The second best time is today. <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Buy quality properties, play to your strengths, and you can put together a real estate investing strategy that works for you.<\/span><\/p>\n<p><a href=\"https:\/\/www.biggerpockets.com\/webinars?utm_source=newsletter\" target=\"_blank\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-91217\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-01.jpg\" alt=\"\" width=\"700\" height=\"85\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-01.jpg 700w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/08\/blog_ads-01-300x36.jpg 300w\" sizes=\"auto, (max-width: 700px) 100vw, 700px\" \/><\/a><\/p>\n<p><em>Are you beginning your real estate investing journey later in life? What strategies are you using?<\/em><\/p>\n<p><strong>Weigh in below!<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>When someone asked me whether age should factor in the decision of how you should invest in rentals later in life, the answer had to be yes. Age strongly impacts two of the most important raw materials of any real estate investing strategy: time and risk profile. But how exactly?<\/p>\n","protected":false},"author":800,"featured_media":104566,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5524,5183],"tags":[],"class_list":["post-104382","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-investing-for-beginners","category-landlording"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/104382","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/800"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=104382"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/104382\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/104566"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=104382"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=104382"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=104382"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}