Real Estate Basics for Teens: Long-Term Wealth Building
Understanding property before you're ready to buy
Why Learn About Real Estate Now?
You're probably not buying a house at 16. So why learn about real estate?
Because real estate is one of the primary ways Americans build wealth, and understanding it early gives you advantages:
- Know what you're saving for (down payment goals)
- Understand housing costs before making career decisions
- Recognize investment opportunities when you're older
- Avoid mistakes first-time buyers make
How Minors Can Participate in Real Estate
The Legal Reality
Minors face significant limitations with real estate:
| Activity | Can Minors Do This? |
|---|---|
| Own property outright | ⚠️ Technically yes, but contracts are voidable |
| Sign a mortgage | ❌ No — must be 18 |
| Sign a lease | ❌ No — contracts are voidable |
| Invest in REITs | ✅ Yes — through custodial accounts |
| Own property in a trust | ✅ Yes — with adult trustee |
The Realistic Path for Teens
| Now | What You Can Do |
|---|---|
| Ages 14-17 | Learn concepts, invest in REITs, save for future down payment |
| Age 18 | Can sign contracts, potentially co-sign with parent |
| Ages 18-25 | Build credit, increase income, save down payment |
| Mid-20s+ | Realistic first purchase for most people |
REITs: Real Estate Investing Without Buying Property
What Is a REIT?
A Real Estate Investment Trust (REIT) is a company that owns income-producing real estate. When you buy REIT shares, you own a piece of:
- Apartment buildings
- Office buildings
- Shopping centers
- Warehouses
- Hotels
- And more
Why REITs for Teens?
| Advantage | Explanation |
|---|---|
| Low minimum | Buy a single share for $20-200 |
| Diversification | Own pieces of many properties |
| Liquidity | Sell anytime (unlike actual real estate) |
| No management | Professionals handle everything |
| Regular income | REITs must pay 90%+ of income as dividends |
How to Invest in REITs
As a minor, invest through:
- Custodial brokerage account (UGMA/UTMA) — Parent controls until majority
- Roth IRA — If you have earned income (and want real estate exposure in retirement account)
Popular REIT options:
| Type | Example | What It Owns |
|---|---|---|
| REIT Index Fund | VNQ, SCHH | Diversified basket of REITs |
| Residential | MAA, EQR | Apartment buildings |
| Industrial | STAG, PLD | Warehouses, logistics centers |
| Retail | SPG, O | Shopping centers, retail properties |
ISP recommendation: A REIT index fund (VNQ or similar) provides diversified exposure without picking individual REITs.
Understanding Home Buying (For the Future)
The Down Payment
To buy a house, you typically need:
| Down Payment | Implications |
|---|---|
| 0-3% | Available (FHA, VA, some conventional). Higher monthly payment, PMI required. |
| 5-10% | Standard for many first-time buyers. PMI required. |
| 20% | No PMI required. Lower monthly payment. |
PMI (Private Mortgage Insurance): Extra monthly cost (0.5-1% of loan annually) if down payment is under 20%.
Example: Down Payment on a $250,000 Home
| Down Payment % | Amount | Monthly PMI (estimate) |
|---|---|---|
| 3% | $7,500 | ~$150/month |
| 10% | $25,000 | ~$100/month |
| 20% | $50,000 | $0 |
The Savings Timeline
If you want to buy a home at 25 with 10% down on a $250,000 home:
| Starting Age | Years to Save | Monthly Savings Needed |
|---|---|---|
| 15 | 10 years | ~$175/month |
| 18 | 7 years | ~$300/month |
| 22 | 3 years | ~$700/month |
Starting earlier makes it dramatically easier.
Understanding Mortgages
What Is a Mortgage?
A loan to buy property, secured by the property itself. If you don't pay, the lender can take the house (foreclosure).
Key Mortgage Terms
| Term | What It Means |
|---|---|
| Principal | The amount borrowed |
| Interest rate | Cost of borrowing (expressed as %) |
| Term | Length of loan (typically 15 or 30 years) |
| Fixed rate | Interest rate stays the same |
| Adjustable rate (ARM) | Interest rate can change over time |
| Amortization | How payments are split between principal and interest |
The Amortization Reality
Early in a mortgage, most of your payment goes to interest:
| Year of 30-Year Mortgage | % of Payment to Interest |
|---|---|
| Year 1 | ~75% |
| Year 10 | ~60% |
| Year 20 | ~35% |
| Year 30 | ~5% |
Translation: You don't build equity quickly in the early years. That's why long-term homeownership builds wealth, but short-term ownership often doesn't.
Renting vs. Buying: The Real Comparison
The Myth: "Rent Is Throwing Money Away"
This isn't always true. Here's a more honest comparison:
| Expense | Rent | Buy |
|---|---|---|
| Monthly payment | Rent | Mortgage (P+I), property tax, insurance |
| Maintenance | Landlord pays | You pay (~1-2% of home value/year) |
| Opportunity cost | Invest the down payment | Down payment tied up in house |
| Transaction costs | Minimal | Closing costs (2-5%), selling costs (6-10%) |
| Flexibility | Can move easily | Selling takes time and money |
When Renting Makes Sense
- Short-term stay (under 3-5 years)
- High-cost market where rent is much cheaper than buying
- Career uncertainty requiring mobility
- Building savings/credit/income
When Buying Makes Sense
- Long-term stay (5+ years)
- Stable income and career
- Ready for maintenance responsibilities
- Market where buying is comparable to renting
House Hacking: A Strategy for Young Adults
What Is House Hacking?
Buy a property, live in part of it, rent out the rest to offset your costs.
| House Hacking Examples |
|---|
| Buy a duplex, live in one unit, rent the other |
| Buy a house with extra bedrooms, rent them out |
| Buy a house with basement apartment, rent it |
Why It Works for Young Adults
| Benefit | Explanation |
|---|---|
| Lower effective housing cost | Rent income offsets mortgage |
| Build landlord experience | Learn property management on small scale |
| Owner-occupied financing | Lower down payments than investment properties |
| Forced savings | Building equity while living there |
Example
| Scenario | Numbers |
|---|---|
| Purchase duplex | $250,000 |
| Down payment (5%) | $12,500 |
| Monthly mortgage/tax/insurance | $2,000 |
| Rent from other unit | $1,200 |
| Your net housing cost | $800/month |
Compare to renting an apartment for $1,500/month — house hacking can be significantly cheaper while building equity.
What ISP Teaches
Real Estate Understanding Module
ISP students learn:
- Concepts — Understand mortgages, down payments, equity
- REITs — Learn how to invest in real estate without buying property
- Analysis — Run rent vs. buy calculations for hypothetical scenarios
- Planning — Create a timeline for future home purchase
- Teach — Create a "You Teach" video explaining one concept
The Long-Term Perspective
For athletes specifically:
- High-earning years may be short — housing decisions matter
- Geographic flexibility may be needed for career
- Building equity provides stability after playing career
- Understanding real estate prevents exploitation by advisors
Common Real Estate Myths
| Myth | Reality |
|---|---|
| "Rent is throwing money away" | Renting has value; buying has costs beyond mortgage |
| "Real estate always goes up" | Prices can fall (see 2008). Location and timing matter. |
| "You should buy as much as you can afford" | Buy what you need, not the max the bank will lend |
| "Mortgage interest deduction makes buying cheaper" | Most people now use standard deduction; benefit is smaller than assumed |
| "You need 20% down" | Many programs allow 3-5% down (with trade-offs) |
FAQ
Q: Can I actually buy property as a minor?
A: Technically you can own property, but you can't sign a mortgage or most contracts. Realistically, property ownership happens through trusts with adult trustees, not direct minor ownership.
Q: Should I invest in REITs or save for a down payment?
A: Depends on your timeline. If buying within 3-5 years, keep down payment money in savings (not invested). For longer-term wealth building, REITs can be part of a diversified portfolio.
Q: How much house can I afford?
A: Traditional rule: Keep housing costs (mortgage, tax, insurance) under 28% of gross income. More conservative: 25% of take-home pay.
Q: Is real estate a good investment?
A: It can be, but it's not guaranteed. Historical returns are comparable to stocks over the long term, but with less liquidity and more management hassle.
Q: What about investment properties?
A: That's a more advanced topic. Master your own housing situation before becoming a landlord.
Related Topics
- Investing for Minors → — Custodial accounts for REITs
- Building Credit Early → — Credit score affects mortgage rates
- The Priority Stack → — Where real estate fits in financial planning
- Personal Finance Overview →