Written by Guest Blogger Matt Richman
Millennial, Summer Intern, 5 Arch
Millennials have officially entered the U.S. housing market, and our unique approach to homeownership is directly affecting rental markets across America. As a Millennial myself, it doesn’t surprise me that as we transition into our 30s, our housing tendencies have become a strong contributor to the bright economic outlook for single-family residential rentals.
So, exactly how different are Millennial housing trends and how can real estate investors strengthen their portfolios in a shifting market?
Millennials’ divergent generational values continue to shatter the classic ideals of homeownership. Student debt, rising interest rates, and rental benefits have all contributed to the Millennial trend of renting. We have conveyed more interest in rentals than any generation recorded—13% more Millennials lived in rentals in 2016 than early boomers in 1981.1
Nowadays, the drive to purchase a home while in one’s 20s is less common compared to previous generations. In 2013, the average age of a first-time buyer was 32.5 compared to 29 in 1979. This delay has consequently expanded rental markets across America. This isn’t to say we have less interest in becoming homeowners, we simply have a more relaxed timeline.
Millennials also seem to be favoring suburban communities. Mature suburbs, emerging suburbs, and exurbs have all experienced five consecutive years of increased growth rates and all contain a high ratio of SFR units.2
However, Millennials aren’t the only age group contributing to growing SFR markets. From 2006 to 2016, the total number of US households increased by 7.6 million while the total number of households headed by its owner decreased by 1.1 million—meaning a staggering number of new rentals arrived to the market. Increases in rental percentages occurred across all age groups except for those 65 or older, which remained steady.3
These changing housing market dynamics have inspired many firms and individuals to capitalize on the expanding SFR industry.
Sustainable monthly income, property value growth, and tax benefits are among some of the many lucrative characteristics of investing in a single-family rental property. However, many people are intimidated by a vacancy or locking up available funds in a down payment for a rental. If you invest in one of the many hot SFR markets across America, however, you limit the risks of vacancy. Not to mention that using your IRA for investment purposes will keep your account untouched while generating growth within your retirement fund.
If you are an experienced fix and flip investor, consider diversifying your portfolio with long-term rentals. The single-family residential rental market is strong, and as data indicates, it’s going to stay that way.
The Millennial market is here…what’s your next move?
1Why Millennials are Renting More – and Why It Works for Them
2US population disperses to suburbs, exurbs, rural areas, and “middle of the country” metros
3More U.S. households are renting than at any point in 50 years
% of household heads who rent their home, by householder’s age:
• Below 35 – 57% in 2006, 65% in 2016
• Ages 35 to 44 – 31% in 2006, 41% in 2016
• Ages 45 to 64 – 28% in 2006, 28% in 2016
• Older than 65 – 19% in 2006, 21% in 2016