Real estate investors have a huge opportunity to make money on the fading American Dream of home ownership. There are approximately 80 million members of Generation Y and they are less interested in home ownership than any generation before them.
Survey after survey suggests that these uncertain economic times, in which many Millennials have reached adulthood, are shaping their views on debt and home ownership. Despite being the best educated generation (63% have bachelors degrees) Millennials are also the least employed (17% unemployment). Sadly, that education has saddled them with huge amounts of student loan debt and few prospects for paying it off.
Generation Y has a hard time seeing beyond the debt and therefore is primarily focused on getting rid of it. The thought of adding a mortgage payment to that pile of debt only pushes them further away from the thought of owning a home. The residence that is attractive to Millennials comes with built-in amenities and a landlord to take care of repairs and maintenance.
Investors, they are calling your names and their numbers are growing daily with no end in sight. Now is the time to take advantage of the real estate market and the demand for rentals. Interest rates are still at historically low levels and in most markets home prices are still well below the highs. In Bend, Oregon home prices are 28 percent below the peak of May 2007.
No one is sure how long Generation Y will prefer renting over owning. Some think the preference shift is permanent while others think once the economy comes back around so will the Millennials. Regardless of if or when it happens, Preferred Residential is bullish on single family homes for most real estate investors.
A single family home offers some advantages over multi-family complexes that could be accentuated by the current real estate market.
- Cost of entry: Houses are generally lower priced than multi-family rentals and financing is cheaper and easier to come by.
- Ease of sale: The number of potential buyers for a house will always be larger than for a duplex or apartment building.
- Appreciation: Appreciation for apartments is largely based on how well they are run and how much money they make. House prices are based on demand. Let’s say in five years the economic tide has shifted and Millennials decide they are ready to buy a home. If you bought well in 2013 not only will your property have had positive cash flow for 60 months, the rising demand from home buyers will add a nice bump to whatever appreciation was gained over that period.
- Rising Rents: Even if Generation Y decides to keep renting, adding more renters to the pool every day will continue upward pressure on rent prices.