My great-uncle, Dave, is one of my favorite people in the world to talk to. He’s a member of the World War II generation, and we always discuss the most interesting topics. Recently, we were discussing the trend of homeownership in the pre-Baby Boom era. Among Dave’s generation, homeownership was a goal to which nearly everyone aspired. The concept of lifelong renting—or even renting over a substantial period of time—was practically non-existent.
I was struck by the level of divergence between Dave’s views and the views of so many young Americans—or “millennials”—in our current society. Among millennials, homeownership does not seem to have the same meaning as it had for the World War II generation. Millennials, whether by personal preference or economic necessity, are putting off homeownership and are substantially more likely to rent than previous generations. This is exactly the sort of data that you should be aware of to increase your competence as a real estate investor.
Millennials are the largest generation in American history and so maintaining an awareness of their living trends should be seen as a top priority if you’re looking to invest in commercial real estate. If you understand the preferences of millennials, you can tailor your real estate investment strategy accordingly. And the evidence shows that your strategy should involve a focus on multifamily homes.
Millennials Are Renting Partly Out of Economic Necessity
Many people assume that the millennial tendency to rent is almost totally a matter of personal choice. This is actually demonstrably untrue: One major factor behind the renting trend among millennials is that it’s an economic necessity. Nearly two-thirds of millennials have at least $10,000 of student loan debt, and in 2014, it was reported that just 22 percent of 30-somethings who had student loan debt owned a home. Paying back student loans can be a severe hurdle when someone is trying to save up for a down payment, and so it appears that many millennials are renting simply because they lack the financial means to become homeowners.
Millennials are also entering the workforce later in life, and so it takes them longer to earn salaries that would give them a good chance at obtaining a home loan. Currently, the average worker reaches the middle of the wage distribution around age 30, whereas, in 1980, a worker could expect to reach that same feat by age 26.
Plus, millennials enter the job market with relatively poor credit, and so qualifying for a good loan is something that requires substantial time and effort on their part. According to a study by Experian, the average credit score for millennials is approximately 625, a score that is considered mediocre by most finance experts.
Homeownership Has Less Overall Status for Millennials
Economics is not the only factor explaining the trend toward renting. In many ways, the values of the millennial generation have played a role in the renting phenomenon. Young Americans say they appreciate the flexibility and freedom that come with renting. If a pipe starts to leak or an appliance breaks down, research shows that millennials prefer to call the landlord rather than roll up their sleeves and fix it themselves or pay to have it fixed by an expert.
What’s more, millennials are digital natives. They tend to prioritize the high technology that is commonly available in many luxury apartment rental complexes. In the past, homeownership had clear symbolic value: It represented stability and success. For millennials, it appears that homeownership just simply does not carry as much?or the same type of?weight.
For you as an investor, all of this information points to a clear message: Rental communities will likely be good investment opportunities in the near future. And this is true not just for communities in urban centers but in suburban areas as well.
As we have seen, the full picture of millennials in the real estate market involves a bit more than just a simple preference for renting. There are a variety of forces pushing millennials toward renting as opposed to buying. But whatever the factors, the trend is quite unmistakable, and it is something you as an investor must bear in mind when developing your investment strategy. The trend points in the direction of investing in multifamily rental complexes.
Even the most educated investor still needs a partner, however, and this is where CWS Capital Partners comes in. We specialize in multifamily apartment communities, and we can help you fine-tune your investment strategy and identify the best possible opportunities for strong returns. Contact CWS Capital Partners today to learn more.
The information provided here is for your general informational purposes only. It should not be considered a recommendation or personalized advisory advice. CWS has made this third party information available from authors it believes are knowledgeable and reliable resources. However, its accuracy or completeness cannot be guaranteed and sentiment may change due to legal or economic conditions.
All investments involve risk including the possible loss of principal. You should familiarize yourself with all risks associated with any investment product before investing.
Advisory services are provided by CWS Capital Partners LLC, a registered investment advisor.
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