I have many would-be clients asking if now is a good time to get into the buy-and-hold rental market as an investor. Many people believe they have missed the boat because of increasing interest rates and increasing real estate prices. Over my next few Best Ever blog posts, I want to address reasons as to why, in my opinion, investing in real estate is still a very solid decision. First off, let's look at a large part of the population that housing providers and landlords rent to.
Renter's Confidence in Future Homeownership Is at an All-Time Low
A study conducted in 2022 by the Federal Reserve Bank of New York found that renters' confidence in future home ownership is at an all-time low. Those contributing to the study indicate they anticipate continuing renting either because they prefer it or they're holding out hope of declining housing prices. Between 2013 and 2022, the percentage of millennials expecting to rent for the rest of their lives nearly doubled from 13.3% to 24.7%.
Financial Constraints: The Primary Driver of Millennial Generations' Renting Population
This trend can be attributed to various factors such as financial constraints, lifestyle preferences, and the changing job market. The primary driver of the millennial generation’s renter population is their financial situation. Many millennials face mounting student debt, stagnant wages, and high living costs. These financial burdens leave little room for saving and investing in property.
According to a new report by the National Association of Realtors, the median income for the millennial home buyer is $92,200 compared to $76,900 for millennial renters. Simply put, many millennials do not have the financial stability to afford a down payment, closing costs, and mortgage payments.
The cost of living in major cities continues to increase, making it increasingly challenging for millennials to gain financial independence. The high cost of living in popular urban areas has also increased the appeal of renting, the flexibility of offers, and the fact that many millennials prioritize living in an ideal location over owning a home.
Lifestyle Preferences: Flexibility, Experiences, and Location Independence
Another factor driving the trend of millennial renters is their lifestyle preferences. Compared to older generations, millennials tend to place a higher value on experiences and flexibility, rather than material possessions. Many millennials prioritize traveling, socializing, and exploring a new career opportunity over traditional milestones of previous generations like homeownership.
The gig economy, which is popular among millennials, brings the flexibility of working on a project basis without the traditional nine-to-five structures. This gig economy also creates options for remote work or starting a business, which further solidifies the preference for renting as it allows for flexibility and location independence.
Property Developers and Real Estate Professionals Must Cater to the Unique Demands of Millennials
The millennial generation’s renter population is expected to remain significant in the coming years. Factors such as financial constraints, a preference for a flexible lifestyle, and changing job market trends have all contributed to this trend.
It’s crucial for property developers, housing providers, and real estate professionals to take into account the changing preferences and needs of this generation when developing rental properties that can cater to the unique demands of this demographic.
Next week, we will begin tackling rates and why it still makes sense to invest in real estate in today’s rate environment.
About the Author:
Aaron Chapman is a veteran in the finance industry with expertise in complex transactions since 1997. He is ranked in the top 1% of over 300,000 licensed loan originators and closes over 100 transactions per month. Learn more at aaronbchapman.com.
Disclaimer: The views and opinions expressed in this blog post are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action.
SecurityNational Mortgage Company, and its loan officers, unless individually licensed and specifically denoted in their credentials, are not qualified to, and are prohibited from representing themselves as accountants, attorneys, certified financial planners, estate planners, investment specialists, or tax experts, and will not advise you in those matters. Always seek the advice of a licensed professional. This article is for informational purposes only, contains the opinion of the author, not necessarily the opinion of SecurityNational Mortgage Company, and should not be construed as lending advice. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet LTV requirements and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines, and are subject to change without notice based on applicant’s eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over life of loan. Reduction in payments may reflect longer loan term. Terms of the loan may be subject to payment of points and fees by the applicant. Aaron Chapman, NMLS#267844, SecurityNational Mortgage Company Inc., Co. NMLS# 3116, AZ Banker# 0904315, Equal Housing Lender. Any amounts, figures, payments, or loan terms stated are based on continually changing markets, rates, loan programs, and borrower-specific qualifications, and subject to change without notice. See loan officers featured for a personal consultation and accurate pricing.