My latest market letter sent out to my clients concerned the strong future of rental property. In changing real estate markets, and in today’s economy, rental property is something to look at.
Here’s the full article.
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Rental Market Looks Strong For years To Come – Why Should I Care?
How will the housing market be shaped in the coming years by demographic trends? One major keynote of my reading is that we’ll have a robust rental market for a long time into the future. I have always believed that rental property should be a part of everyone’s investment portfolio.
The strong rental market is driven by two major demographic groups, the millennials and the baby boomers.
The Millennials
The millennials as we know are the missing ingredient in the current home buying market. They are essentially delayed as they cope with high student debt and tight lending and saving requirements. But eventually their college educations will give them the resources to buy their first homes.
Meanwhile, we continue to wait for the young people to join us in homeownership and begin their wealth-building cycle in life.
The Baby Boomers
The baby boomer generation of course has impacted demographic trends at every stage of its colorful life, and the housing market is no exception as this generation retires. In Florida, which has always been a strong retirement target, the baby boomer presence in the market eclipses other age groups by more than double.
Baby boomers are strong homeowners, but in general it looks like boomers have stopped moving up. Now they’re looking at creative ways to age in place in their existing homes, or else are downsizing, often relocating from the suburbs to walkable downtown areas with amenities and community attractions, and leaving the yard work and home maintenance to younger people.
Part of this shift impacts the rental market also, and in recent years landlords report surprise at how many seniors they find renting. Freddie Mac recently published a survey of home owners and renters aged 55 and older. The survey reinforced the idea that plenty of older people regard renting as a sensible option moving forward.
Many news stories taken from the Freddie Mac survey are talking about the baby boomer generation’s continuing pressure on the rental market, and giving the impression that this generation has an altered attitude regarding renting. But our own NAR economist Lawrence Yun says that the percentage of boomers renting is no different from that of the previous generation as it approached retirement; once again, the baby boomers are such a large group that anything they do has an impact on markets.
Yun was quoted in a recent Chicago Tribune story that I liked a lot. It offers a good overview of the lifestyle and housing choices being made by the baby boomers nowadays: More older Americans becoming renters.
Rental Property Investing
The baby boomers are showing us increasingly that renting is not just for the young. It can be a good choice for some to take their equity and put it into more liquid investment vehicles – one of which can be a rental property that cash-flows. You can refer to this recent article of mine, Building Wealth With Rentals: Is Rental Property a Good Investment? for a tutorial on how investors determine if a property is a good investment or not.
The trend for reconnecting with family is growing also, as parents move in with their children, often in homes remodeled or extended for the purpose. I would expect to see more garage apartments springing up in the near future, as well as affordable and attractive apartment buildings. So far, builders have focused on luxury and more affluent rentals, but the demand for moderate multifamily options is continuing to grow, and something will have to satisfy this demand. An increase in senior roommates, and modified single-family homes, may also be a part of the trend.
Renting now is for all ages and lifestyles. You may want to review another article, Why Your First Home Should Be an Investment Property, which I wrote as a way to help millennials start as soon as possible building wealth. And as the middle age group helps its millennial children to own a duplex or four-plex just off campus in an attractive part of town, we shouldn’t be surprised to find seniors vying to live in the units.
© Stephanie Passman
