We’ve seen an increase in the number of Millennials (those born after 1980) investing in real estate. This has some of us wondering, why and how? It also has many of us exploring the channels that enable Millennials to invest and the new resulting opportunities for all players in the real estate industry.
Why Are Millennials Investing in Rental Properties?
Perhaps for the Baby Boomers (those born between the years 1946 and 1964), it made sense to buy real estate in their 20’s because of the average age of marriage, stable job market, and in general, better financial situations compared to people the same age today.
People in their 20’s today usually respond to the idea of buying with “why not just rent?” However, there is a growing population of Millennials who are no longer interested in renting and have discovered how to invest in real estate and reap its rewards.
Despite having more loans, higher levels of unemployment, and less wealth compared to their parents and grandparents, Millennials have one advantage: They observed the most recent recession and its effects, such as impaired retirement.
Not having wealth at a young age and facing the possibility of future financial instability explains their interest in real estate investing. Millennials understand that with investing, comes additional monthly income and a hedge against inflation.
Real estate investing instead of buying a home is actually a good fit for Millennials. It eliminates the commitment to a home, should they choose to move around for jobs.
Since most are not settling down in a home until later in their lives, they’re able to enjoy the flexibility. It also provides a jump start to making money and paying off loans since finding a job is requiring more education, time, and money today.
Fortunately for Millennials, they have not had to endure financial difficulties such as losing pensions or stock market investments, which provides some advantage for investing. But again, if they have no money, how are they investing?
How Are They Doing It?
This generation is taking different approaches to investing. There are those who are able to find well-paying jobs immediately after graduation and can generate a down payment in a short period of time.
On the other hand, there are those who face challenges from low credit scores and sellers unwilling to accept FHA loans. The beauty of this generation tapping into this industry is the awakening of different options for everyone to consider.
Among these options are investing in real estate investment trusts (REITs), which is a company that invests in income properties and has shares on stock exchanges that people can buy. This gives them a chance to be part of different investments and a feasible way to get started.
Airbnb has also created a channel, not just Millennials, but for anyone looking to create additional income. Those who buy a personal residence can build equity and pay off the mortgage by renting out a room or their entire home on Airbnb.
This gives anyone more flexibility to make an income property out of their home. This has become so popular, some are taking up real estate investing through Airbnb full-time.
Some Suggestions for the Millennial Investor
Investing in a less expensive area can save money on the down payment and overall expenses. Small college towns can be convenient if investing while still studying and can continue to be lucrative after graduating.
Having good credit helps get lower interest rates and increases negotiating power. Finally, today there are so many resources to help people understand investing and to actually get started.
Networking, finding properties, and understanding investment potentials has become much easier.
What This Means for the Industry
Millennials have disrupted the real estate industry by creating a fierce demand and competition for rental properties and have reduced the number of homebuyers.
However, with these Millennial investors, sellers have a new demographic to appeal to that has not yet been done. This gives agents, realtors, and brokers a whole new niche and ability to compete.