Millennials are currently the largest population segment in the United States, and they are shaping many important societal and economic factors, most notably real estate. Homeownership has been trending downward for years, and whereas in the past the 18-35 year-old cohort represented the majority of housing starts, they are instead choosing to rent instead of buy.
Millennials prefer the renter lifestyle for a variety of reasons. This age group is far more content to spend their money on experiences over material objects, and renting frees up capital to do so. Furthermore, Millennials are entering the workforce later in life, often with high levels of student debt and poor credit, which makes it difficult to save for a down payment or qualify for a reasonable loan. In addition, as a generation, they are delaying marriage and household formation, which subsequently delays the purchasing of a home further into the future.
As America’s largest population segment is seeking to rent their homes, they are typically drawn to three kinds of real estate:
1. Luxury Apartments
High-end apartments are springing up in big cities across the country. While these apartments command a significantly higher rent than many other types of real estate, it is often because of their prime locations and top-notch amenities. These luxury apartments are often within biking and or walking distance to major metros and are typically located near high-tech and high-paying jobs.
The downside of luxury class apartments is that they have a strong demand especially in select cities like Miami, New York, and San Francisco, and Los Angeles. This higher demand leads to ever increasing rents and fees. While some Millennials can afford to live in this style of apartment, the vast majority of the Millennials are choosing the standard apartments or single family rentals.
2. Standard Apartments
The luxury class apartments can often be quite expensive, and many Millennials means or lifestyles dictate they live in less upgraded, apartments. These types of properties are often located in the suburbs or a within a moderate commute distance from major metros or near sizable employers.
The apartments within this category range greatly in size, quality, and price, and could be as simple as a single building to a multi-building complex containing thousands of units. Although rents on these types of apartments are far lower than luxury apartments, it can come at the cost of typically longer commute times and fewer amenities.
3. Single Family Rentals
The Millennial generation encompasses Americans between the ages of 18-35, and within that group is a broad spectrum of incomes. Older Millennials often make more money and their households can consist of two adults and children. While the luxury apartments typically cater to single and married professionals, single family rentals are more sought out by Millennials that are married with families.
Single family rentals are highly desired for the freedom, space and amenities (such as yards) that come with living in house instead of an apartment. Additionally, Millennials renting single family rentals often value considerations such as living in good school districts. These are not always available in urban neighborhoods, or in neighborhoods where these families could afford to purchase their own home.
What This Means for Real Estate Investors
As America’s largest cohort is renting instead of purchasing, real estate investors are capitalizing on these unique market conditions. Rental properties continue to be in high demand, and markets throughout the U.S. are seeing lower vacancy rates and increased rents. Your available capital and investment goals will dictate what class of real estate you choose to invest in.
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