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How Are Millennial Home-Buying Trends Affecting the Rental Market?

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With Millennial homeownership rates still low, many are wondering: how is this impacting the rental market?

According to popular opinion, Millennials are shunning homeownership –content to live with mom and dad. When they do decide to shuffle off to their own place, it’s usually into rented accommodation.

Indeed, just one in three Millennials under the age of 35 owned a home as of the end of 2018, according to the U.S. Census Bureau. That’s 8 to 9 percentage points lower than previous generations’ homeownership rates at ages 25 to 34 according to research from the Urban Institute's Housing Finance Policy Center.

But while Millennials may be behind schedule, at least when compared with their predecessors, this doesn’t mean that they’ve ruled out the idea of homeownership altogether. It’s important to keep in mind that this generation came of age during the Great Recession. Many saw their parents’ homes lose value –or even sink into an underwater mortgage, and –eager to avoid the same repercussions, they aren’t in a hurry to run blazing into homeownership –a least until they’re sure it’s a good investment.

Additionally, many just aren’t in the best position to buy. Sure, a home would be nice, someday, but not just yet. Many are paying off student loan debt –which currently, is at an average of $29,800 for the class of 2018, or saving for a down payment, before they attempt to get on the housing ladder.

When it comes to marriage, the same cautious approach is applied. Eager to avoid rushing into marriage, and perhaps wary due to the divorce rates of their parents’ generation, Millennials are postponing marriage until later as well. Marriage, and children, have always been a catalyst for homeownership –but with Millennials taking an average of 6.5 years to develop a relationship before tying the knot –compared to an average of five years for older generations, homeownership –for many, just isn’t on the cards –at least not yet.

Simply put? Millennials are taking their time. They are taking longer to commit, longer to put down roots, and longer to buy their own place.

So how is this affecting the rental market? But what does this mean for investors?

Let’s take a look now.

Whether Renting or Buying, Millennials Need Homes

Are Millennials renting at a higher rate than their predecessors? Sure, but the fact remains that homeownership rates are still at 100%. We’re not seeing an influx of housing that’s outpacing demand. Whether it’s Millennials buying homes, or investors buying those homes and then renting them to Millennials, the current housing market isn’t suffering due to Millennials postponing homeownership for a bit longer than average.

Investors Should Go Where Demand Is

Where are Millennials renting? While investors have long been buying up lower income properties to cater to rental housing demand, these days, demand is shifting –with many Millennials opting to rent nicer homes in more expensive areas.

Millennials with higher incomes –and credit scores tend to prefer nicer places. For smaller investors, this could mean opportunities in markets that may have long been overlooked as rental neighborhoods.

If you notice that there’s a demand for rentals in a certain market or even neighborhood, you may want to consider buying an income property there. These type of rentals may typically have slightly lower yields, but the upside is that these rentals often produce a much better landlording experience. These renters will pay the rent on time. They’ll also be more likely to look after the property, and tend to stay put longer as well –meaning lower vacancy rates and far less hassle. Additionally, properties in these areas also tend to appreciate at a healthy rate as well.

Of course, as with any real estate purchase, be sure to conduct extensive research before making a commitment, as demand and returns will vary considerably across the board. That said though, it’s a worth keeping an eye out for hidden gems located in up and coming areas.

Millennials Are Willing to Pay More for What They Want

Most Millennials know what they want in a rental –and are often willing to pay a bit more for it.

Millennials have a list of things they look for in a property –things that are different than other generations. Here are a few things that often top the list for Millennials:

  • Proximity to work
  • Pet-friendly accommodation (3/4 of Millennials are pet-owners!)
  • Space to entertain
  • Security systems
  • Room to grow
  • Open floor plans
  • Space for a home office
  • Energy efficiency
  • Storage options

While these things might cost more, Millennials are also willing to pay more if the space is what they are looking for. Of course, you may not be able to incorporate all of these things into your current property, there is still a lot that you can do to help boost your rental’s appeal –and make it more attractive to would-be renters.

And if you are looking to buy an investment property –you might take some of the above into consideration, considering that Millennials could easily be your primary applicants.

While Millennials might be paving a new path and doing things slightly different than generations before them, this doesn’t necessarily spell doom and gloom for the housing market –nor does it mean that investors can sit back, confident that this generation will always be happy to rent. Indeed there’s plenty of indication that this generation will start buying eventually, although it may be years down the road.

Instead, it simply means that if you’re an investor who’s catering to Millennials, you should follow the trends, go where the jobs are, invest in areas that are likely to experience both appreciation and a decent rate of return, and seek to provide amenities that will attract this demographic that’s currently one of the largest groups of renters.

In return, you just might be rewarded with some amazing tenants.

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