Generation Y may have a positive impact on the housing industry, after all.
How does real estate stack up against the stock market? Aside from perks like tax benefits and appreciation, a RealtyShares study found that real estate has historically outperformed the stock market approximately 2-to-1 when it comes to returns. Real estate is attractive to those left wary from the Great Recession because it’s one of the only real investments. Investors are often drawn to the tangibility and control that real estate offers.
Millennials are fast becoming the largest generation in America. This generation has the power to reshape the economy as we know it. Paying witness to the economic crash, they’ve set their sights on real estate as a viable, sustainable investment choice more than any other generation. RealtyShares found that millennials are the only demographic to prefer real estate over stocks and other investment options. The Responsible Investment Association released a study showing millennials are twice as likely as baby boomers to be interested in investments that provide a solution to social or economic problems.
Millennials also have significantly more desire to invest in responsible and impactful assets. Because real estate investments provide housing to another person or family in need, they fit well with the types of investments millennials are drawn to. And because millennials are saddled with debt — on average $37,172 — they have prioritized paying off their debts and shied away from becoming over-leveraged. Goldman Sachs Global Investment Researcher Lindsay Drucker Mann said on an episode of the firm’s podcast that while there are categories in which millennials spend freely, on a whole, they tend to be “more conservative” about their debts and balances.
While it may be a surprise given the stereotypes surrounding the millennial generation, researchfrom the National Association of Realtors found that millennials continue to be the largest group of homebuyers, representing 65% of all first-time homebuyers last year. According to TD Bank, two-thirds of the generation are saving for a down payment. And they’re excited about the opportunities found in real estate investing. According to RealtyShares, 55% of millennials are enthusiastic about investing in real estate, though 83% wish the process were easier, an encouraging statistic for turnkey firms geared toward simplifying the real estate investment process. Also encouraging, 54% of millennials are interested in investing in real estate outside of their primary residence, significantly higher than the 55+ demographic. And 7% of renters are currently investing in real estate other than their primary residence, a trend likely to continue.
Realtor.com evaluated the cities millennials would like to live in, and expensive metros like Seattle and San Francisco made the top-10 list. Savvy millennials with the desire to invest in real estate without sacrificing their own city living may choose to buy in outside geographies like Dallas or Philadelphia, where home prices are more affordable and anticipated returns are higher, while they continue renting in their desired locations.
The Drive To Modernize The Industry
With a focus on establishing themselves in their careers, millennials are more financially savvy after surviving the crash of the Great Recession. They are waiting longer to get married and have become more socially aware and reluctant when it comes to procreation. Combined with a prowess unlike any other generation, millennials have a tight grasp on technology and know how to leverage it in nearly every aspect of their lives. Their unique connectivity and real-time demand for information and services have already begun to turn traditional business models on their heads. Businesses have taken note of the new generation, recognizing the need to adapt or be left behind.
Native to the digital age, millennial investors are armed with all the tools needed to learn where to invest and what key metrics to analyze when evaluating prospective rental properties. They can leverage technology to facilitate the transaction, even remotely, and then leave it to the professionals to handle the management and operations after the sale. Resources like Zillow, RentRange and HouseCanary have emerged, making it easier than ever to obtain the data necessary to make informed decisions. With easily available data, investors can make informed decisions about where to invest.
Other online platforms such as Roofstock, Own America and HomeUnion have entered the market, delocalizing real estate investing by making it easy for investors to transact in top-performing rental markets across the country, regardless of their own geography. This is new to the investment space and has closed the geographical investing gap. Living in a market that is not investor-friendly is no longer the barrier it has long been for the small investor. We solve this issue by having a centrally managed property management company in which there is a consistent level of service and one point of contact across multiple geographies. You can now buy investments in different markets and not worry about dealing with different property managers.
One thing is certain: Millennials are entering into their peak spending years, and their actions are not to be ignored. Meaningful opportunities are available to both millennial investors and the service providers in the space. In continuing to make investing easier and more accessible, all parties can benefit.