The Landlord Advantage
I have said it already and will repeat myself: It is an incredible time to invest in residential real estate.
Being a landlord has never been more lucrative, and with the right tools and team around you, it has never been easier to succeed. Demographics, societal norms, individual expectations, and plain necessities have come together to create tremendous opportunities for landlords.
There are 82 million people in the United States born between the early 1980s and the early
2000’s. This cohort is called the ‘Millennials’ or ‘Echo Boomers’.
- To compare, Baby Boomers, the last great demographic wave that changed the world, totaled roughly 77 million people.
The financial crises of 2007 – and the resulting housing crash in 2008 and 2009 – set this demographic wave back a good five to ten years. The fact of the matter is that sooner or later, and I believe sooner, these people will want a place of their own.
Since 2007, the number of young people between the ages of 15 and 34 who still live at home has grown dramatically. In addition, the number of unmarried couples has grown and the birthrate has dropped. These trends will not last as the economy continues to expand. The inevitable outcome over the next few years is that household formation will explode. As a result, I believe many of these families will choose to rent.
People choose to rent for a number of reasons:
- Out of necessity
- Limited financial stability
- Poor or bad credit history
- Do not have the sustained, documented income necessary to qualify for mortgages
For many people, their status as tenants is temporary. We’re still seeing people who lost their homes during the crash continue to rent, but they are positioning themselves to buy in the near future. Some of these people are great candidates for land contracts or seller financing purchases.
In my experience, the biggest factor limiting first-time buyers is student loan debt. I have strong feelings about this. Thousands of young people, and some older people who lost their jobs during the recession, are saddled with student loan debt they will never be able to repay. Even those who managed to obtain a degree are unlikely to get a job that pays enough to justify the cost. As student loan debt is a protected debt that cannot be discharged in bankruptcy, it will follow many of these students for their entire lives. Because of this, many of these people will always be tenants.
On the other hand, many people simply do not want the responsibility of home ownership and
are happy to pay a premium for housing if they do not have to be responsible for long-term upkeep and care. It’s easier and more affordable to rent in an urban environment versus buying as well. For many young people, the aspiration to live in a city overrides their desire to own a home. Some ‘Empty Nesters’ also prefer the freedom to be able to travel on their schedule and terms. For some people, being tied to a home limits personal freedom.
Since there is an increasing number of individuals and families who are likely to continue being tenants for the foreseeable future, people who have hesitated to invest in residential real estate might want to reconsider. If you have questions about how to get started, reach out.
