Whereas previous generations were looking to save their capital and own a home, Millennials are choosing to rent properties instead. This is partially a result of a generational delay in entering the workforce, as well as the higher amounts of college debt they are saddled with. Additionally, a large majority of Millennials are choosing to get married and start families later in life, especially when compared to previous generations.
As a whole, American home-ownership has been trending downwards for years. The U.S. Census Bureau has recorded home-ownership levels at 63.7%; the lowest it has been in decades. Of the 1.4 million new households that are projected to form this year, 1.3 million of those are expected to be renters. This increase, combined with the fact that the majority of new household formations are made up of Millennials, means the rental market is in for a huge increase.
The Future of Real Estate
What does this increasing renter population mean for the future of real estate? As demand for rental properties increases, this puts pressure on the overall supply of available rentals on the market. The quantity of rentals available versus the number of rentals occupied has been on a downward trend for years. In fact, it is hitting levels not seen in decades. Overall these factors are leading to an increase in monthly rents, with median rent levels hitting new highs.
It also means that there is a great opportunity then ever to invest in real estate, and Millenials in particular can take advantage of this opportunity.
For example, instead of renting a place to live and practically speaking throwing money away you can buy a property out right using a government loan programs like FHA being able to get 96.5% loan to value with very attractive interest rates. In some areas of the US you could find very affordable housing so the monthly mortgage payment could be equivalent to the cost of the rent or even lower.
In some other states where the rents are much lower than the monthly mortgage payment there’s still an opportunity since people in these areas tend to share homes anyways, so they could purchase a home and lease some of the rooms in the house to be able to decrease their costs and still afford to pay the costs involved.
In most cases it’s better to own a property rather than rent for the following reasons:
The principal portion of the mortgage payments is part of the investment strategy since this money goes towards building your equity and decreasing the total amount owed to the bank. While rent money goes to waste.
When home prices go up it means more equity in your pocket, while rent money goes to waste.
As a homeowner you could use the tax benefits granted by the government, whether it’s an investment property or a home where you live in.
In some cases the cost of the mortgage payments would be lower than the rent cost.
As an investor you could get a nice monthly rent income and enjoy passive income after deducting all of the expenses (mortgage, property taxes, insurance etc.)
As a tenant you’re exposed to rent increases periodically and the owners could decide to not renew the lease, which ends up in costly time and money and the inconvenience involved in moving to another place.
To sum it up, Millennials acknowledge the opportunity to secure their financial freedom and their future economic situation utilizing real estate for long term passive income.