Ever since the term “Millennial” entered the lexicon to describe those born between 1980 and 2000, much has been made of the generation’s unique preferences – whether as consumers, travelers, citizens, children, parents, or homebuyers… or as the case often has it, home renters.
Millennials’ affinity for renting their primary residences, rather than buying homes, is well-documented: Estimates vary, but only 24-36 percent of U.S. millennials today are homeowners (compared to approximately 64 percent of the U.S. population). Countless reports and studies have assessed the present and future impact of their slowed interest in home-buying. Investors and executives have wondered (and worried) about how millennials’ differences from prior generations, especially on the real estate front, will shape both the commercial and residential markets in the years to come.
But recently, an interesting new trend has made its way into the larger ‘Millennials & Real Estate’ discussion. The New York Times recently reported on the generation’s interest in real estate investing – particularly in buying single-family rental properties.
Granted, the Times article wasn’t backed up by any hard numbers on Millennial investment activity (and the publication has a bit of a reputation for treating anecdotes as trends). But there are several very sound reasons Millennials would be drawn to investing in real estate without biting the home-buying bullet.
1. The benefits of ownership without the drawbacks of commitment
As any homeowner knows, buying real estate creates tax advantages and enables investors to build equity – which create obvious benefits for younger Americans seeking to bolster their financial stability. But Millennials have a known affinity for bouncing from job to job, city to city, apartment to apartment, and traditional home ownership doesn’t align with their priorities.
Investing, however, does. Purchasing rental homes or making passive, small-dollar investments through real estate crowdfunding are ways for Millennials to win the benefits of buying (and the additional incentive of consistent cash flow and income) without committing to settle down in a single location.
2. They lived through the Recession (and know who the winners were)
As Pew Research has reported, Millennials are the first generation in the modern era to have higher levels of student loan debt, poverty and unemployment – and lower levels of wealth and personal income – than both their immediate predecessor generations had at the same stage of their life cycles. Having lived through the Great Recession at a pivotal point in their lives, they’re distrustful of financial institutions and interested in forging their own, less traditional paths.
But they’re also very smart, and know they need to protect themselves from the kind of financial trouble that hurt their parents’ retirement plans and long-term stability. An interest in owning rental real estate is an obvious extension of that: They know who benefits from the rent checks they send in every month, and they want to strike out to earn some of that action themselves.
3. They know what “diversification” is – and understand its value
The financial markets are, of course, complex – and so are the factors that led to the late-200s economic meltdown. But with even a cursory level of exposure to the issues and events surrounding the crash of the housing bubble, Millennials can recognize the lessons we all hard to learn the hard way: Don’t rely on the value of your home to go up indefinitely. Don’t over-extend yourself on real estate you can’t afford. Don’t rely on one asset or investment avenue to support your financial future.
And that’s the ultimate lesson: Diversify your portfolio. Given those aforementioned rent checks they’re writing each month, Millennials know there’s value in owning real estate – but knowing the past, they know not to consider homeownership the ultimate ‘American Dream’ goal and financial must-do that it once was.
Millennials may not be allocating their assets perfectly, but they know real estate is just one piece of the financial puzzle. That’s one reason especially why crowdfunding, which offers the long-term benefits of cash flow at investment minimums as low as $1,000-$5,000, is so valuable to Millennials: It gives them the ability to capitalize on the long-term potential of real estate without a high-dollar commitment – leaving them plenty of money to plug elsewhere, so no crash could ever take them down.
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