Shaping the Market: Millennials and Real Estate Investing

millennials and real estate

Note: It’s not easy for a 50-year-old person to speak for millennials, so I asked Jamie Fleetwood to work on this article with me. She’s worked closely with me for two and half years, bringing a relevant, youthful perspective to an array of topics. She’s attended our company events, retreats, worked with me on KenMcElroy.com, and much more. Given the insight that Jamie has, she’s was deftly able to blend my more seasoned philosophies with a millennial voice.

Within the past year, millennials have risen to the top in becoming the single largest generation of Americans. There are currently around 84 million members of this thriving demographic, outnumbering the once-dominant baby boomer generation by nearly 10 million. Naturally, being the largest age group in America, millennials have a lot of power in shaping the future real estate market, which is why it’s so critical to pay attention to their views on real estate investing and other investing opportunities.

Millennials Are Most Likely to Value Real Estate Over the Stock Market

Thanks to the economic downturn of the Great Recession, most millennials graduated from college and entered the job market when it was rather difficult to find employment. Millennials have watched the stock market crash and burn, and watched as it negatively impacted their parents’ lives.

Meanwhile, since the year 2000, real estate has outperformed the stock market. For instance, during that period, the S&P 500 yielded a 5.43 percent annual total return, while real estate produced a 10.71 percent return. Millennials have also watched real estate bounce back in a massive way over the years. Although in some markets it has taken nearly eight years to recover from the bubble, others — like the millennial-favored cities of Denver and Portland — are super-hot. The heat in these markets is shining a spotlight on real estate, making it an attractive investment opportunity for millennials.

What’s also making real estate stand out to millennials is the fact that American homeownership has been consistently trending downwards. According to the U.S. Census Bureau, homeownership has leveled at 63.7 percent, which is the lowest it’s been in decades. On top of that, out of 1.4 million new households that are projected to form within the next year, 1.3 million of those are expected to be renters, not buyers. This increase — combined with the fact that the majority of new household formations are made up of millennials themselves —means the rental market is in for a massive spike, which is good news for future real estate investors planning to buy and hold.

The Advantages in Physical Assets and Technology

According to Fannie Mae, research reports that 85 percent of millennials agree real estate is a good investment. Most are intrigued by real estate investing because you can physically see your investment. Anyone who is more visually minded or image-oriented (a good chunk of millennials) is fascinated by real estate investing because of the hands-on nature of it.

Growing up in a world of technology, millennials have one significant advantage when it comes to real estate. The National Association of Realtor’s Research Department showed 99 percent of millennials use the internet to search for properties, and 58 percent found properties on a mobile device. While the substantial down payment needed to invest in real estate is the chief reason millennials aren’t currently buying, thanks to online real estate investing platforms and other creative tactics, millennials can now invest in real estate without having to save tens (or even hundreds) of thousands of dollars first for a down payment. In essence, the more millennials continue to venture into real estate, the more ways they will find and create to invest in it.

Real Estate Investing Challenges Millennials Will Face in the Future

As much as millennials are anxious to get their feet wet in real estate investing, they do have some challenges standing in their way that they’ll have to overcome. According to FICO, a good chunk of millennial home buyers can’t get loans backed by Fannie Mae due to not being able to meet the median credit score of 750. Poor credit scores can be attributed to the high amounts of student debt weighed on the backs of millennials. According to Student Loan Hero, the graduating class of 2016 had an average of $37,172 in student loan debt, a six percent increase from 2015. These obstacles will make real estate investing more challenging for millennials, but not impossible.

Although real estate investing is proving to be a more difficult journey for millennials compared to other generations, this burgeoning new generation is both determined and creative. Despite their challenges, due to this generation’s size, millennials are expected to become the majority of real estate investors. They already see real estate as the best way to invest their hard-earned dollars, and with technology firmly on their side, they now have multiple ways to invest in real estate. Once they can overcome their financial challenges from student debt and have positive returns on the horizon, the future of real estate investing will be bright, and millennials are going to play a huge role in it. Those of us from an older generation best get used to dealing with these savvy young folks when it comes to real estate transactions.

About The Author

Ken McElroy

Ken McElroy is the co-partner of MC Companies in Scottsdale, Ariz. He is the author of the best-selling books, The ABC's of Real Estate Investing, The Advanced Guide to Real Estate Investing, and The ABC's of Property Management. McElroy is also a contributor for The Real Book of Real Estate by Robert Kioysaki, and The Midas Touch by Donald Trump and Robert Kiyosaki. McElroy's fourth book, The Sleeping Giant, is dedicated to the new class of entrepreneurs who are emerging in today's economy. For editorial consideration please contact [email protected](dot)com.

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