Baby Boomers and Millennials in the Hunt ... for Apartments

By Edwards, Lance | USA TODAY, March 2016 | Go to article overview

Baby Boomers and Millennials in the Hunt ... for Apartments


Edwards, Lance, USA TODAY


WITH THE DECLINE of single-family home ownership in virtually every corner of the country, the American Dream that once featured the house and white picket fence has dissolved into a national hunger for rentals. A Harvard University report finds the robust demand for multifamily rentals is strongest among the Millennials (born between 1977-95) and Baby Boomers (born between 1946-64). Together, these two forces alone could create as many as 4,700,000 more renter households by 2023.

Real estate investors and analysts alike are expecting a veritable tidal wave of new renters to enter the market in the next decade, a trend fueled by empty nesters seeking to cut living expenses tied to their suburban lifestyles and the presence of an aging workforce unlike anything the nation has seen before.

Tim Blackwell, contributing editor of Property Management Insider, indicates that, while the trend now is coming to the forefront, more than half the increase in rental demand in the last decade came from residents aged 45-64.

The exodus from the suburbs can be attributed to the flexibility that comes with rentals, including the freedom from costly maintenance and responsibilities related to homeownership, and the convenience and attractiveness of a more urban lifestyle, the 2014 State of the Nation's Housing reports.

Yet another benefit of apartments are their proximity to jobs and the availability of public transportation that could prove useful as the U.S. workforce grows older. While 15% of Americans over 65 were still in the labor force in 2006, 19.7% of those at retirement age or over were at work in 2014. The Bureau of Labor Statistics expects that figure to jump to 20.7% by 2050. All the while, apartments remain an attractive and viable option for college graduates, young families, and Millennials, who favor rentals for many of the same reasons.

Apartments are a gold mine in the real estate industry because of their ability to generate passive income and grow equity, the tax benefit of depreciation, the increase in value of your property through market or forced appreciation, and the ability to amplify investment yields through leverage. Meanwhile, the apartment business offers entrepreneurs three ways to create wealth, but none of them will require the 40-year rat race towards retirement.

You can wholesale apartments to create active income, that is to get a property under contract and then sell (flip) the contract to another buyer, where you will collect a wholesaling fee exponentially larger than that of a single house contract flip. You also can build passive income using the buy-and-hold strategy, where you will collect mailbox money from rents without ever dealing with tenants or toilets. Moreover, you can use forced appreciation to create cash flow and equity to do more apartment deals and build wealth. Investors can do all of this without a real estate license and without any cash or credit of their own.

While apartments are in high demand, I operate in the segment of the industry I have labeled small apartments--any property with two to 30 units--because they are the perfect launching spot for everyone from novices to seasoned single-family investors and other real estate veterans. Yet, with so many benefits to investing in apartments and many more investors already jumping in to meet the demand of the Baby Boomers and Millennials, some might conclude it is too late to get into the hot apartment market. This assertion categorically is untrue.

While a great many individuals currently are competing in the single-family housing space, the banks are moving large swaths of cash to buy up portfolios of not just houses, but large apartment complexes, too. That is why the small apartment distinction is so important and why the competition is low among these cash cow properties. Small apartments are the realm of the individual investor. …

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