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Invest in Long-Term Trends for Income and Growth

Investing in long-term trends and the shift in how society sees housing should be considered for your portfolio. The residential asset class continues to see an upcoming move of fewer homeowners and more renters.

The U.S. is becoming a renter nation, and smart investors are preparing to leverage this trend into their portfolio.

It’s easy to assume that Millennials are the renter demographics driving the rental demand. With the burden of student loans and with home prices far outpacing wages, many Millennials can’t afford to buy their first home.

As for Millennials that can afford to buy, many are simply choosing not to because they don’t want to be tied down, especially since the average Millennial changes jobs every two years. That’s why the talking heads are encouraging landlords to target this demographic and appeal to their preferences.

Landlords targeting only Millennials will miss out on a much larger demographic that was not on anybody’s radar ten years ago – the Baby Boomers.

The fact that Baby Boomers will drive rental demand in the near and foreseeable future is surprising to many experts and pundits because renting has traditionally been viewed as one rung on the housing ladder with the family home being the end game.

First, you rent, then when you’ve saved enough, you purchase a starter home, which is followed by the family home. This is where most people spend the majority of their years, including retirement. Since most Baby Boomers should be on the family home end of the housing spectrum, so why do they make up the most significant demographic of renters?

A demographic that is only going to grow exponentially as the number of Baby Boomers set to retire in the next 3-13 years will be staggering with approximately 40% expected to retire in the next five years alone.

Economics, mobility, and convenience are all factors that explain the rental phenomenon among Baby Boomers.

From a financial perspective, many Baby Boomers are forced to rent because they’re not prepared for retirement.

The Insured Retirement Institute reports that only 23% of Boomers believe that their savings will last throughout their retirement and that they have done a good job of preparing for retirement.

To put it bluntly, many Baby Boomers do not have adequate resources to sustain their lifestyle into retirement. Here are some other jaw-dropping statistics on Baby Boomers from the Insured Retirement Institute:

  • 24% Have No Savings
  • Less Than 30% is on Track for Retirement
  • Roughly 50% Live Off of Social Security

Despite many Boomers having little in savings, they still want to retire. They’ve put in their hours at work and now want to rest. To retire without sufficient income, many Baby Boomers tap into their last remaining source of the nest egg – their homes.

Selling a home and extracting the appreciation that’s been accumulating over decades is the only way many Baby Boomers can retire and still fund their lifestyles.

Financial distress only explains part of the rental demand on the part of the Baby Boomers. For some, renting is a choice. Their reasoning includes:

  • Downsizing and Convenience. Baby Boomers want less space to take care of in terms of housekeeping and repairs. Renting puts yard care and upkeep in someone else’s court, allowing them to spend their time and energy on things they want to do.
  • Flexibility and Mobility. With the kids moved away and scattered, Baby Boomers want the flexibility and mobility to move around to be near grandkids or to travel and experience new cities and areas. Renting allows them this flexibility.
  • Cost Savings. Renting allows Baby Boomers to free up cash that would otherwise be exhausted on renovating and maintaining a home. They would instead use the extra money on dining, recreation, and travel.

A renter’s nation makes it a great time to be a landlord where demand is consistently outstripping supply, but many investors don’t have the time or money to take on a property themselves. That’s why many investors become virtual landlords or indirect investors through investment in private investment funds.

Private real estate investment funds are the perfect vehicle for the individual investor seeking to reap the financial benefits of being a landlord without the day-to-day management.

This is done by leveraging the expertise of fund managers who have already learned the ropes. They have gone through the motions of learning to invest in multifamily real estate successfully.

By taking advantage of the leverage opportunities passive investing through a private real estate investment fund affords, individual investors can take advantage of the landlord’s market and invest in the lucrative and recession-resistant multifamily segment.

The renter nation that the U.S. has become appears to be here to stay, and with favorable metrics and demographics due to the impending tsunami of retiring Baby Boomers, there has never been a better time to invest in multifamily properties.

Investing for Growth,

Michael Foley

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