Millennials: The Next Big Disruption in Real Estate Investing

February 09, 2019 | By: BiggerPockets | 2

When you hear the word “millennial,” what’s the first thought that pops into your head?

I’d wager a guess it’s not “savvy real estate investor.”

Millennials have earned something of a bad rap when it comes to money—and pretty much everything else, for that matter.

But as a millennial and a real estate investor, I’ve often found myself wondering, “Am I an exception to the rule, or is everyone seriously misguided about my generation’s priorities?”

My company, Clever Real Estate, recently conducted a survey of 1,000 Americans who were planning to buy a home in the next year. Approximately 52 percent of respondents were classified as millennials (between the ages of 18 and 34).

What we learned was surprising—and ran contrary to prevailing narratives about millennials within the real estate community.

Our team compiled a number of key insights from our report, along with emerging data from leading industry analysts, to paint a comprehensive picture of the blossoming millennial real estate investor—aka the industry’s next major disruption.

Here’s what you need to know.

Related: 5 Ways the Real Estate Industry Will Completely Transform Over the Next Decade

millennials, homebuyers, investors, savers, generational trends

The Next Wave of Investors Has Arrived

Millennials are about to become America’s largest living generation. And did you know my peers and I are already the largest generation in the U.S. workforce?We’re earning more than previous generations did at our age and, despite what you may have heard, we might actually be better at saving, too.

In fact, a 2018 Bank of America study found that approximately 46 percent of millennials have managed to accumulate more than $15,000 in savings, while 16 percent have saved over $100,000. In other words, we’re a whole lot more adept at managing our money (and debt) than some would have you believe.

Related: Millennials Are Poised to Be the Wealthiest Generation Yet: Here’s Why

As the job market continues to improve, millennials’ buying power is increasing in kind, and we’re looking for smart ways to invest our newfound wealth.

Americans under the age of 37 already represent the largest share of home buyers, at 36 percent. While most of those buyers are looking for residential properties, we all know that real estate investing is only a small step from there—a step that many millennials, specifically, seem very interested in taking.

Clever’s study found that millennials are a full 52 percent more likely to invest in multifamily properties than Generation Xers or Baby Boomers.

In addition, 9 percent of millennials (also called Gen Y) respondents said they were buying properties specifically to generate passive income—more than Generation X (6 percent) or Baby Boomers (5 percent).

Why Real Estate?

Millennials came of age during the 2008 housing crash. We began entering the workforce in the middle of the Great Recession.

So, it’s no surprise that a lot of us are suspicious about the stock market, financial institutions, and the economy in general. We prioritize financial stability, autonomy, and ultimately, independence.

Despite the stock market’s recovery (and then some) over the past decade, Gen Y is increasingly giving it the cold shoulder and gravitating instead toward more tangible asset classes. And what’s more tangible than physical property?

In Clever’s study, 43 percent of respondents ages 34 and under said they were interested in purchasing property because they felt it was a good investment. But it’s important to point out that we’re not just following our collective gut here. We’re doing our homework.

Over the past two decades, the real estate market has outperformed the stock market by a factor of nearly 2 to 1. (Since 2000, the S&P 500 yielded an average 5.43 percent annual return versus the real estate market’s 10.71 percent.)

What’s more, a recent survey conducted by RealtyShares found that more millennials were aware of this fact than any other generation polled.

Part of this awareness may actually come from our typically maligned internet obsession. Many online financial experts popular among Gen Y are increasingly recommending investing in real estate over the stock market. So much for the theory that millennials have no attention span!

real estate, young, investor, millennials, generation

Barriers to Entry

Millennials may be eager to dive into the real estate investment market, but we have some unique challenges we’ll need to overcome first.

According to recent data released by credit rating agency Experian, millennials have an average credit score of 652. These lower credit scores can significantly hike up our mortgage rates or, in some cases, prevent us from getting loansaltogether.

Related: 5 Tried-And-True Ways to Improve Your Credit Score

This is likely due to our generation’s massive collective debt load. The average millennial carries a burden of approximately $36,000, mostly from student loansand credit card bills.

Of course, this isn’t just making it difficult for us to get loans—it’s making it difficult for us to save, as well. In fact, nearly 39 percent of the millennials polled in our study listed down payments as the number one barrier preventing them from buying property.

Thinking Outside the Box

That said, Gen Y is nothing if not scrappy, and many of us are finding creative financing workarounds through technology and other emerging investment tactics.

For example, as the popularity of vacation rental sites like Airbnb, HomeAway, and VRBO continues to grow, expect millennials to lead the pack in terms of adoption. Just like we would with a multifamily residence, we’re using these emerging opportunities for supplemental income to pay off mortgages and taxes, build equity, and invest in new properties.

While this practice still hasn’t been fully accepted by the REI community at large, it should be. The official numbers for last year haven’t come out yet, but industry analysts projected that the private accommodation market would top $36 billion in 2018.

Plus, it’s allowing many millennials to break into the REI industry when they otherwise wouldn’t have considered it as an option (i.e., instead of having to buy an additional investment property, single-family homeowners can now simply rent out individual rooms to generate supplemental income).

Technology Will Level the Playing Field

Millennials have hurdles to overcome in entering the real estate market, but we’re also going to have the upper hand in an increasingly digitized real estate landscape.

As the first true “digital natives,” millennial investors have all of the skills and resources to not only identify emerging markets and investment opportunities, but also to pounce on them quickly.

Our study found that, more than any other generation, millennials are utilizing smartphone-centric platforms like Zillow and Trulia to obtain up-to-the-minute data and make informed decisions.

Apps like these allow young investors to search for properties and handle transactions from hundreds—or even thousands—of miles away, if they so choose. In other words, millennial habits and preferences are creating an increasingly delocalized real estate landscape, where investors can tap into hot markets all across the country—not just those in their immediate vicinity.

Millennials are just now entering into our peak spending years. At the same time, the real estate industry is quickly moving in a direction that plays to the strengths of our generation.

For those reasons, we’re perfectly poised to be the next major force in real estate investment—and we’re going to take the reins sooner than you think.

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