Millennials are delaying home ownership. The result is an extended rental trend among 25- to 34-year-olds that is fueling real estate opportunities of its own.
The group, which is the nation’s second largest generation, is starting to form new households, but unlike past generations, that doesn't mean buying a starter home. Weak job growth and wage gains among millennials don’t have the group looking to buy anytime soon.
Home ownership among those 35 and younger has fallen from 43.6% to 35.9% during the last 10 years. In February, housing starts fell 17% nationally, due mostly to the lack of young buyers, according to The Wall Street Journal.
The young generation wants flexibility in their future and has concerns about their credit rating, lack of savings for a down payment and whether they can count on their income to sustain homeownership. Millennials still dream about homeownership, but they are turning to rentals in greater numbers as they postpone that dream.
“Millennials don’t want to buy yet. They are getting married later and are much more mobile than previous generations, so home ownership is being delayed,” John Beacham, president of B2R Finance, said. “The combination of demographics more inclined to rent and a favorable investment environment make us very optimistic about the future of buy-to-rent investing.”
Investors have taken notice. Since 2008, approximately 4.5 million homes have been sold and converted to rental properties with the majority purchased by individual investors, according to RealtyTrac data.
Today, there are millions of these buy-to-rent investors and this growing group is cashing in on the share of Americans that prefer to rent instead of own.
“It’s a good time to be a buyer,” Mark Mohl, senior account executive at B2R Finance, said. “There's a huge demand for investment properties, and I am optimistic about the future prospects for this market.”
Most investors look at residential rental property as a long-term investment. The cash flow stream, home price appreciation and tax benefits are attractive to those looking for alternatives to traditional investments like stocks and bonds.
However, financing has proven to be difficult for this growing investor group. While larger investors can self-finance their purchases, individual investors are left with fewer options, according to Mohl.
“Fannie and Freddie are reluctant to finance and impose limitations on the number of investment properties a borrower can own before their financing options become more limited,” he added. “Previously, these individual investors would have to go through hard money or private money lenders. There’s been a void in the space for this group to find competitive financing.”
B2R offers loans of up to 75% of home values for pools of leased properties. The company’s minimum loan size is $300,000 and provides five- and 10-year terms with up to a 30-year amortization schedule. Financed properties need to be no less than 60% residential.
B2R Finance can help investors unlock equity from existing properties, improve their cash flow and build their portfolios. “If they have two or three properties and are looking to have eight to 10 properties in their portfolio, we can help them get there,” Mohl said. “Instead of several loans for several properties, B2R can provide a blanket loan.”