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Millennials Chasing Real Estate Markets Away from Home

Local Housing Markets Too Expensive for Younger Investors

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Millennials have noticed that they can no longer compete in their own local housing market. This phenomenon is forcing them to search for real estate online and often states away from where they reside. Even if millennials are able to qualify for a mortgage, they may have trouble finding a property within their budget. The key culprit? Affordability. We’ve had almost six years of increasing home rates and higher interest rates for the past two years. It has been challenging for all types of homebuyers these days.

There is an affordability crisis that is forcing the younger generations to move. For Michael Pickens, buying a home in the town that he grew up in is not an option. His wife and two kids currently live in the Bay Area but have struggled to find a house of their own due to being outbid by cash offers. He’s noticed that many of his friends have moved to Arizona and Texas where they can afford the market.

Alan Lewis, the co-founder of DiversyFund, said “we find that millennials see the investment landscape very different than their parents do. They’re jaded by the homebuying story, they’ve seen people overpay during the peak and be upside-down in their homes, and they see stock market volatility and don’t have an appetite for it. They want something that offers a departure from the rollercoaster ride.”

Does that mean millennials stop buying homes and quit investing in real estate? No.

They know that real estate is still a lucrative business but know that they might have to venture outside of their hometown or even home state to find it. Take Pickens for example, he found homeownership to be unobtainable in his hometown market but now owns six properties in multiple cities, including Pittsburgh and Memphis, Tenn.

Pickens stated that buying real estate abroad is “very video game-like, like buying stocks. I’m physically buying these buildings and managing properties from afar.” Pickens used Roofstock which allows users to pick rental properties based on various returns and risk factors, such as location and tenant history. Pickens first purchase was a duplex in Memphis for $129,000. He was able to put a 20% down payment on the purchase and earns roughly $200 a month on the property (after the mortgage payment and fees to the property manager).

With new technologies making it easier for people to partake in real estate investing, we might see an increase in online real estate transactions. If you could purchase a property online, in another location, and have the ability to manage them from afar, why wouldn’t you do it? That’s what the millennials have turned to in order to find better deals.

When looking at monthly returns, venturing into small cities with raising markets would be the best bet for a steady and consistent income source. But for the long play, earning money on the appreciation of the real estate asset is the way to go.

Last year eleven percent of single-family homes were purchased by investors. This is the highest percentage on record for that category. We can only assume that this trend will continue to increase with millennials on the search for real estate investment opportunities.

Original publish date: September 13, 2019

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