If you ask most people what was their best investment during the course of their life, a lot of them would say their home. The general premise is that over time property tends to appreciate in value. Eventually you end up paying off the loan you received in the form of a mortgage and so down the road you have plenty of equity in the property. From an investment standpoint not a lot has changed over the years, the consensus still remains that investing in bricks and mortar is, generally speaking, the most popular form of investment. So, if this is the case then why are an increasing number of Millennials now choosing to rent as opposed to owning a property? In the United States, cities like Cleveland are witnessing a boom in the rental market, as the younger generation choose to pay for housing on a monthly basis rather than take on the burden of a mortgage. Having significantly increased our own presence in Cleveland over the last 18 months, a common question we are asked by buyers is, “Why is the rental market in Cleveland strong? If the property is good value for money then why are people renting and not buying themselves given our earlier premise?” From a logical standpoint this seems a fair question. But the answer is a complex one that takes into account a range of factors. Obviously, in life there will always be a percentage of people that cannot obtain the funds to buy a property, and this leaves them with no option but to rent. Similarly, banks have taken a more cautious approach to lending on property in recent years and are only willing to mortgage certain types of real estate. In the US, in particular, lending against low value properties is not as commonplace as it once was. However, surprisingly the primary reason for the increase in the rental market is neither of these. For the current Millennial generation, renting is simply a more appealing option than home ownership. Let me explain why. Firstly, in today’s world the average Millennial is much less likely to work in the city they grew up in. Through globalisation and technology, it has become easier and easier to find jobs in other cities or other countries for that matter. Thanks to the arrival of the Internet and social media, the world is now a small place and flexibility is valued ahead of settling and laying down roots for many. And thanks to a Packing up and testing out a new city has never been more effortless. If you purchase a home, statistics show you are much less likely to pack up and move to a different city than someone who is moving from one rental property to another. There is no hard evidence to understand why this is the case, however one could hypothesise that the homeowner feels trapped with their home and unwilling/unable to pack up and leave. So, let’s look at a typical example. You are a young person or family that has just moved to Cleveland with a new job, an exciting new city and life ahead. You look for a home to live in and you assess the options: shall I rent or shall I buy? Let’s look at a few negatives, in this instance, for home ownership. The most common mortgage in the United States is a 30-year fixed mortgage. If you get a 30-year fixed mortgage for your property, the first few years almost all of the mortgage payments to the bank each month are for interest. Very little of that mortgage payment is going to pay off the actual debt on your house. Most likely, you will have to live there for over 7 years before you begin to pay off any capital on the property. Ask a Millennial working in the city where they will be in 7 years and if they could see themselves living in a different city in 10? Also, with any property you own you will need to have money set aside for any repairs or maintenance items that come up such as a roof leak, new siding, HVAC system, hot water heater, windows, toilets, locks, yard maintenance, etc. This ongoing drain on disposable income is less appealing to the professionals and families of today. Over the last 10 years, the average length of time a homeowner lives in their house is estimated to be 8.4 years. In the previous 10 years from 1999-2009 the average length of time a homeowner lived in their house was just over 6 years. From these statistics it is clear that most homeowners did not make much money when they sold their house, simply due to the length of time they lived in the house. So, basically the main reason for the increase in the rental market – especially in cities such as Cleveland – is the change in lifestyle and the perception of the world we live in. If you wish to truly gain from capital appreciation as a household with a long-term mortgage, you need to be set on holding onto your house for a long period of time (at least 15 years). The current generation of Millennials are not following in their parents’ footsteps, growing up and living in the same neighbourhood, living in the sea home for 30 years. Instead, many Millennials like the idea of keeping their investment options open and many look upon family homes owned by their parents as a future nest egg/inheritance, which frees them up to live a more flexible and transient lifestyle. The good news for Global Investments investors is that the rental market is growing in places like Cleveland. This means that for those looking to build a property portfolio, they can be confident in: Increasing rental demand Increasing property values A stable future market should tenants leave This is one of the main reasons why we are seeing so many overseas investors get involved in buying turnkey homes in
