Real estate investing takes on a new focus for the under-40 crowd
It shouldn’t be surprising that some of the under-40 population are looking at a different real estate wealth-building strategy than their parents. People 25-40 account for one-in-four Tri-Cities area residents. These are the folks who came of age during the Great Recession. They watched their parents struggle with losses from their overleveraged mortgages. Still, they’re savvy enough to know that real estate has a better wealth-building record than the stock market.
Their solution is to buy an investment property before their primary residence. At least that’s what a new survey from Mynd, a firm that leverages technology tools to help investors buy, finance, and manage single-family rental properties, found. Almost half of Mynd’s respondents (43%) of younger investors said they plan to continue renting while building income from an investment property. That compares to only 9% of Baby Boomers and 27% of GenXers considering that investment path.
The budding trend has a local and remote component. The most recent count of how many local single-family rental properties is owned out-of-state was almost 15%. The Tri-Cities region is gaining favor with out-of-state investors, but it’s nowhere near the percentage of Mynd’s client base. More than half of the properties Mynd manages are owned by out-of-state investors. It’s another of the trends fueled by pandemic-accelerated technology.
“Consumers now have access to a slew of tools and platforms that demystify the real estate investment process,” according to Mynd CEO Doug Bren. A prime example is the stories about out-of-state residents who buy local properties they’ve only seen on the Web. Well, not all of them are in the primary home market.
While there are signs that the number of out-of-state investors is increasing in the Tri-Cities region, it hasn’t swamped the local dynamic. Real estate investors have always been part of the local economy. But for the most part, they have been under the media and the public’s radar.
Look at the number of single-family and condo rental properties. There are about 65,000, and by the most current count, and only 14% are out-of-state residents. Most cash-flow investments – the most popular model – are local mom-and-pop operations. They range from local doctors and lawyers to the couple who downsized to or upgraded from a condo. They’re renting the other residence for another and decided to rent their other home rather than sell. They are taking advantage of an age-old practice of retaining ownership and renting to provide another revenue stream or passive income for their family.
Although the numbers may not be as large, the fix-and-flip crowd is the most active local investor segment. They include full-timers and legions of part-timers. Flips account for about 10% of all existing home sales. Successful flippers are well-formed about the local market because they need to buy low, accurately estimate the cost of repairs, and resell the property for more than they put into it. Sometimes, that’s easier said than done because distressed property sales are nowhere near the levels they were before the pandemic. And short sales are challenging because of the significant price appreciation local owners have received during the past two years.
Some of the local investors are wholesalers. They find motivated sellers – often those in economic distress or desiring to sell without listing and negotiating – estimate any repair cost and then assign the contract to another investor for a fixed profit.
Another new type of investing that has begun to show up locally is crowdfunding. They collect from many investors to purchase and manage income-producing properties. Examples include some of the small and medium-sized apartment complexes.
If there’s any secret to real estate investing, it’s to know the basics and get used to deep diving into local market data and trends. Although you often hear investors stumbling into great deals, uninformed newbies end up in the loser column. In the fix-and-flip market, it’s generally those who got hooked on reality TV shows.
NETAR is the voice for real estate in Northeast Tennessee. It is the largest trade association in the Northeast Tennessee, Southwest Virginia region, representing over 1,800+ members and 100+ business partners involved in all aspects of the residential and commercial real estate industries. Weekly market reports and information for both consumers and members are available on the NETAR website at https://netar.us