People are renting housing for longer periods of time, and new rental construction could be a lucrative path for investors to take over the next few years
Homeownership trends can tell a lot of different stories.
Homeownership has been trending slightly downward over the past decade, from 69% in 2004 to 64% the first two quarters of 2019. Demographically, people are moving to smaller metropolitan areas. Homeownership among the white population is 73.1% versus 47.1% for Hispanics and 40% for blacks. Homeownership is also lower among people under 35 than for older people. In fact, the stats show that the older a person is, the more likely they are to own their home.
In 2004, nearly 82%of people between 55 and 64 owned their homes, but that level had dropped to 75% in 2018. Seventy-seven percent of people 45 to 54 owned their own homes in 2004 versus 70% in 2018. Among 35 to 44-year-olds, homeownership dropped from 69% in 2004 to 60% in 2018. For Americans 35 and under, homeownership peaked at 43% in 2004 and had fallen to 36% by 2018.
These stats may be surprising, but it indicates a growing market for rental properties.
Build more rentals
Single-family rental properties have been the norm in metro areas all across the U.S. But that could be changing as cities and states all across the country are doing away with zoning ordinances that favor single-family only residential areas, according to real estate crowdfunding platform Sharestates. These zoning ordinances could signal a shift to multifamily rental properties from coast to coast, which means a bump in commercial financing for these new construction projects.
Millennials have gotten a lot of press for delaying homeownership later than their predecessors in previous generations, but the flip side of that is that they’re renting for much longer.
“Millennials have been putting off big decisions in their lives for later than previous ages. That means they tend to rent instead of buying well into their 30s and 40s, which is why we have such a low degree of homeownership,” writes Allen Shayanfekr of Sharestates. “It also means they are a key market for multifamily housing. Builders who want to compete in the urban markets would do well to look toward multifamily.”
Single family rentals are here to stay
Although multifamily rental property construction and financing is expected to rise in the next few years, single family rental properties will still be prevalent—because institutional investors have been on a “buying spree,” Shayanfekr writes.
“They’re buying up starter homes and renting them out to young families. As long as there is a rental market for single-family residential units, you can bet institutional investors will hold onto those properties. They won’t sell until the market shifts to accommodate more buyers.”
In other words, chances are slim to none that single family construction will abate, even with the projected increase in multifamily starts. In fact, Shayanfekr adds, there might even be a lucrative market to build and sell single-family rentals to institutional investors.
How to finance rental construction projects
Whether investors w ant to get involved in new single family or multifamily construction projects, they will have to ask themselves about financing very early in the process: Will you seek traditional bank financing or look for alternative funding channels? Is now the time to explore a new type of finding and a new class of private investor with cash in the pocket ready to help you finance your projects? Real estate crowdfunding platforms allow private accredited investors to finance new real estate projects, regardless of their category. Using a crowdfunding may be faster than going the traditional money route, and that means money in your pocket faster as well.
Sharestates is an online marketplace lending and investing platform. To access investors, investors or borrowers can create an account and present their project for review. Using a 34-point underwriting process, the project will be vetted to see if it meets investor expectations, and can be funded from more than one source.
