Michael Oddi is the chief marketing officer at Velocity
Mortgage Capital. He is responsible for the company’s
brand image, messaging, marketing communications
and media strategy.
Tap Into the Promise of the Rental Market
The demand for investment-property financing is being
fueled by millennials’ lifestyle choices
By Michael Oddi
About 43 million American households rent rather than own their homes because of convenience, cost or both, according to The Pew Charitable Trusts. The decision
to rent rather than own hinges on several factors,
including an individual’s or family’s income and lifestyle, as well as the local real estate market.
Investors in one- to four-unit rental properties,
mixed-use properties and multifamily buildings have
taken advantage of opportunities presented by the
sheer number of Americans who opt to rent instead of
own their homes. Responding to this trend by offering
mortgage programs for residential rental properties
like single-family homes, condominiums, townhomes
and small apartment buildings provides the perfect
opportunity for commercial mortgage brokers to
grow their business.
According to an August 2018 report from Yardi, a
leading property-management software provider,
the average U.S. rent for a multifamily-housing unit
rose by $3 this past July to an all-time high of $1,409.
Year over year as of the same month, rents were up by
2.8 percent, despite headwinds of increased supply
and affordability issues.
The Yardi report cites favorable conditions in the
multifamily industry, especially in secondary metropolitan markets with strong employment growth.
Positive economic benefits like a low unemployment
rate and a strengthening economy, along with the
benefits of tax reform, are helping to offset the effects
of rent growth. When take-home pay increases in a
strong economy, landlords have an opportunity to
There’s no denying that the rental-property market
has been on a hot streak for the last decade. According
to U.S. Census Bureau estimates, the number of
single-family rentals in the U.S. grew by 31 percent in
the 10-year period immediately following the housing
crisis of 2007, compared to a 14 percent growth rate for
multifamily rental units.
A recent Forbes article, however, finds that even
though rent demand in major metro areas remains
hot, average occupancy rates and rent growth, in general, are slowing across the U.S. as the supply of new
homes in less-populated markets catches up with
demand. The divergence between rental-property
growth in major and secondary markets seems logical,
given secondary markets have more land available for
construction than major markets. But could there be
more factors in play?
There’s evidence that suggests millennial attitudes
are having a profound influence on the rental-property
their numbers are expected to swell to 73 million and
the boomer population shrinks to 72 million. Despite
this fact, millennials aren’t following in their parents’
footsteps when it comes to homeownership.
A recent census report on the changing profile of young
adulthood compares young adults (ages 18-34) from
2016 to those from 1975 (baby boomers). Comparing
the differences between these two demographic cohorts
is almost like jumping into a gull-winged DeLorean, the
1975 equivalent to today’s Tesla Model X electric car,
and traveling back in time.
The lifestyle differences between boomers and millennials are remarkable, particularly when it comes to
where they choose to live and why they opt to rent
instead of buying a home. In 1974, approximately
52 percent of baby boomers owned a home by the age
of 34. Among millennials in 2016, that number was
only 29 percent. So, although millennials are buying
more homes than ever, according to a recent Ellie Mae
report, most millennials remain renters and research
suggests this won’t change anytime soon.
Sociologists often define “adulthood” as the completion of four key milestones of life — living independently,
working full-time, getting married and having children.
A recent report by the U.S. Census Bureau suggests that
a delay in the transition to adulthood among millennials
is responsible for their low homeownership rates.
In 1975, by age 34, approximately 45 percent of
boomers completed their transition to adulthood
as defined by the four key milestones. Today, only
24 percent of millennials have graduated into adulthood using the same criteria. Without families to
support, owning a home becomes less important.
Additional signs suggest the solid demand for rental
properties will continue for some time. A recent survey
by Rent.com of 1,000 renters between the ages of 18
and 34 found that almost eight out of 10 don’t plan on
leaving their rental units in the near future to join the
ranks of homeownership.
According to the Rent.com study, several factors
drive this behavior on the part of many millennials.
■ Price: The most common reason cited for continuing
to rent was that the monthly cost of renting is more
affordable than buying. The study found that, overall,
four of 10 renters listed affordability as their primary
reason for renting. Among millennials, 57 percent put
affordability as the top driving factor.
■ Freedom: One in five respondents reported that
freedom played a factor in their decisionmaking
process. Many of those surveyed liked having the
option of being able to pick up and go when their
lease is over. Such is not the case for homeowners
with mortgages to pay. To leave, they usually have
to sell, and if they have children in the local school
system, moving becomes much more complicated.
■ Service: Homeowners are responsible for repairing
their homes and the associated costs if a plumber or
other contractor is needed to fix something. Meanwhile, renters can call the landlord to report any
issues. Millennials typically don’t want to be bogged
down with the hassles of home maintenance.
Furthermore, people in their 20s aren’t interested in
mowing the lawn on Saturday afternoons when they
can be doing something much more fun.
■ Lifestyle: Renters in hip neighborhoods aren’t
looking to change their lifestyles, according to
the Rent.com study. Renters in trendy locations —
such as Brooklyn, New York, or the Highland Park
section of Los Angeles — aren’t looking to leave.
For the renters’ pocketbooks, unfortunately, these
popular places usually have the highest rents.
Nonetheless, millennials will often stay where
they are because they are unwilling to trade urban
hipness for homeownership (and maintenance responsibilities) in the suburbs.
n n n
Commercial mortgage brokers who recognize and
take advantage of the increased demand for rental
properties by offering investment and small-balance
commercial mortgages to borrowers interested in
acquiring rental properties have been able to offset
the decline in home-purchase loans and refinancing
business caused by the recent rise in interest rates.
As interest rates continue to rise, home-purchase
and refinance volumes are likely to continue to
decline, disrupting the business of mortgage brokers
would rather rent than own. n