Finally – An REI Strategy Focused On M...

Editor’s Note:Dennis Fassettis a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, includinghow to buy your first apartment building.

As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...

From Dennis Fassett, Cash Flow Mercenary...

I just don’t get it.

Last week in this space I pointed out that the most solid niche of home buyers these days is older folks, and thatolder homeowners have emerged as the pillar of the housing market following the collapse in 2008.

They have the income. They have the down payment. They have the credit. They’re either downsizing or buying second homes. They’re active in the housing market.

Yet all I keep seeing are articles screaming about why we should be focusing on millennials.

It just doesn’t make sense.

There was another piece in the Wall Street Journal that emphasized this.

First Time Homebuyers Have Disappeared

It talked about how the share of first-time home buyers (read MILLENNIALS) has dropped toa 27 year low.

They wrote that just 33% of primary residences sold this year were purchased by first-time buyers, down from 38% last year to the lowest level since 1987.

signs NAR says that the first-time-buyer share of home sales has typically hovered around 40% since 1981.

The WSJ piece went on to write that "the headwinds facing young buyers are well known: higher student debt, rising rents and a weaker job market have made it harder for would-be buyers to save for a down payment and qualify for a mortgage, particularly in a lending environment where banks are much less willing to overlook credit blemishes or spotty incomes."

So why are we supposed to focus on this group? They don’t have the incomes. They don’t have the credit. And they don’t have the cash for the down payment…

So as buyers, they aren’t the greatest group to focus on, are they? But I continue to see article after article about why we should focus on them. Personally I call bull.

The Millennial REI Strategy

But there is some good news regarding millennials with respect to real estate investing.

And that’s rental properties.

I just read a piece in US News that touted the "10 U.S. Real Estate Markets Investors Should Watch,” and that real estate investors "should look to cities with an upsurge in millennials for new investing opportunities."

It reiterated the points Imade about this group. They quoted NAR saying: “Limited job prospects, student debt and flat wage growth have combined with tight credit conditions, and low inventory to price millennials out of some of the top cities, such as New York and San Francisco.”

“However, NAR research finds that there are other metro areas Millennials are moving to where job growth is strong, and homeownership is more attainable. These markets are well-positioned to soon experience a rise in first-time buyers as the economy improves.”

Their point is this – millennials are moving to lower costmarkets with strong job growth. And the play for investors is renting to them initially, and then flipping to them as they decide to become home buyers.

NAR analyzed markets across the country, and determined that these markets will see the largest influx of millennials over the next several years:

Austin, Texas
Dallas
Denver
Des Moines, Iowa
Grand Rapids, Michigan
Minneapolis
New Orleans
Ogden, Utah
Salt Lake City, Utah
Seattle
Madison, Wisconsin
Nashville, Tennessee
Omaha, Nebraska
Raleigh, North Carolina
Washington, D.C.

young As you can see, many of these are really hot markets like Austin, Denver, Seattle and DC,where it likelywon’t be possible to invest for cash flow.

But – most of the rest look like solid, mid-sized markets where rental properties are more reasonably priced and can be bought at prices where they will cash flow.

As a buy and hold investor I like this play. Interest rates are still low, and even though the stock market has been on fire for the past couple of years from all the Fed pumping, I’m still finding a decent number of private lenders who are worried about the long-term prospects of stocks and bonds who are willing to provide 5+ year funding for rental properties.

As I have consistently said in this space, in order for us to have long-terms successas investors we HAVE to be chameleons. We have to have our heads on a swivel and be on the lookout for trends, and adjust the focus of our businesses to take advantage of what the play is.

So if you’re in one of those markets, it would make sense to build your buyers list with a good number of rental property owners.