Millennials Investing in Rental Properties

by Jonathan Adams

Travis Killian, a business owner in Austin, Tex., is a typical 27-year-old in that he doesn’t own his own home — he is a renter. But unlike many of his peers, he can afford to buy. In fact, he owns nine single-family rental properties in various cities around the country, and is in the process of buying eight more.

Mr. Killian said he decided to take the profits from his lead generation business out of the stock market because he wanted more control. Instead, he invests in properties he finds on HomeUnion, which lists investment properties in 22 markets nationwide and helps buyers finance and manage them. Meanwhile, he’s not ready to invest in a home for himself because he’s not sure he wants to stay in Austin.

“I’m interested in real estate investment because of all the ways you can make money — from appreciation, leverage, cash flow, tax benefits,” Mr. Killian said. “I’m not looking to get rich quick. I’m just looking to have long-term income I can rely on.”

For all the talk about the so-called millennial generation — often defined as those between ages 18 and 34 — being slow to move toward homeownership, some young adults are, surprisingly, drawn to real estate as an investment opportunity.

“It’s one of the things I get questions on over and over again from people who read my blog — ‘I want to buy a rental …’ ” said David Weliver, the founding editor of the Money Under 30 website. “But I don’t know how many people are actually making it work.”

For some young adults, investing in single-family rentals could be a “really good strategy, especially if they’re living in an unaffordable market,” said Daren Blomquist, a vice president at RealtyTrac, a property data and foreclosure listing site. By purchasing a home in a less expensive market, they could start building equity, and perhaps get some cash flow, he said.

Putting $20,000 down on a $100,000 rental property, for example, then using the rent payments to pay down the mortgage can be a form of forced savings, said Don Ganguly, the chief executive of HomeUnion. If the aim is to build enough wealth to buy a home in a more expensive market, the owner might sell after seven or eight years, and take the gain from the accumulated equity plus any appreciation to make the necessary down payment, he said.

Brenton G. Hayden, 30 and the founder of Renters Warehouse, a residential property management company, accumulated more than 20 rental properties himself while in his 20s. But like Mr. Killian, he didn’t buy his own home because he wasn’t sure where he wanted to settle.

When Mr. Hayden ran Renters Warehouse (he sold his stake in the company last year), the largest proportion of clients seeking property management services, he said, were between the ages of 27 and 41, a significant overlap with the millennial age group.

“Millennials are very active in the investment game, but alternative forms, not the traditional forms,” said Mr. Hayden, noting that his own investments have branched into areas that include medical marijuana.

However, Mr. Weliver advises inexperienced investors to proceed cautiously when considering a rental property.

“There’s a lot of information out there that makes it sound easier than it is,” especially if you’re managing the property yourself, he said.

“Buying a multifamily home that you can live in can be a great way to go,” Mr. Weliver added. “Rent from the other units might cover your mortgage payments. It’s easier to manage the property because you’re right there, and if you want to move sometime down the road, you can then rent out your own apartment.”

This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.

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