For investors looking to diversify their portfolios, the field of real estate presents a few unique strengths. Between its higher than average stability, high rate of appreciation, and reliable cash flow, the field of private lending has a lot to offer. It’s a great time to invest, too; the Joint Center for Housing Studies of Harvard University has projected that, between 2015 and 2025, 13.6 million more households will be established. Some investors look to real estate as a way to supplement social security and secure reliable income for retirement. Even younger investors looking to build a stable foundation have plenty to gain from real estate investing. Stock markets are volatile and high-risk, and while rewards can be great, stock market investments lack the security of a solid real estate investment.
Many investors prefer to keep their hands relatively free of their real estate investments by using REIT mutual funds or crowdfunded real estate investments instead of digging into the private ownership and rental market. This allows them to keep their focus on other investments by reducing the load that real estate takes on their time. Throwing in on a real estate crowdfunding investment can be as simple as signing a check and writing yourself a note to remember when taxes roll around that year, but it needn’t be that simple, either.
There are a few big changes that are about to happen in the real estate market, and private lenders should definitely be aware that these changes are happening and what these shifts in clientele will mean for the business. There are a few things to keep in mind from the JCHS study mentioned earlier. While renter households are expected to increase in the next few years, they aren’t going to do so at the same pace they have in the past few years. New homeowners will almost double the number of new renter households that will be created over the next seven years. What’s more, new minority households will outnumber new white households by one-third over that same time span.
Upcoming Millennial Home Buyers
The major demographic changes that approach for the pool of potential home buyers are notable, first, for their age. The millennial generation is approaching the home buying age over the next ten years, and many will be looking to move from their rental situations to something more permanent. Lenders need to be vigilant and innovative in their outreach to this new customer base, whether they’re looking to fix-and-flip a house or put down roots.
Millennials’ use of technology impacts how businesses are run, and the mortgage industry is no exception. If a lending company hasn’t started tapping technology to learn about and reach their clientele, then they’re going to lose out in the future. For instance, traditional mortgage lenders have been very slow to take advantage of services like eMortgage. Compare that to the performance of tech-savvy real estate crowdfunders, who have seen great success in the last five years with the aid of algorithms that provide online investment platforms and real estate lending. Even if private lenders don’t have the kind of capital backing that venture capital-funded real estate crowdfunding platforms enjoy, they’ll need to find ways to use technology to both attract and keep millennials who will expect to perform their transactions over smartphones and tablets.
A More Diverse Future for Private Lending
Many of the millennials entering the prime home-buying age range are Hispanic, Asian, African American, or of another non-white race or ethnicity. The Mortgage Bankers Association presented figures that, if race-specific household formation rates remain at 2014 levels, demographic changes alone would add 5.5 million Hispanic households and 2.4 million more African-American households. By 2024, the housing market will see a total additional 10 million minority households.
The Pew Research Center has indicated that Blacks and Hispanics face extra challenges in getting home loans in the past, but this presents a unique opportunity in the real estate financing market for private lenders. Many banks have gotten a bad reputation for higher rates of interest and bad lending practices in African-American communities, which means that many members of minority communities might look to alternative lending options when they look to purchase a home. As this buying market grows, those who present innovative and accessible options to these communities will find a loyal and large customer base.
A Booming Clientele
Between millennials and minorities, lenders have a host of opportunities, along with some challenges. However, the baby boomers are still having a big impact on the real estate market. They’re getting older, of course, which means they’ll be making decisions about assisted living, owning-versus-renting, and downsizing in the next few decades. Because that generation is so large, it’ll have a massive impact on the private lending business.
For instance, if most boomers decide to age in place, that will mean the construction of new homes will need to be funded to meet demand since investors can’t count on a pool of older houses that can be resold to new buyers. If they put their homes up for sale and become renters after retirement, though, the market might have a lot of older houses available, providing a lot of options to sell to a wider clientele. No matter what, private lenders will have to consider what must be done to attract boomers. Wherever they live, they’ll be older clients, and so accessibility, maintenance and nearby amenities (such as grocery stores) will all be on the list of concerns.
As the market shifts, private lenders need to be ready to modify their strategies and adapt to its needs. It will be essential for lenders to use innovative methods for reaching an ever-changing demographic with lending products that meet their needs. What’s more, they’ll need to speak to savvy investors who understand how to capitalize on the shifting landscape of the real estate market. These trends can change quickly, and the future for housing growth will be bright in the coming years. Investors and lenders need to make sure they’re ready for the boom.