real estate marketsPwC recently published a report that looks at emerging trends in real estate in the U.S. and Canada. Included in that report is a list of the top five markets to watch in 2020. Here they are in a nutshell:

  1. Austin, Texas
  2. Raleigh-Durham, North Carolina
  3. Nashville, Tennessee
  4. Charlotte, North Carolina
  5. Boston, Massachusetts

Nevermind that four of these five are in the south, and two of them are in North Carolina. What do these five markets reveal about real estate development going into 2020?

What to Real Estate Developers Should Know For Next Year

From Austin to Boston, real estate developers have a wide diversity of opportunities going into 2020.

High Investor Demand

Austin rose from sixth place in 2019 to first place for 2020. What’s so special about this Texas capital? Better yet, what can real estate developers learn about this potential hot market?

There is a lot of investor demand in Austin. What that means is, there is plenty of potential for development. But people in Austin are different than other places (what would you expect from the slogan “Keep Austin Weird”). There is a lot of expansion taking place in Austin and real estate developers should see it as a market rife with opportunity.

Suburban Office, Multifamily, and Technology

Raleigh-Durham is not what you think about when you think about the technology sector. However, there are now more than 89,000 tech jobs in this metro area. For that reason, developers should see it as the Eastern seaboard’s Silicon Valley. That spells opportunity.

The homebuilding trend seems to be multifamily. That could be because of the local colleges. It is home to Duke University, the University of North Carolina, and North Carolina State University. There is also a lot of suburban office opportunities as the business sector continues to grow.

The Slowing Pace of Homebuilding

While Nashville moved from first to fourth place in homebuilding outlook, it isn’t all bleak for this 18-hour city. The homebuilding market may be cooling, but it’s not dead. And, because the city moved up to third from fifth in overall real estate, there is still plenty of development taking place in other sectors. While home sales are slowing, real estate values are increasing. That’s an environment that offers a different kind of opportunity for investors as high-end homes could be the target.

Manufacturing, Technology, and Homebuilding

Charlotte is another city that has moved up in rankings. Up from ninth, the city is now fourth in overall real estate opportunities, and second in terms of homebuilding. But there are commercial opportunities, as well. The city is growing in terms of attracting technology and manufacturing companies. Real estate developers that specialize in those real estate sectors should have plenty of opportunities.

Unique Development Opportunities in Boston

Boston is a rich city with a lot of diversity. Real estate prices have increased in the past few years, as have median home sales. It’s a smaller market, but there are still a lot of development opportunities, and a lot of it is high-end development. That could be because the price of real estate in Boston is not cheap. 

Another reality that drives this market is scarcity. There just isn’t a lot of inventory, and the raw land left for new development is scarce. What that means is a guarantee on appreciation, which spells a hot market for buy-and-hold investors.

There is also an interest in downtown Boston condos, apartments, and single-family homes. Real estate is more expensive in downtown, but it’s a lifestyle choice for many millennials and seniors who want to live closer to the amenities they enjoy. Each of these markets spells a ripe opportunity for real estate developers.

Real Estate Markets Conclusion

Each of the top 5 markets for 2020 offers different types of development opportunities for real estate developers. Those opportunities are tied to investor desires as well as homeowner interests. Developers looking for lucrative markets, whether in pure return on investment opportunities or in volume opportunities, should consider these markets.

REOREOs represent unique investment opportunities for serious real estate investors. An acronym for real estate owned (REO) foreclosure, REOs are properties owned by lenders whose borrowers defaulted on the loan. Due to the foreclosure process that allows the lender to retain ownership of the asset, REOs end up on the books of banks, mortgage companies, and other lenders–including some marketplace lending platforms like Sharestates.

Banks and REO Properties

No lender wants to end up with a portfolio of properties on their books. That defeats the purpose of their institution. A bank, for instance, would rather see the income from the loan product rather than a property that will simply sit without a resident or ongoing maintenance. The bank has no one on staff whose job is to provide upkeep for properties. Therefore, such real estate usually ends up falling into disrepair and the value declines.

The same can be said of other lending institutions such as mortgage companies and real estate investing platforms. They are in the lending and investing business, not the real estate upkeep business.

For that reason, REOs typically sell for much less than their actual retail value. They represent a loss to the lender, and the longer they sit, the more the lender will likely lose on the resell. One way to find such properties is to inquire at a bank or other lending institution to see if they have such properties available to investors right now. That can be hit or miss, but there is usually a good chance that a lending institution has at least one–especially if they are a large institution and the economy has taken a downturn. Following a large number of foreclosures in a particular geographical region, an investor will usually have an easy time finding such properties.

Many banks list their REOs online, which makes it easy. Here are a few banks’ REO listing web portals:

Where to Find Non-Banked Owned REOs

Of course, bank websites are not the only place to find suitable REOs for investment. There are some real estate websites that specialize in REOs, or that include REOs in their sales listings. Here are a few of those sites:

Why REOs Make Good Investments

REOs are usually good investments because they are discounted properties due to the fact that their institutional owners do not want them on their books. They represent liabilities, not assets. They are typically priced to recoup some or all of the lending institution’s investment rather than turn a profit.

While the properties themselves are discounted, investors should prepare to make further investment in repairing the properties, updating them, or providing some maintenance and upkeep before they are able to sell or rent them. Once the repair and maintenance costs are factored in, many REOs can turn their investor buyers a nice profit.

While Sharestates does not specialize in REO properties, and while we have a strict 34-point underwriting process to vet properties and borrowers, it does happen that a borrower will default on a property loan. Our REO rate is a very low 0.17 percent.

Investors looking for REO properties can check the property listings at Sharestates and see if there are currently any properties held by the platform.

mixed useLast-mile fulfillment centers represent a cultural shift in retailing. Retailers delivering products to their customers are moving these fulfillment centers to urban areas where they can be closer to their customers. To make that happen, they’re not building ground-up facilities. They’re repurposing old warehouses and parking garages being underused by a decline in automobile usage among millennials.

By repurposing old spaces, retailers can save on investment while moving their products closer to the consumer during the fulfillment process. Doing so relies on mixed-use properties. But that’s just one application of the mixed-use real estate paradigm.

Mixed-Use Residential Communities

 

The U.S. population is growing, largely due to immigration, but there is a stark difference in growth rates between rural communities, urban communities, and suburban communities. According to Pew Research, rural counties in the U.S. have grown 3 percent since the year 2000, but a smaller percentage of the overall population lives in rural areas due to higher growth rates in urban and suburban settings. Urban growth has been at 13 percent since 2000, and suburban growth has been at 16 percent.

Urban areas have gained 1.6 million net new migrants and 9.8 million more births than deaths. People are moving out of rural areas in large numbers, but because of 1.2 million more births than deaths, rural populations have a net growth rate.

With increased urbanization, less automobile usage among younger adults, and the different needs of aging populations, mixed-use residential communities are growing.

Mixed-use development can range from residential communities that include commercial spaces such as beauty salons, restaurants, and specialty retail shops to office complexes that also include townhomes, condominiums, or penthouse suites alongside a few specialty retail shops and restaurants. They provide developers a less risky approach to development as a shift from residential to commercial real estate investment can lead to gains in one to offset losses in the other. By the same token, investors can benefit by diversifying their portfolios.

Demand for Mixed-Use Spells Opportunity And Convenience

The two largest living generations are influencing the path of real estate development. Millennials are urbanizing and renting for longer than their parents and grandparents while driving less. Baby boomers are retiring and downsizing, seeking communities where all the necessary amenities are within walking or short driving distance. On top of that, Amazon is driving big-box retailers out of business.

All of this is driving up the demand for mixed-use real estate development. That means opportunities for ground-up developers to meet the needs of today’s home buyer, retail merchant, property manager, and investor. It also means opportunities for investors, retailers, and landlords to diversify their portfolios and meet the needs of the end consumer. Finally, it means that consumers are allowed to live, work, play, and shop in a more concentrated area utilizing amenities that are within walking distance, a bike ride, or a short drive.

As retailers set up their last-mile fulfillment centers to “move-in” closer to the consumer, and as consumers rearrange their lifestyles to move closer to their favorite shops and play areas, mixed-use properties are hot again. Ground-up developers can make more efficient use of real estate while property flippers can rehabilitate old spaces and turn them into properties that meet all the needs of retailers, home buyers, renters, and investors. Everyone can get a piece of this pie, and there’s plenty of pie to go around.

Homeowner trends from 2002 to 2018 show that fewer people overall own their own homes. Demographically, people are moving from rural areas to urban areas where homeownership levels are generally higher. Also, homeownership among the white population is about 70 percent versus 50 percent for blacks and Hispanics. 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, 82 percent of people between 55 and 64 owned their homes, but that level had dropped to 75 percent in 2018. Seventy-seven percent of people 45 to 54 owned their own homes in 2004 versus 70 percent in 2018. Among 35 to 44-year-olds, homeownership dropped from 69 percent in 2004 to 60 percent in 2018. For Americans 35 and under, homeownership peaked at 43 percent in 2004 and had fallen to 36 percent by 2018. These stats may be alarming, but it indicates a growing market for rental properties.

 Builders Should Look to New Construction on 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. That could mean there is about to be a shift to multifamily rental properties from New York to California. If that is the case, then I’d expect a run on commercial financing for these property construction projects.

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. 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 Aren’t Going Anywhere

While there will likely be a surge in multifamily rental property construction and financing beginning within the next two to five years, single-family rental properties won’t disappear. That’s because institutional investors have been on a buying spree. 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.

What this means for builders and borrowers is that single-family construction likely won’t be going away just because multifamily picks up. In fact, you might find a lucrative market to build and sell single-family rentals to institutional investors.

 What Kind of Financing Is Available For Rental Construction Projects?

Builders looking to get into single-family or multifamily new construction projects will have to figure out the financing on those projects early in the planning phase. Will you seek traditional bank financing or look for alternative funding channels? Don’t forget there is 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, whether they be single-family or multifamily.

To get access to this investor money, you simply create an account at Sharestates and present your project for review. Using a 34-point underwriting process, your project will be vetted to see if it meets the expectations of our investors. If it does, you can have your new rental construction project funded from more than one funding source. The process is faster than going the traditional money route.

RECFThere are three primary drivers of the rental market in real estate right now. 

               1. Large companies are buying up single-family rentals and holding them in their portfolios long term. This is driving up the cost of real estate and making it unaffordable for a large number of would-be homeowners, especially young millennials and first-time home buyers. This is forcing those potential homeowners to continue renting for a longer period of time.

               2. The job market isn’t the same as it used to be. In fact, the average employee tenure for people aged 45 and younger is less than five years. As a result, people are reluctant to buy real estate so that they don’t get tied up in a mortgage when it’s time to move.

               3. Wages are also volatile. Since people tend to switch jobs more often, their income and benefits packages change more often. Plus, many people are working in the gig economy at least part-time, which means their income fluctuates. It’s difficult to get locked into a long-term mortgage agreement when you don’t know how much money you’ll make, or how much you can save, from month to month.

These factors are driving the current rental market. That’s why more people are renting, and many of them are renting single-family homes. That spells huge opportunity for real estate investors looking to cash in on high demand. But how do you get in on this rental market if you are not highly liquid and cannot afford to lay down huge piles of cash on real estate acquisition?

RECF Offers Rental Opportunities for Investors

Rather than opt out of real estate investing altogether because you lack the liquidity to purchase physical property, why not invest what you can each month in real estate opportunities on real estate crowdfunding platforms?

There are two types of deals investors can get involved with on RECF platforms: Equity and debt.

Equity deals allow investors to own a piece of real estate along with other investors. That real estate can be ground-up construction, fix-and-flip, or rental properties. If you invest in a rental property, you’ll receive monthly dividends from the rental income those properties produce, and when the properties sell you’ll get a portion of the proceeds from the sale.

Debt deals allow real estate investors to get in on a loan with other investors. Rather than loan $100,000 to a real estate investor for property acquisition, repair costs, and more, you might just put in $10,000 and become a partial owner of a loan product. Another word for this is fractional ownership.

Because the rental property market is so hot, there are quite a few opportunities for investors to participate in both debt and equity deals that allow them to become investors in rental properties without the associated headaches.

How to Invest in Rental Properties on Real Estate Crowdfunding Platforms

The best way to get involved in partial ownership of rental properties is to set up an account at a RECF platform like Sharestates and begin looking for suitable properties. Each property deal includes information on the property and the borrower. You’ll be able to compare the risk associated with each deal based on the underwriting criteria used, and you can choose how much you want to invest in each property.

As with any type of investment, you’ll want to perform your own due diligence, but the benefit of real estate crowdfunding is you can invest in real properties without having high liquidity.

In June, the state legislature passed, and Governor Andrew Cuomo signed, new legislation that changes the way rent can be increased, and other benefits for multifamily property owners, moving forward. Unfortunately, instead of these laws sunsetting after a number of years, the new legislation has made them permanent.

The largest percentage of rental units in New York City, 44 percent, are rent-stabilized while only 1 percent are rent-controlled. These are the homes that were the primary target of the regulation and which will be most affected by it.

 What Are The Major Rent Control Reforms?

While the new legislation didn’t go as far as many advocates were hoping for, there are some pretty strict hand-ties for landlords. The legislation did not do away with the major capital improvements loophole, but it does narrow the scope of definition for major capital improvements and limits how much landlords can raise rents to compensate for them to just two percent. This provision of the law will be in effect for the next 30 years.

In addition, the legislation puts an end to the 20 percent vacancy bonus landlords can raise rents by for new tenants when they move in. Landlords can also no longer raise rent from the preferential rent to market rate when tenants renew their leases. Landlords are further capped on how much they can spend on individual apartment improvements. Not only that, but the jurisdiction for the law has been expanded to include Westchester, Rockland, and Nassau counties.

How Might These Reforms Affect Multifamily Development in the Years to Come?

There are two major areas of multifamily development likely to be affected by these rent reforms. The first is the new construction sector. The second is capital improvements.

While many of the laws in the reform are targeted toward landlords who currently manage rental units, that doesn’t mean new construction won’t be affected. It costs money to build apartment complexes. Landlords rely on tenant rents and rent increases to pay for that development. While it could be a number of years before capital improvements are necessary on new developments, the cost of materials and labor will continue to climb. So developers will have to factor in the rising costs of construction and weigh it against flat rent increases. If the math doesn’t work out, in the long run, we will likely see new construction of multifamily developments decrease once market forces for labor and materials no longer make it profitable to build.

On the capital improvements side, landlords will be reluctant to improve apartment complexes if they can’t recoup the costs by raising tenant rents. On the other hand, certain maintenance costs cannot be avoided. This will become a major balancing act for landlords for the next three decades, particularly for landlords of older buildings.

For older complexes where rents are maximized, what could happen is landlords may decide to replace older buildings with new construction, which would allow them to effectively run older tenants out of the building and charge new tenants in new buildings higher rent. The “good cause” law was not included in the new legislation. This clause would prohibit evictions except for good cause. If it becomes too financially restrictive and costly to manage older apartment complexes, landlords may not have another way out other than to replace older buildings with newer constructions.

Rent reform advocates are disappointed the law didn’t go far enough. From a landlord perspective, it’s going to be difficult to manage the regulation financially and could hand strap many landlords in New York City and surrounding counties.

A Bankrate survey last month highlights Millennial attitudes toward real estate investing. As it turns out, they’re favorable towards it. More favorable, in fact, than toward cryptocurrency, gold, or even stocks and bonds.

In terms of generational interest in real estate as a long-term investment, millennials score the highest. For Baby Boomers, it’s 30 percent; Generation X, 31 percent; the Silent Generation, 23 percent; and Millennials, 32 percent to 34 percent depending on their income bracket. Even Millennials making less than $30,000 per year are more interested in real estate as a long-term investment than members of other generations. That’s good news for everybody.

Why Real Estate is a Good Investment for Millennials

While it’s true that the stock market has yielded higher long-term returns on average than real estate, real estate does have its advantages. It’s hard to say no to average annual 8 percent returns, but real estate investing can yield incredible short-term returns. Here are just a few of the advantages of investing in real estate:

  • Investing in real estate builds long-term equity
  • Certain types of real estate investing can yield tax-free gains
  • Owning rental properties can lead to passive retirement income
  • Real estate acts as a hedge against inflation
  • It also is a good hedge against a down market in stocks
  • Real estate is an appreciable, physical asset
  • Investors can see respectable returns without investing the full value of the property
  • Real estate allows you to diversify your portfolio

Real Estate Crowdfunding is a Good Investment When Your Assets Are Illiquid

One of the challenges of investing in both the stock market and real estate is you need to have a fair amount of liquid assets to invest. If you want to put $50,000 into stocks, you need $50,000. If you want to buy and hold real estate, you need to invest at least enough liquid assets to secure a loan for the rest. That can be anywhere from $10,000 to several hundred thousand depending on the market and the value of the real estate you are buying.

Real estate crowdfunding provides another avenue for passive income by allowing Millennials to invest in real estate through fractional ownership. It’s also a great short-term investment with long-term implications.

For example, if you want to invest in a $500,000 commercial real estate development project, you’ll need a large amount of capital to make a traditional investment. These types of investments are typically limited to the number of investors who are allowed in on a deal. You need to be liquid, and your money is tied up until the development is completed.

With real estate crowdfunding, however, you can get in on a deal like this with thousands of other investors. Each of you puts up a minimum amount of investment and you receive dividends when the property sells if it’s an equity investment. Your returns are based on the value of the real estate property at the time of sale. You can also get into real estate crowdfunding with debt. The concept is the same. You and several hundred other investors put money up for a project and receive ongoing dividends as passive income when the interest on the debt is paid off each month.

With real estate crowdfunding, you can invest in any number of projects simultaneously and keep investing your returns over and over as new projects are presented and funded projects close. And many investors are realizing returns close to stock market returns–in the 8 percent to 12 percent range. Millennials interested in real estate investing for the long-term should consider real estate crowdfunding as an option to traditional real estate investing that requires more liquidity to get started.

multifamily housingThere appears to be a housing revolution taking place in metro areas all across the United States. In major metro areas, single-family housing has been the norm for the majority of residentially zoned areas. In New York, only 15 percent of the city’s residential real estate is zoned for detached single-family housing only, but that’s a rarity. Many other cities have zoned the majority of their residential real estate for single-family housing.

In Minneapolis, it’s 70 percent. In Los Angeles, 75 percent. Portland has zoned 77 percent of its residential real estate as single-family. Seattle has zoned 81 percent. Charlotte; Arlington, Texas; and San Jose are zoned single-family only 84 percent, 89 percent, and 94 percent, respectively.

Recently, however, these cities are beginning to change their tunes. Minneapolis has put an end to single-family zoning. California and Oregon are both considering bills to do the same statewide. It appears that single-family zoning may have a downside.

What’s Wrong With Single-Family Zoning?

There’s nothing intrinsically wrong with single-family housing. The truth is, it’s a matter of supply and demand. Since the 2008 recession, institutional investors have been on a buying spree, snatching up starter homes left and right, and it’s driving up real estate prices everywhere. This is cutting a lot of younger would-be homeowners out of the housing market and forcing them to rent instead.

Sooner or later, the single-family market is going to close. Either institutional investors will exit the market and sell the homes, probably for a huge gain, or they’ll continue to hold those homes and rent them out. Either way, a big need for affordable housing will exist.

The solution to the housing affordability crisis for millennials, who are ready to own, could be financing for multifamily housing.

Why Multifamily Housing is Necessary

As the hole for starter homes closes, millennials are getting married and having children. Their families are growing. That means they’ll need bigger houses. But if they can’t afford starter homes, they likely won’t be able to afford larger homes either, at a time when they will want their children playing on swingsets in the backyard.

When people think of multifamily housing, they tend to think apartment complexes, but those aren’t the only types of multifamily housing available. Duplexes, fourplexes, townhomes, and condominiums can also serve a need in the real estate marketplace, and these types of properties could fill the niche that needs to be filled. But, someone will need to finance the construction of these properties as well as the facilitation for millennials to become homeowners.

Since large metro areas are now beginning to end single-family zoning or limit its use, the door is opening for more affordable housing that can meet millennial needs.

  • Duplexes – A duplex can feel like a single-family home without the detached structure and yard. Private lending can play a useful role in building affordable two-unit family housing where homes can share a backyard or simply be attached with their own unique amenities.
  • Fourplexes –  Fourplexes offer less privacy, but they can be more affordable as properties share some of the same amenities. It isn’t quite the same as apartment living but can serve as affordable starter housing.
  • Townhomes – Like duplexes and fourplexes, townhomes can give the feeling of single-family ownership without a large property to take care of.
  • Condominiums – Condominiums feel more like apartment living, but with the added advantage of homeownership.

Let Private Lending Solve the Housing Affordability Problem

Government alone cannot solve the current housing crunch, but it can get involved in solving social challenges. Such challenges can best be solved with a private-public partnership. If cities and states will open the door for private lenders to finance multifamily housing projects where single-family zoning once was the standard, more people can experience the American dream of homeownership. Everyone wins.

Starter HomesThere’s been an interesting trend in starter homes in the last few years all across America. In some parts of the country, for instance, investors are snatching up more than 20 percent of starter homes. In Memphis, 20 percent of the starter homes were purchased by investors last year. In Philadelphia, it was 23 percent. In Detroit, investors picked up a whopping 27 percent of the starter homes. Long Island, Oklahoma City, and Atlanta weren’t far behind with 19 percent, 19 percent, and 18 percent, respectively. These figures are based on CoreLogic data.

Many of these investors are institutional. In fact, since the Great Recession, institutional investors have flocked to real estate markets in droves and purchased homes at severely depressed prices. More than two million homes have been purchased by investors since 2008.

This trend was brought about by the real estate crisis that resulted in the housing collapse. Large-scale investors saw the opportunity and seized upon it. Once the best buys were out of the market, they were expected to move to business as usual. But they didn’t. They continued to buy homes and are now competing with first-time homebuyers in markets all across the country. This investor activity is driving up prices and leading to some would-be homeowners pricing out. 

Three Kinds of Real Estate Investors

Generally speaking, there are three kinds of real estate investors.

  • Fix-and-flip investors buy cheap real estate, fix it up, and resell it for short-term profit. It’s quite popular, but how successful one can be at this endeavor depends on the market.
  • Buy-and-hold investors who rent out properties for the passive income. These investors are generally institutional investors, but not always.
  • Property traders buy properties and wait until values appreciate before they sell. This can be anywhere from a few weeks to a few years depending on the market.

There are pros and cons to each of these investment strategies. Those who use these strategies usually understand their exit before they get in. They know when they want to sell and for how much they want to sell, and they have a plan in case the investment goes south. But with so much investment activity in the starter home market, potential owner-occupants are having a hard time competing. In some cases, sellers specify in their advertising that they want cash, and when a buyer walks in their door with cash in hand (an investor, usually), they take it. Who wants to wait for the long, drawn-out process of titling, value assessments, and credit checks?

How Marketplace Lending Fits Into the Picture

It’s clearly an investor’s market. When you have the money, you can wait for the right deal. If you’re a seller, you’re going to sell your property to the highest bidder who is ready to close a deal right now. If you’re a buyer, the best way to compete is to be liquid and able to close a deal quickly. These three factors mean institutional investors have a leg up.

An entire industry has grown up around investing in single-family homes. Investors with a system in place are able to buy dozens of homes at a time, and often are able to sell them before they even hold the deed. Lenders put up the capital. And brokers work their lists, bringing the two together. Add a layer of technology to the equation and it’s easy to see that sellers can find buyers even more quickly, and buyers can find homes. Marketplace lending just fuels the fire.

This is a good thing for investors. If you’re looking for a good deal on a property and know the market you want to invest in, you can find it easily. If you’re on the other end of the equation, you can find a buyer. The only question is: How long will it be before a good investment climate comes to an end?

baby boomersWe already have discussed the migration habits of millennials after the Great Recession. Now, we’ll discuss the migration habits of the baby boomer generation and the similarities as well as differences to those of millennials.

How Often Seniors Move

Seniors have traditionally been more sedentary than younger people. They tend to move less often, but when they move they often make drastic changes. For instance, some seniors, after retirement, may decide to move from the city to the country. Others may change states, preferring to live where there are higher concentrations of other seniors. Whatever the case, in 2004-2005, people fifty-five years and older moved at a rate of 2.5 versus 9.0 for younger Americans. By 2006-2007, those numbers dropped to 2.0 and 7.5, respectively. In 2007-2008, senior migration lowered slightly to about 1.75 and remained between 1.5 and 2.0 through 2016-2017, showing fewer fluctuations than the migration rate of younger people.

Where Do Seniors Move To and From

For people fifty-five years and older, the top migration magnets from 2004-2007 were Phoenix, Atlanta, Dallas, Tampa, and Houston. From 2007-2012, seniors preferred Phoenix, Riverside, Tampa, Austin, and Atlanta; and from 2012-2017, the fifty-five plus sect preferred Phoenix, Tampa, Riverside, Las Vegas, and Jacksonville. In all three time periods, Phoenix was a draw for between 16,000 and 18,275 seniors. The second city on the list each year saw fewer than 10,000 senior migrants.

It’s clear the migration patterns for seniors is different from that of younger persons. While both preferred the Sun Belt, the migration pattern for seniors is narrower, less diverse. The metro areas with the largest net migration losses for seniors included New York, Los Angeles, Chicago, and Washington D.C. for all three time periods. However, New Orleans was among the top five pre-recession while San Francisco made the top five in both time periods post-recession. It appears that seniors want to stay away from New York and California while migrating toward Florida and Arizona, or the southwest.

Other Ways Seniors Differ From Millennials in Migration Patterns

Millennials tend to shy away from pricey areas, or metro areas where the cost of living is high. However, they are spread out more broadly across the country than seniors, who also prefer to stay away from places with a high cost of living. Millennials also prefer local economies based on education or knowledge, areas known for their sophistication rather than luxury. And they are more mobile than their older counterparts, able to shift to meet new opportunities as they arise. Seniors prefer warmer climates, areas rich with recreational opportunities, and places known for attracting retirees.

In all three time periods, both seniors and millennials moved away from New York, Los Angeles, and Chicago in droves. The net migration magnets for both cohorts were most similar prior to the Great Recession when both seniors and millennials preferred Phoenix, Atlanta, and Houston. The differences were millennials chose Riverside and Charlotte more often while seniors moved to Dallas and Tampa more often. New Census Bureau information indicates millennials today prefer educated places highly affordable economies, such as Minneapolis and Kansas City. Information regarding these migration flows is taken from a study by the Brookings Institution.

Where Should You Invest in Real Estate?

It’s clear from this data that real estate investors interested in targeting millennials and those targeting seniors will want to look at different areas and demographics. The Sun Belt is hot for both markets, but seniors, who are likely downsizing, prefer retirement locales while young millennials prefer places with educational amenities such as book stores, museums, and colleges. These observations should be true whether you invest in traditional real estate or invest through a marketplace lending platform like Sharestates.