2017 Trends in Real Estate
2017 Trends in Real Estate By Aaron Adams
2017 Trends in Real Estate By Aaron Adams
Will we see a crash? Are we becoming a nation of renters? What will all the Millennials do when the Boomers kick them out of the house?
Two of my favorite places to research what is happening in real estate (outside of multiple google searches) are The Joint Center for Housing Studies of Harvard University (http://www.jchs.harvard.edu) & the Pew Research Center (www.pewresearch.org) In December I spent close to a hundred hours reading their 2016 research reports and was COMPLETELY fascinated by what, to me, looks like a fundamental shift in housing trends in the US! Several statements from the reports jumped out at me. I would love to share them with you as well as what my own conclusions about them have been. As an investor who is currently managing over 2500 properties nationwide -- someone who has purchased thousands more properties from coast to coast -- and someone who started before the last big crash in 1999, made my first million by 2004, rode out the crash in 2008 and never looked back -I can only say that I think we are in UNCHARTED territory as real estate investors and there are opportunities that have me extremely excited to be a full time investor!
Page 1 of 11
2017 Trends in Real Estate By Aaron Adams
First Conclusion: Baby-Boomers (b. Between 1945-64) are living longer and their demand for housing will stay strong over the next ten years = HUGE $ POTENTIAL
http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/harvard_jchs_housing_growing_population_ execsum.pdf
I have been working with clients in a huge retirement community in Florida known as The Villages. On a monthly basis I have the opportunity to travel to The Villages, meet with residents interested in investing in Real Estate and hear their stories about their money, what they want from retirement and what their plans are. It is always amazing to me how active and involved these “retirees” remain. Education, travel, part time employment, charitable giving, new investment strategies and second careers are the norm. Very few seem to be living out their days on a golf course! The Boomers are fundamentally changing what retirement looks like. They have trillions of dollars in IRA, 401K and pensions that they are looking to spend. They also intend to rent their own houses, own their own houses and even keep second houses. They are the reason why we will continue to have STRONG demand for all types of housing in this country and, as I see it, a huge opportunity for investors to provide that housing. Whether it’s tiny homes, 55+ communities, 55+ rental properties or sales of rental investment properties to this demographic, there are significant opportunities for ways to make money as a real estate investor!
Page 2 of 11
2017 Trends in Real Estate By Aaron Adams
Second Conclusion: Millennials (b. 1985-2004), our 18-34 year olds, are mostly living with mom and dad or renting. But we have NEVER seen a generation this disinterested or unable to own homes.
Page 3 of 11
2017 Trends in Real Estate By Aaron Adams
There are several reasons for this trend that I have identified as I have researched the Millennials and their sluggish entry into the rental and homeownership market… Those that resonate most with me include: ● Many carry more debt than ever before ... Student loan and consumer debt make it very difficult to meet debt/income ratios required by lenders. ● Many have not saved enough for down payments. Down payments present a significant challenge for many renters, with the 2013 Survey of Consumer Finances indicating that among those with savings, the median value of all financial assets was just $3,000. By comparison, a 5 percent down payment on a median-priced existing home in 2015 was $11,100. ● Mortgage credit remains tight for households with less than perfect credit histories and those with low incomes, limiting access to home-ownership for these groups. CoreLogic data indicate that loans to home buyers with observed credit scores below 700 declined from 33 percent of first-lien mortgages in 2010 to just 27 percent in 2014. ● New construction has fallen far below demand for almost 9 years and there is intense competition for entry level price point homes and condos. ● Wage growth has lagged appreciation of property values making it difficult for Millennials to get ahead and to the point where they COULD buy if they want.
Page 4 of 11
2017 Trends in Real Estate By Aaron Adams
Third Conclusion: Since the crash of 2008, we are severely under building houses. We are currently short over 4 million homes and if we don’t see an uptick in construction, the intense competition we currently see for affordable housing will only get worse!
http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/household_growth_projections2016_jchs.pdf
Page 5 of 11
2017 Trends in Real Estate By Aaron Adams
Over the past decade, I have purchased hundreds of homes in Dallas, Charlotte, Southern California, and Florida. We have regularly targeted the entry level homeowner neighborhoods for our acquisitions. I have seen firsthand the struggles that our rental clients deal with when they try to jump from renting a single family home from us, to buying their first home. I recently listened to a client from Dallas tell me (with tears in her eyes) how hopeless she thought her prospects would be to acquire a home in Dallas. She put an offer in on a house that was 5% over list price which was purchased by a Private Equity fund who paid 10% over list price. She was ready to give up because she couldn't see how she would ever be able to compete with something like that. I have no idea if the Millennials will convert from renters to homeowners, but I see huge opportunities to: ● Work in new construction & learn to build homes - I spent years only buying homes that had already been built, but in the last 24 months I have scaled up intensely on learning to buy raw land, jump through the hoops at the city offices, work with architects and community groups and then subcontractors to build new construction homes. We don’t have enough and there is amazing opportunities! ● Be a landlord - We sell blue-collar neighborhood homes to our clients. These homes have been purchased, fixed up and rented out. Many of our clients use IRA and 401k dollars to buy these home and then every month we send the rent to their IRA and 401k as the growth. ● Convert from landlord to bank - Seller financing a home to your renter is an outstanding way to minimize capital gains, extend the return on investment and eliminate the headaches associated with being a landlord. Every month we teach our clients how this process can happen at our monthly trainings in Indianapolis.
Page 6 of 11
2017 Trends in Real Estate By Aaron Adams
Fourth Conclusion: Millennials will double their demand for housing over the next decade while Gen-Xers and Boomers won’t significantly DECREASE their current demands. We currently HAVE a housing shortage that will only get worse! = there’s never been a better time to be a landlord or a real estate investor.
http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/household_growth_projections2016_jchs.pdf
These projections blew me away. One of the points the study mentioned is that Millennials WANT to own a home, they aren’t completely apathetic to the idea of home ownership. It’s just that for reasons I mentioned previously, they have barriers to entry that make it hard to even get out of mom and dad's house, much less rent. We sell our clients turn-key properties that are in working class neighborhoods which we feel are transitioning to middle class neighborhoods. We sell a product we feel will experience strong capital appreciation as well as be perfectly positioned to sell to the existing tenant. As we screen tenants for the thousands of properties we currently manage I am always surprised to see strong credit scores and tenants that easily make the 3x monthly rent Page 7 of 11
2017 Trends in Real Estate By Aaron Adams
income multiple we require. I love renting to this demographic. They pay their rent and take excellent care of their home. When I am ready to sell one of my properties, they are the first person I call to see if they are interested in buying the home from me. I usually require they have $5,000 down payment, and if they do, I am happy to be the bank for them for a few years and then let them refinance the property with a traditional lender down the road. Benefits of seller financing include: ● Able to get a premium sales price ● Eliminate repairs (tenant-buyer pays them) ● Eliminate property tax bills (tenant-buyer pays them) ● Eliminate vacancy ● Charge a premium interest rate (I currently charge 7%)
Page 8 of 11
2017 Trends in Real Estate By Aaron Adams
Final Conclusion: There has never been a better time to invest in real estate. We are becoming a nation of renters for whom there doesn’t exist enough homes to meet demand. Over the next 10 year there will be significant opportunities to create wealth through real estate.
http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/homeowner_households_tenure_projections 2015-2035-spader_et_al.pdf
Page 9 of 11
2017 Trends in Real Estate By Aaron Adams
Like I mentioned at the beginning of this report, and to quote the first sentence in this chart, we really seeing housing perform in a way that is “unprecedented in American History”. Over the past year there have been news reports that I have watched on the major cable news channels that pose the question, “Are we in a housing bubble?”. These 2 or 3 minute segments typically bring an expert to answer this question. Most say, “no, interest rates are still low and new construction is lagging demand”. I would completely agree that these would be the same two “drivers” of capital appreciation in real estate over the past ten years. However, when I am asked what I think about housing in this country I like to quote a list of drivers that I follow closely to get a feel for what is happening. These include: ● Interest rates ● Housing starts ● Unemployment ● Age for household formation ● Median life span ● Population migration patterns ● Population growth ● Lending criteria for single family homes ● Average student loan debt ● International investor acquisition rate of single family homes ● Laws and regulations relating to real estate In 2004 I decided to sell every property I owned in California and reinvest in the mid-west because I could see the writing on the wall that California was overvalued and I was scared to continue forward as an active investor there. When the market crashed in 2008 - unlike many - I didn’t lose a penny. I was positioned to take advantage of the HUGE opportunities that existed in the mid-west and we doubled our company in size almost every year during that period. In 2012 Wall Street got into the single family housing market and once again, we capitalized on the opportunity, partnered with a firm and made millions. I have never been so optimistic in the last 18 years as I am now. I see numerous ways in which we are going to be able to use our existing infrastructure of property management companies, construction companies and real estate brokerages to rent houses to Millennials, Gen-Xers, & Boomers, sell them houses, buy houses from them and build houses for them. Understanding where the opportunities lie is simply a result of looking at what the needs are and filling them.
Page 10 of 11
2017 Trends in Real Estate By Aaron Adams
To contact Aaron Adams, simply e-mail him at [email protected]. For more information about Aaron Adams and his resources for you, visit www.IRArental.com.
Page 11 of 11
2017 Trends in Real Estate By Aaron Adams
Will we see a crash? Are we becoming a nation of renters? What will all the Millennials do when the Boomers kick them out of the house?
Two of my favorite places to research what is happening in real estate (outside of multiple google searches) are The Joint Center for Housing Studies of Harvard University (http://www.jchs.harvard.edu) & the Pew Research Center (www.pewresearch.org) In December I spent close to a hundred hours reading their 2016 research reports and was COMPLETELY fascinated by what, to me, looks like a fundamental shift in housing trends in the US! Several statements from the reports jumped out at me. I would love to share them with you as well as what my own conclusions about them have been. As an investor who is currently managing over 2500 properties nationwide -- someone who has purchased thousands more properties from coast to coast -- and someone who started before the last big crash in 1999, made my first million by 2004, rode out the crash in 2008 and never looked back -I can only say that I think we are in UNCHARTED territory as real estate investors and there are opportunities that have me extremely excited to be a full time investor!
Page 1 of 11
2017 Trends in Real Estate By Aaron Adams
First Conclusion: Baby-Boomers (b. Between 1945-64) are living longer and their demand for housing will stay strong over the next ten years = HUGE $ POTENTIAL
http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/harvard_jchs_housing_growing_population_ execsum.pdf
I have been working with clients in a huge retirement community in Florida known as The Villages. On a monthly basis I have the opportunity to travel to The Villages, meet with residents interested in investing in Real Estate and hear their stories about their money, what they want from retirement and what their plans are. It is always amazing to me how active and involved these “retirees” remain. Education, travel, part time employment, charitable giving, new investment strategies and second careers are the norm. Very few seem to be living out their days on a golf course! The Boomers are fundamentally changing what retirement looks like. They have trillions of dollars in IRA, 401K and pensions that they are looking to spend. They also intend to rent their own houses, own their own houses and even keep second houses. They are the reason why we will continue to have STRONG demand for all types of housing in this country and, as I see it, a huge opportunity for investors to provide that housing. Whether it’s tiny homes, 55+ communities, 55+ rental properties or sales of rental investment properties to this demographic, there are significant opportunities for ways to make money as a real estate investor!
Page 2 of 11
2017 Trends in Real Estate By Aaron Adams
Second Conclusion: Millennials (b. 1985-2004), our 18-34 year olds, are mostly living with mom and dad or renting. But we have NEVER seen a generation this disinterested or unable to own homes.
Page 3 of 11
2017 Trends in Real Estate By Aaron Adams
There are several reasons for this trend that I have identified as I have researched the Millennials and their sluggish entry into the rental and homeownership market… Those that resonate most with me include: ● Many carry more debt than ever before ... Student loan and consumer debt make it very difficult to meet debt/income ratios required by lenders. ● Many have not saved enough for down payments. Down payments present a significant challenge for many renters, with the 2013 Survey of Consumer Finances indicating that among those with savings, the median value of all financial assets was just $3,000. By comparison, a 5 percent down payment on a median-priced existing home in 2015 was $11,100. ● Mortgage credit remains tight for households with less than perfect credit histories and those with low incomes, limiting access to home-ownership for these groups. CoreLogic data indicate that loans to home buyers with observed credit scores below 700 declined from 33 percent of first-lien mortgages in 2010 to just 27 percent in 2014. ● New construction has fallen far below demand for almost 9 years and there is intense competition for entry level price point homes and condos. ● Wage growth has lagged appreciation of property values making it difficult for Millennials to get ahead and to the point where they COULD buy if they want.
Page 4 of 11
2017 Trends in Real Estate By Aaron Adams
Third Conclusion: Since the crash of 2008, we are severely under building houses. We are currently short over 4 million homes and if we don’t see an uptick in construction, the intense competition we currently see for affordable housing will only get worse!
http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/household_growth_projections2016_jchs.pdf
Page 5 of 11
2017 Trends in Real Estate By Aaron Adams
Over the past decade, I have purchased hundreds of homes in Dallas, Charlotte, Southern California, and Florida. We have regularly targeted the entry level homeowner neighborhoods for our acquisitions. I have seen firsthand the struggles that our rental clients deal with when they try to jump from renting a single family home from us, to buying their first home. I recently listened to a client from Dallas tell me (with tears in her eyes) how hopeless she thought her prospects would be to acquire a home in Dallas. She put an offer in on a house that was 5% over list price which was purchased by a Private Equity fund who paid 10% over list price. She was ready to give up because she couldn't see how she would ever be able to compete with something like that. I have no idea if the Millennials will convert from renters to homeowners, but I see huge opportunities to: ● Work in new construction & learn to build homes - I spent years only buying homes that had already been built, but in the last 24 months I have scaled up intensely on learning to buy raw land, jump through the hoops at the city offices, work with architects and community groups and then subcontractors to build new construction homes. We don’t have enough and there is amazing opportunities! ● Be a landlord - We sell blue-collar neighborhood homes to our clients. These homes have been purchased, fixed up and rented out. Many of our clients use IRA and 401k dollars to buy these home and then every month we send the rent to their IRA and 401k as the growth. ● Convert from landlord to bank - Seller financing a home to your renter is an outstanding way to minimize capital gains, extend the return on investment and eliminate the headaches associated with being a landlord. Every month we teach our clients how this process can happen at our monthly trainings in Indianapolis.
Page 6 of 11
2017 Trends in Real Estate By Aaron Adams
Fourth Conclusion: Millennials will double their demand for housing over the next decade while Gen-Xers and Boomers won’t significantly DECREASE their current demands. We currently HAVE a housing shortage that will only get worse! = there’s never been a better time to be a landlord or a real estate investor.
http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/household_growth_projections2016_jchs.pdf
These projections blew me away. One of the points the study mentioned is that Millennials WANT to own a home, they aren’t completely apathetic to the idea of home ownership. It’s just that for reasons I mentioned previously, they have barriers to entry that make it hard to even get out of mom and dad's house, much less rent. We sell our clients turn-key properties that are in working class neighborhoods which we feel are transitioning to middle class neighborhoods. We sell a product we feel will experience strong capital appreciation as well as be perfectly positioned to sell to the existing tenant. As we screen tenants for the thousands of properties we currently manage I am always surprised to see strong credit scores and tenants that easily make the 3x monthly rent Page 7 of 11
2017 Trends in Real Estate By Aaron Adams
income multiple we require. I love renting to this demographic. They pay their rent and take excellent care of their home. When I am ready to sell one of my properties, they are the first person I call to see if they are interested in buying the home from me. I usually require they have $5,000 down payment, and if they do, I am happy to be the bank for them for a few years and then let them refinance the property with a traditional lender down the road. Benefits of seller financing include: ● Able to get a premium sales price ● Eliminate repairs (tenant-buyer pays them) ● Eliminate property tax bills (tenant-buyer pays them) ● Eliminate vacancy ● Charge a premium interest rate (I currently charge 7%)
Page 8 of 11
2017 Trends in Real Estate By Aaron Adams
Final Conclusion: There has never been a better time to invest in real estate. We are becoming a nation of renters for whom there doesn’t exist enough homes to meet demand. Over the next 10 year there will be significant opportunities to create wealth through real estate.
http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/homeowner_households_tenure_projections 2015-2035-spader_et_al.pdf
Page 9 of 11
2017 Trends in Real Estate By Aaron Adams
Like I mentioned at the beginning of this report, and to quote the first sentence in this chart, we really seeing housing perform in a way that is “unprecedented in American History”. Over the past year there have been news reports that I have watched on the major cable news channels that pose the question, “Are we in a housing bubble?”. These 2 or 3 minute segments typically bring an expert to answer this question. Most say, “no, interest rates are still low and new construction is lagging demand”. I would completely agree that these would be the same two “drivers” of capital appreciation in real estate over the past ten years. However, when I am asked what I think about housing in this country I like to quote a list of drivers that I follow closely to get a feel for what is happening. These include: ● Interest rates ● Housing starts ● Unemployment ● Age for household formation ● Median life span ● Population migration patterns ● Population growth ● Lending criteria for single family homes ● Average student loan debt ● International investor acquisition rate of single family homes ● Laws and regulations relating to real estate In 2004 I decided to sell every property I owned in California and reinvest in the mid-west because I could see the writing on the wall that California was overvalued and I was scared to continue forward as an active investor there. When the market crashed in 2008 - unlike many - I didn’t lose a penny. I was positioned to take advantage of the HUGE opportunities that existed in the mid-west and we doubled our company in size almost every year during that period. In 2012 Wall Street got into the single family housing market and once again, we capitalized on the opportunity, partnered with a firm and made millions. I have never been so optimistic in the last 18 years as I am now. I see numerous ways in which we are going to be able to use our existing infrastructure of property management companies, construction companies and real estate brokerages to rent houses to Millennials, Gen-Xers, & Boomers, sell them houses, buy houses from them and build houses for them. Understanding where the opportunities lie is simply a result of looking at what the needs are and filling them.
Page 10 of 11
2017 Trends in Real Estate By Aaron Adams
To contact Aaron Adams, simply e-mail him at [email protected]. For more information about Aaron Adams and his resources for you, visit www.IRArental.com.
Page 11 of 11
