Why Millennials Aren’t Buying Homes

What's up, you guys? It's Graham here. So, as many of you know, I spend way too much time on the internet reading all about money-related topics and studies. Today, all of that research has finally paid off, and this is because my favorite video topics just collided into one magical synergy of excellence. We got real estate and millennial financial habits. Both of those are amazing in their own respective ways, and apparently, CNBC agrees with me because they featured this article on the very front page, titling it: "Apartment rental demand soars as more Millennials believe it's cheaper than owning a home." Like, come on! How could I not resist clicking on something like that to weigh in, coming from both a millennial and from someone who buys real estate to rent out?

And yes, everyone, I am a millennial! I got a lot of argumentative people coming from my $78 Tesla video where I called myself a millennial, and everyone is like, “No Graham, you're not a millennial!” Well, yes, I am! Because according to the Pew Research Center—and yes, this is something people have researched, and then time and money has gone into figuring this stuff out—they have concluded that Millennials are anyone born between 1981 and 1996, hence making me a millennial at 29 years old. Because I love my iced coffee and my avocado toast just as much as any other millennial! This is just facts.

But anyway, going through this article, I found a few very interesting statistics. The first one is that 74 percent of Millennials are not buying real estate for reasons I'll mention very shortly. Secondly, of the 26 percent of Millennials who buy real estate, 63 percent of those people regret buying real estate. Third, because of that, rental demand increased by 11% over the last year, causing prices to go up by 3 percent nationally. And fourth, 82% of Millennials felt like renting is cheaper than owning, and that is up from 67 percent just a year ago.

I know that's a lot of information to dissect, but let's go over the reasons why Millennials are not buying real estate in the first place, whether or not renting is actually more affordable than owning, and how you can use, of course, all of this information to profit and make money. Because that's what this channel is all about; it's about making money and of course smashing the like button! Probably more about smashing the like button at this point because that's really the reason I only make videos anymore. It's just to get everyone to hit the like button! Like, I need a 10% view-to-like ratio to even wake up in the morning! So let's at least hit that! We need at least a 10% like ratio in this video, and let's get into it.

Thank you! First, we should really discuss affordability. Now, this could be its own video topic just because of how deep this really goes. I'll just say it: most Millennials are royally screwed. We've got student loan debt at record levels, and it's getting to the point now where it’s just completely stupid! Like, taking out six figures of student loans for a job that pays five figures is not a good idea. The cost of education has risen to such a level that it's taking significantly longer to pay off, causing Millennials to postpone home buying.

We've also seen low wage growth compared with the cost of buying a home. Since the 1960s, the value of homes has increased by 73% adjusted for inflation, meanwhile wage growth has barely budged for the middle class once adjusted for inflation. When you combine the two and blend them together, it's really a recipe for financial disaster. Simply put, saving up for a down payment just isn't feasible for most people early on in their careers and lives.

Secondly, we're seeing a trend towards concentrated growth in major cities like Los Angeles, Seattle, San Francisco, and New York. The list goes on. Studies have shown that younger people are more likely to relocate to major cities in pursuit of a higher-paying career, and of course with that comes skyrocketing demand and unaffordable housing. A website called SmartAsset pulled the figures between the most in-demand cities and how long it would take the average person to accumulate enough money for a 20% down payment. At the very top of the list is none other than Los Angeles, which takes, by the way, almost eleven years just to put a 20% down payment on the average home.

Even cities like Boston take nearly eight years, Portland at almost six and a half years, and New Orleans at five-point-six-eight years. So, it makes sense that people are just renting out of necessity. Third, we're seeing a mental shift away from buying real estate in the younger generations, and this is something I can both relate to and find pretty interesting. With this, we're finding many Millennials want the flexibility to relocate on short notice for a higher-paying career. Home ownership in this situation doesn't really make sense. Like, why buy a property here when you might not be here six months from now, and you might relocate to the opposite side of the country for a better-paying job?

We're also, as an entire society, slowly shifting away from buying and owning to instead a sharing and renting economy. Like, why bother owning a car and paying for gas, insurance, and maintenance, and all that when you could just take an Uber instead for a fraction of the price? The ability just to rent something usually just gives you more flexibility and more convenience for a lower upfront cost. Speaking of convenience, I'll admit renting is very convenient! You don't need to buy anything; you don't need to tie up tens of thousands or hundreds of thousands of dollars as a down payment. You won't need to fix the roof or foundation; you're not gonna have to fix a broken sewer line pipe if something happens. All you need to do is move in, pay your rent on time, and you're done with it.

The landlord handles all the other nuances of home ownership that you're not gonna have to deal with. Renting is easy, it's seamless, and you can pick up and go anywhere you want as soon as your lease is up. But the thing is, is renting really a smart financial move, or are Millennials just paying extra for the convenience of being able to rent something and pick up and go wherever they want?

Well, the thing is this is a very complex topic in and of itself, and it really just depends on the area. Now, obviously, if the real estate market declines in value, then renting really just becomes the cheaper option. Conversely, if the real estate market goes up in price, then renting becomes the more expensive option. But overall, it's really just important to understand a few things when it comes to buying a home.

First, there is an opportunity cost to your down payment. Anytime you buy a home, like if you're putting $50,000 down to buy a property, you're giving up the opportunity to invest that money elsewhere at a potentially higher return. Secondly, the cost of owning the home is not just your mortgage payments; it's also your property taxes, your insurance, your repairs, and everything else that just adds up over time.

Third, buying and selling real estate tends to be a bit expensive. Between commissions and closing costs, it's usually about 6% of the purchase price right off the top! So when it comes to that, you're gonna have to sell your property at 6% higher just to break even on your cost. Now overall, though, when it comes to this, usually if you're going to be living in the property for more than eight to ten years, then buying the property just becomes the cheaper alternative.

Any less than that, and you're really just speculating on the real estate values appreciating at such a rate to cover your cost! If they don't do that, then of course, you just lose money. Sometimes flat-out renting can simply be cheaper than owning a property in terms of cash flow. Like, here in Los Angeles, for instance, you might be able to rent a million-dollar home for the low price of $4,500 a month. Whereas, on the other hand, if you were to buy that million-dollar home, it would be costing you $5,500 a month, when you account for repairs, insurance, property tax, and everything else that goes into it.

So really, on the surface in this example, renting that home becomes cheaper than owning it from a cash flow perspective. However, the homeowner benefits from paying down the mortgage every single month and building equity in the property. They also benefit from the future appreciation of that property that might greatly outweigh all of the extra costs associated with buying. Long-term, the owner is likely to come out ahead in terms of profit, and in the short term, it's really just a toss-up, and maybe renting might be cheaper.

Ultimately, though, this calculation really just comes down to the price of the rental, the value of the home, how much money you need as a down payment, how long you intend to keep that house for, and the average appreciation in that area over the last 30 years. Sometimes renting is just cheaper, but it really comes down to these few main points.

First, your payment is not fixed, meaning the landlord could raise your rent, and all of a sudden, the next month you could end up paying more money. On the other hand, whenever you're buying something, the price you pay is fixed. It's set in stone; a lender cannot change the price of a fixed-rate mortgage if interest rates go up or down. As long as you make that payment every single month, then eventually it's going to be paid off, and one day you're gonna owe nothing.

Second thing, when you're renting, you're not building any equity in a property. Instead, you're paying money directly to a landlord, and they are the ones profiting. Now, this doesn't automatically mean that renting is a waste of money, but it does mean that you're not automatically building equity in a property every single month by paying down a mortgage.

Now third, when you're renting, you're not able to improve the property. You're not able to go and remodel a kitchen or add square footage or fix up things around the property to bring up its value and profit from it. Even if you go and do these things, you're not likely to see the financial benefit of doing so like the owner would.

And fourth, when you buy a property, as long as you make your payments on time and make sure to pay your property taxes, you can't get evicted. The bank can't just come and tell you with 60 days' notice, “Oh, we want more money now for this property and you gotta get going!” Unless you get a variable interest rate loan—which, don't do that! Always get a fixed-rate 30-year mortgage! Always do that!

Now, when you rent, on the other hand, you run the risk of the owner not wanting to renew your lease, or wanting to move in, or giving you 30 to 90 days' notice to leave. When you buy, this is not really an issue. So when it comes to this, here's what I think this all means and how you can turn this around to make money from it.

So, I don't think it's surprising at all that Millennials are just less likely to buy real estate on average, they're less likely to be in the financial position to buy a home than previous generations. Also, the expectation to go and buy real estate is much lower than previous generations. I feel like the Millennial mindset has really shifted towards a temporary, short-term, flexible, convenient schedule, whereas owning real estate on average tends to be something that people do as they settle down.

But listen to this: because with that comes the opportunity to profit! When I hear all of this, I just hear cha-ching! I'll throw a little sound effect right there for that change! That's what I hear when I see that Millennials are renting.

Like, I gotta say, as a landlord, this is really good news to hear that more people are renting than buying real estate. The more renters there are, the more demand for your property, and on average, the more money you will make as an owner who's investing in real estate to rent out.

Right now, more than anything, developers are trying to satisfy this demand by building apartment buildings. After all, it's a lot easier to build these on a large scale and make a lot more profit for the amount of money that you invest. However, the way I see it is that this really opens the door to smaller investors like you and I, who buy single-family homes or two- to four-unit buildings that will appeal to the type of person who just doesn't want to live in an apartment.

This is why I believe we're seeing way more single-family rental properties than ever before, simply because there's now demand to rent single-family properties. Landlords are realizing that renting out their single-family homes is becoming a very profitable way more than it would be if they just bought it to try to resell it.

If I was to guess, I would say at some point developers are going to overbuild apartment buildings; they're gonna become way too common. Demand for them is going to drop simply because the inventory is so high, and the people who want a single-family home or a smaller building will pay a premium for that because it's different.

So, at the end of the day, if Millennials are not buying properties, this is really good for me as a landlord! Because that means instead, they're renting, and also it means less competition for me when I'm going out and buying real estate. So in every single direction, from the way I see it as a buy-and-hold real estate investor who rents out properties, all of this is just a win-win.

And from one millennial to another, here's my one piece of advice: If you ever want to own a home, you cannot be buying iced coffee from Starbucks and going and spending $15 on avocado toast! If you do that, you will never have enough money to buy a home! That was a joke! That was an unfunny joke, but a joke nonetheless.

Anyway, that's my thoughts about what's been going on with the trend away from buying. It's a shame that more Millennials cannot afford to buy real estate, but I do have to say the facts here are that it's a good time to be a real estate investor who's buying rental properties. Let's just face the facts, we'll face the music here—that is the reality from an investor standpoint. This is a win in terms of that.

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Thank you very much for watching, and until next time!