Multifamily properties have been doing well for the last few years, but as the first signs of a market slowdown begins to appear, many investors have begun re-positioning themselves to better survive the upcoming market correction.
There are several factors that point to the upcoming market correction. Many markets across the U.S. have reached an all-time high, with rents at their highest level in years, low vacancies, and fewer quality properties available for sale. The competition and the risks are challenging, but you can find a way to succeed even in heated markets if you can find the right niche market to focus on.
Finding the right niche doesn’t necessarily mean doing what’s popular; sometimes it means you need to examine the market for potentially large “unserved” markets. After looking at the data, it’s clear that there is a slice of the market that is not only huge but will continue to grow over the next several years… long enough to make it through an entire real estate cycle, and then some: Baby Boomers.
Baby Boomers Are the Fastest-Growing Group Of Renters
According to the Census Bureau, at 79.8 million, millennials make up the largest living generation by population size. And while it’s true that millennials dominate the rental industry – more than 40% of the households rent – they are also the largest generational group living in poverty.
Baby Boomers, on the other hand, are the fastest-growing group of renters, surpassing even millennials. According to Census data, between 2009 and 2015, the number of renters aged 55 or above rose 28 percent, while those aged 34 or younger only increased 3 percent.
Baby Boomers also head the largest number of households. Unlike Millennials, they are doing well as a generation. In the next 20 years, they’ll not only inherit $15 trillion, but they’ll also control 70% of the U.S.’s disposable income. Right now, 75 million Baby Boomers are headed into retirement, and a survey headed by Freddie Mac revealed that 5 million Baby Boomers expect to rent their next home by 2020.
The survey also reveals that their top priorities for rental properties include affordability (60%) and amenities (47%). That means that while a percentage of Baby Boomers are price sensitive, nearly half are willing to pay extra for amenity-rich apartments in good neighborhoods. Rather than mowing the lawn, this new subset of renters prefers the richness of urban living, combined with the convenience and ease of renting.
Why Baby Boomers Prefer Renting To Owning
Baby Boomers like the idea of living in a walkable neighborhood. The appeal of being able to walk or use public transportation to go out to eat or go shopping is incredibly appealing, especially when you add in the variety of attractions offered in an urban area.
Second, Baby Boomers can get a high-end, brand new apartment with luxurious finishes like hardwood floors and granite countertops. These are features they would be unlikely to install in their own homes, especially since many are downsizing to apartments in order to save money and time on the upkeep necessary for their home in the suburbs. It’s unquestionably easier to simply call maintenance when there’s a leak than to find a reliable plumber, call them, wait for them to show up, and then remain there until the job gets done.
Third, the amenities offered by apartment complexes are often top-notch. Fitness centers that rival paid gyms, movie rooms, infinity pools on the rooftop… these are all highly attractive to the senior who is ready to enjoy their retirement and has the money to do so.
What Does Baby Boomers Want From Multifamily Rentals?
Surprisingly, many boomers aren’t looking for retirement villages or senior residences.
Instead, boomers are jumping at brand new rentals that offer them the opportunity to connect with others while maintaining a hands-free lifestyle. Instead of dealing with the petty day-to-day tasks of living, this niche is jumping at multifamily properties that offer concierge-like services.
Some high-end multifamily property owners report that one out of four inquiries are from boomers, while others report that a third of their renters are over the age of 60.
Most importantly, this age group does not want to be perceived as old.
Retirement no longer means sitting at home gardening, and boomers feel after all their hard work, they are entitled to live the good life. With the tools and opportunities available to them, they feel as young as they ever did, and aren’t interested in being pigeonholed by preconceptions about what they can or should be able to do.
Advertisers have caught on to this already: Depends, for example, has a target market of people in their 60s and up, yet their advertisements feature younger models in their 40s and 50s.
If you’re interested in attracting this demographic, forget about the safety bars and other concessions to old age. Instead, this demographic is keen on hotel-like apartments that offer as much convenience as possible. At the low-end services like a cleaning service and a 24-hour doorman who will take packages is the minimum level of service.
At the high-end, some investors are wooing the ultra-wealthy by offering personal drivers, butler services, or 24-hour concierge services. In the middle are amenities like fitness classes, bike repair stations, or communal office spaces.
Socially, although boomers want to be close to their children and grandchildren, they enjoy the same types of activities millennials enjoy. For some, it might be a night out at the theater, while for others it might be whitewater rafting or a salsa-making contest.
Adding amenities like outdoor lounges or yoga rooms is one way to foster a sense of community and a vibrant sense of life to multifamily properties; they also have the added bonus of appealing to millennials as well.
If you’re an investor looking to thrive during the real estate slowdown, targeting wealthy renters who want to be pampered without dealing with the hassle of a large mortgage could be very lucrative indeed.