Why Aren’t Millennials Buying Homes?

[Benjamin Riehle]

A week ago, I wrote an article explaining how the millennial generation (myself included) could creatively finance a down payment for their first property. What was intended to be an informational article on BiggerPockets, ended up creating chaos. Some members challenged the content while others strongly agreed. With over 1,500 views and 40 comments, I decided to write a follow-up and examine why millennials AREN’T buying homes.

In general, there is a substantial misconception of “home ownership”. Most people see owning a home as black and white. You are either a renter that has the flexibility and freedom to move as you please, or a homeowner and required to put down roots. In today’s economy the freedom that is associated with renting greatly outweighs the perceived benefits of home ownership. As a result millennials have become disinterested in purchasing real estate. The reality, however, is that when done correctly, property ownership can provide a tremendous level of financial freedom, allowing individuals to pursue their passions.

Two months ago, a student from the University of Arizona messaged me on BiggerPockets and asked if we could meet and talk about real estate investing. The first questions he asked when we met was, “Is living for free actually possible?” I explained the entire process of “Househacking” and “creative financing” and he immediately saw the potential. As a student with minimal income he could purchase a house and live for free. After a few seconds of contemplating the situation, he stated, “That is awesome, but I do not want to live in Tucson forever”. At this point he had decided that the freedom providing by renting outweighed the benefit of home ownership and living for free.

The thought process of this student is in line with how most millennials view renting vs. owning. There is however a third option that unlocks the door to financial freedom. Instead of viewing the property as a “home” view it as an investment. While living at the property you are saving rent and when you decide to move you receive monthly income. Take a 3 unit triplex for example, where you live in one unit and rent the other two units out. When done correctly you will be able to live at the property rent free and save $500-$1,000 per month in rent. If you decide to relocate you will be able to rent the unit and receive income of $500 to $1,000 per month to cover your new living expenses.

Makes sense right? Unfortunately, there is an even larger obstacle that prevents most millennials from purchasing their first property. The investment strategy works because the property purchased will sometimes be older and located outside the heart of the city. It won’t be impressive and when compared to the downtown apartment it won’t compare. The instant gratification of living in the “cool” and “modern” apartment takes priority over making the fiscally sound decision to invest in real estate and begin building a passive income stream.

The combination of wanting the best and limited mobility makes real estate investing an unrealistic and impossible option for many millennials. There are substantial sacrifices that are required from a real estate investor, and the majority of millennials are scared to face this challenge. However, for the few that start investing early the return is worth the risk.