Picking the Right Niche in a Booming Market

We’ve talked many times about the baby boomers.  While many are homeowners and will remain so in retirement, there’s a chunk who will either remain or become renters.

In a 70 million person demographic, a “chunk” can be a sizable market!  And when you’re building any kind of a business, rental real estate or otherwise, it’s nice to have a big market.

But in addition to having a big market, it’s also important to have a good understanding of what the customer wants and needs.

So when a summary of a survey of 55+ year olds from the webinar (below) by John Burns Consulting popped up in our inbox, we took note of some interesting findings.

But before we go there, let’s talk a moment about why a boomer might want or need to rent rather than buy.

You’ve probably heard rumblings from the Fed that they plan to raise interest rates “sometime”. The reason we fixate on interest rates is because rates influence consumer and investor behavior.

Right now, low interest rates incentivize home buyers to finance because a) the payment is as low or lower than renting in many nice areas, b) the money not used in a down payment can be invested elsewhere at a yield higher than the mortgage rate, and c) mortgage interest remains tax deductible, while rent is not.

But if rates rise, things change.

If the house payment with a loan becomes too high, either paying all cash or renting are both more appealing.  And while some boomers will have the wherewithal and the willingness to tie up a chunk of cash in illiquid home equity, others won’t…so they’ll rent.

Also, if rates rise, then fixed income investments like bank accounts, CD’s, bonds and annuities all become more attractive to boomers trying to live off passive income.

When they do the math, some boomers may discover than it makes more sense to rent and use their cash to generate income to live on.

All that to say, there will be a sizable portion of boomers who will be renting.

So back to the survey…

Probably the most-telling, but least surprising, is that 77% of boomers want a single-story home. And while it may seem obvious that aging occupants would prefer to not have to deal with stairs, 77% is an overwhelming majority.

63% of boomers have pets.  Again, not surprising that empty-nesters would like the companionship and security of a pet, but it’s nice to see the assumption confirmed with hard data.

So simply based on those two revelations from the survey, it seems that a residential landlord who wanted to focus on serving the housing needs of renting boomers would be wise to invest in single-story homes with a pet-friendly policy.

Add to the mix that 41% want to accommodate an adult child and another another 33% need room for a elderly parent, and it seems obvious that more bedrooms is better than less…even though it would seem older couples might want to downsize.

But before you go buy up a bunch of single-family 4 bedroom homes in a 55+ community, consider this: Only 23% of the boomers surveyed want age-restricted.

That’s why it pays to do your homework.

Here’s the webinar:

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