- Traditional reasons for homeownership fall flat with millennials.
- Part-time rental property provides a once-in-a-lifetime investment opportunity that millennials love.
- Agents should actively promote this investment opportunity as a key advantage of homeownership.
Last year, I was talking to a millennial friend about homeownership. Like so many people in my generation, he did not see the value in owning a home, even though he could easily afford the down payment and mortgage.
Typical reasoning includes:
- Why would I want to be stuck with a mortgage for 30 years?
- Why would I put all of my money into a down payment, when I could invest in the stock market for a much better return?
- Why would I invest in an asset that requires me to give 6 percent to real estate agents as soon as I decide to sell it?
I talked to him about the numerous tax advantages to owning a home, the thrill of remodeling your home to make it your dream home, and the sense of ownership and community that homeowners enjoy.
None of it mattered to him. His reply was, “I travel seven to 10 days a month. Owning a home and being a part of a community just isn’t a priority for me.”
Finally, I threw one last jab out there, “Seven to 10 days a month? Do you realize that you could rent your place out on Airbnb while you’re out of town and pay for your entire mortgage?”
His eyes lit up. We started checking Airbnb postings in his neighborhood right then. He started doing the math, and as it turned out, I was right.
If he could rent his place out for just five days a month, his whole mortgage would be paid off. Anything beyond that would be pure profit.
A week later, he put a full-price offer in on a Las Vegas home. That deal would fall out of escrow, but the next one successfully closed. He kept going, buying any home he could afford where the short-term rental revenue would exceed the expense of a monthly mortgage payment.
Within six months, he owned five homes — all of which now secure healthy monthly profits on Airbnb.
This single conversation about Airbnb turned a millennial renter with no interest in owning a home to an enthusiastic real estate investor.
This story is not unique. In fact, it’s one that I hear more and more in my circle of friends.
Many agents assume that millennials don’t want to enter the market because they can’t due to student debt or because they have some character defect like being too self-involved to start families or too afraid of commitment to make long-term investment decisions.
But many of the millennials I talk to have a much different reason — they think homes are a lousy investment. It appreciates more slowly than the stock market. It’s complicated to buy and sell, and it requires you to pay tons of closing costs and commission fees.
However, once they consider real estate not only as an asset that accumulates value over time but also as an immediate source of monthly revenue, the entire equation changes. Real estate is suddenly a sexy investment opportunity.
The numbers are compelling to even the most skeptical investor. As an example, my friend mentioned above has keyed in on Las Vegas suburbs as the perfect place for short-term rentals.
Homes are relatively cheap, and there are always lots of tourists and big events. Hotels are increasingly expensive, and most homeowners associations (HOAs) have no policies against short-term rentals.
He makes an average of $300 per night on a property that costs him less than $2,000 per month in mortgage and taxes. One week pays for an entire month — though he usually has no problem renting it out for two or three weeks per month.
And, as a bonus, for one or two weeks a month he has a free place to stay in Vegas. This investment model is increasingly appealing to a generation that loves to travel and participates enthusiastically in the “sharing economy.”
Of course, there are challenges to this investment model. Some neighborhoods have strict policies against short-term rentals. Some people get creeped out at the thought of strangers living in their home several days a month.
Managing a short-term rental account can become a part-time job. None of these challenges are insurmountable. In fact, they all present an opportunity for the savvy agent.
With a little research, agents can quickly find the communities most tolerant of short-term rentals, the projected monthly rental revenue of an individual home based on Airbnb comps in that area, and several pro tips for effectively using Airbnb to rent out a home.
This information should be a big part of any buyer’s presentation and an essential component of outbound marketing efforts — particularly when millennials are involved.
You’ll be amazed at how many previously unreachable millennials are suddenly fascinated by real estate as an investment when AirBnB is mentioned.
I honestly believe that millennials are poised to buy and sell a lot of real estate over their lifetime, even if they’re off to a slow start. But it will take smart agents finding new hooks to bring them into the market. Right now, Airbnb might be the best hook we have.
Casey Wright is the founder and CEO of Wright Brothers Inc., a Web development company dedicated to the residential real estate industry. You reach Casey on Twitter or LinkedIn.