Tuesday, February 4, 2014

Why the "Millennial Generation" will hate their parents? A life time of debt & no new home buyers

I was at the tail end of the Generation X cut off.  Almost straddling two generations.  So I like to think that I understand Millennial better than the older generations.  The millennial's are an extraordinary generation that is going to surpass the accomplishments of the greatest generation.  Not with Peace but with tech.  Already we are starting to see new techniques and ways of completing work that have not been seen since the turn of the century and the Industrial Revolution. Millennial's will choose to forgo work for work's sake and instead focus on what makes them happy. They will focus on what they feel will make them a person that will be productive in society and make a difference. 

As with all generations the term education was driven into our brains at a fairly early age. 50 years ago getting an education meant joining a community of students organizing to learn around a common idea. Philosophy would focus on philosophy and medicine would focus on medicine. Together professors and students would solved problems and create a better society.  Graduates would usually go back to the farm or family business and try to apply new found knowledge.  In today's society what we have is a system of college that only teaches us to learn and regurgitate data that is not of any use in the world. Millennial's are now graduating college and finding that they have no real purpose in life and that they lack the skills necessary to actually accomplish work. This wouldn't be such a problem except for the fact that they are now saddled with huge amounts of debt. Adding insult to injury; the reality is that you are now a college graduate but your degree is basically worthless piece of paper that you paid $100k + plus for.

How will this affect Real Estate and why will the millennial's eventually blame their parents?

Unfortunately it is just part of succession. As we get older we realize that our parents best intentions resulted in not the best choices. That's how we learn and make the next Generation better. Today many students are being pressured by parents to attend high-priced colleges to get an education in order to achieve a job. As the students go into the workforce they realize that the degree probably would not have made much of a difference in obtaining the position they seek. Why would you pay $150,000 for a student loan and degree when you could go to any trade school or a unknown low-cost college and get the same piece of paper. In the end you have just as much chance as another student has at getting an entry-level job. This is forcing thousands of out of work students to stop taking the advice of their parents and focus on what they love.

In time Millennials will figure it out and learn how to be productive.  They really have not choice.  The "Baby boomers" will soon be gone from the work force and "Gen X" just doesn't have the numbers but the simple fact of the matter is that student debt is not going away. A Millennial graduate with $100,000 or even $200,000 student loan will take an entire lifetime to pay off including interest. These are moneys that could be used to pay for income property or to buy first time homes. It is income that for decades will be lost paying interest expenses and not be used to buy real estate or big ticket items We may have an upcoming apocalypse where first-time homebuyers are not buying houses because they can't afford it and baby boomers are selling houses because they need money for retirement. For now it seems the compromise has been that the students will just move in with their parents until they figure out what to do next. Eventually it just gets old living at home with mom and dad.  Eventually baby boomers will be forced to sell and this will force millennial's to make a move. Even if baby boomers let their kids live with them forever, eventually millennial's will want to start families and they will start aging. What then? Millennial's will be forced to rent and baby boomers will be forced to sell. This will leave a huge gap for decades to come where we will be missing the much-needed trade up market. The trade up market where a first-time homebuyer sells his house and trades up for a larger one. 

How does this relate to Real Estate and how can we make money from this?

There will be opportunity for real estate Investors as we search for baby boomers that need to sell quickly for cash. Investors should create marketing campaigns that target baby boomers with houses that need repair or that need to raise capital quickly.   As we see that Millennial are forced to rent for decades, Multi Family unit housing will be a great Investment Vehicle that will provide steady cash flow.  Investors can create cash flow by rehabbing apartments and making Millennial friendly.  Landlords can take the market for Millennial looking for cool places to rent that are also affordable.

Happy Investing.