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Why downsizing helps the rental market

07/12/2016

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Here in Contra Costa, our real estate market is currently fueled by two things: technology and seniors. In many parts of the country, technology and senior-centric real estate is becoming more than a trend.

As a real estate broker, I have found that Generation X is more prone to rent a home right now than buy one. Most of this generation is working in the tech market, and they are mobile.

Baby boomers are looking to remain within a familiar area but with less responsibility as a homeowner; thus, more and more of this generation are selling off the family home. Rental properties are fueling these two very different scopes of real estate needs — in my market and across the country.

What exactly do I mean? Well, my senior clients who are downsizing the family home aren’t selling to Gen X. They’re selling to investors who know the demands of the area versus the job market and quality of life when deciding to rent a home rather than renting an apartment.

Investors know what Gen Xers want

With renting a one-bedroom property averaging $2,500, Gen X is looking for more privacy, more upgrades and more of a backyard for a smidgen over that price. This is where home rentals in Contra Costa and Walnut Creek are leading the market.

Right now, a three bedroom home with a yard — sometimes even a pool — is renting around the $4,000 mark. For a little more money, Gen X and Gen Y can reap all the rewards of living in a home without the responsibility of actually owning the home.

Privacy, location and space are important to this group of renters, and both property management companies and investors know this. They also know the cost of renting an apartment is sky-high in many metropolitan cities, which makes the appeal of more bang for one’s buck in the suburbs glitter even more.

Privacy, location and space are important to Gen X renters.

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I realize this might not be an across-the-board rule for every location, but certainly in the Bay Area and in many cities on the East Coast — this sentiment is ringing true.

For many senior couples, selling the family home during a downsize isn’t always the best answer. Seniors might be looking to for extra cash, or they might be motivated to move because the current home that they live in has stairs or hallways that are becoming challenging with changing health concerns.

I often find seniors downsize their homes not solely because of money concerns, but because a move is required to accommodate health conditions or to be closer to stores within walking distance if driving is no longer an option.

Baby boomers are helping satisfy Gen Xers’ needs

Seniors who are not looking to cash out their homes immediately can meet the needs of renters from younger generations who want more than an apartment but don’t want the commitment of homeownership.

With so much of the current 35 and under workforce looking to see if their career is on the right path, a two- to three-year lease for a home slightly above what it costs to rent an apartment is well within reason.

For seniors looking to rent a home that doesn’t have a mortgage to cover, the price that they can charge for rent will certainly have room to compete in any market when compared to apartment living.

Interestingly enough, it isn’t only seniors who are downsizing right now. The popularity of the tiny home movement is taking a bite out of homeownership.

There is a group of people who have solid jobs and who have roots in the community, but their focus is on being environmentally sound and living with less stuff.

In these cases, the owners typically sell their over-sized homes to investors so they can live on more money with fewer bills and less “stuff.”

Although this is fine, renting a smaller home might be a better option than going to extremes and moving into a 200-square-foot tiny home right away. Downsizing to keep cash flow alive is always a good idea, whether one is going to rent or buy.

Downsizing to keep cash flow alive is always a good idea, regardless of renting or buying.

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How this effects the big picture

How we think of homeownership is truly a matter of perspective in today’s market. Seniors have different needs than first-time homebuyers.

Some renters have the ability to buy homes, but they are looking to see where their careers truly take them; thus, they are buying later on in life and are preferably renting homes first.

Those in the middle are looking at their oversized homes and deciding to declutter and decommit to the responsibilities of traditional homeownership. And who benefits from all of this?

The professional and newbie investors, as well as the senior demographic, all know that property ownership and the rental business are never going to go out of fashion — it’s just the demographics that change.

Sam Benson, SRES, is a real estate broker in the greater Walnut Creek, California, area. You can follow him on Instagram and Facebook.

Email Sam Benson.

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