Real Estate News & Commentary

This Massive Demographic Will Become Hungry for Rentals Within 5 Years

Expertise: Personal Finance, Personal Development
32 Articles Written

As a multifamily buy and hold investor, for years now I have heard endless talk of how Millennials are the renter demographic. They don't want or can't afford to buy their home, and we as rental owners should be targeting this demographic and appealing to their preferences. This may be true, but behind all this hype of the Millennial generation creeps this massive wave of rental demand from what has been the largest demographic for the past 50 years.

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The Baby Boomers have been a background thought when it comes to renter demographics. As an active buyer, I believe this has left an opportunity in the market that other buyers are missing. As real estate markets around the country continue to climb and competition when buying increases with them, I have been looking for a way to break away from the herd and find an opportunity that the masses are not chasing.

What Do We Know About Baby Boomers?

It is my belief that over the next 1-5 years, Baby Boomers will be substantially underserved in their demand for rentals, specifically affordable market rate rentals that cater to senior living preferences. To clarify, this does not mean 55+ zoned communities, but rather market rate rentals that simply have characteristics that a senior would desire. In this article, I will back up that statement with real data and common sense to piece together these not-so-complex ideas that expose the opportunity that seems to be cloaked by the Millennial renter craze.

Lets start from the beginning.

  • Baby Boomers, according to the U.S. Census Bureau, are the demographic group born during the post-World War II baby boom, approximately between the years 1946 and 1964. This includes people between 53 and 71 years old in 2017. Over this period, over 76 million babies were born in the United States, and factoring in immigration, the current estimates of the Baby Boomer demographic are close to 80 million people.
  • In 2017, the median age of a Baby Boomer is 62 years old. In the United States, 62 years old is the first year individuals can retire and begin to receive social security benefits. Many Baby Boomers have lived their whole adult life aiming to retire between the ages of 62 and 66 using their social security benefits to support them in their remaining retired years. In fact, the math tells us that over 12,000 Boomers will be retiring every day for the next several years. [(80,000,000 Boomers/18-year age span)/365 days per year = 12,176 retired Boomers per day.] Of course, some of that figure will not retire, and some will die, but the point is not to be exact but rather to show that there is going to be a massive wave of retirees in the United States in the next 1-5 years.
  • Unfortunately, of those tens of thousands of retires per day, only a small percentage are actually financially ready to retire. Research by the Insured Retirement Institute shows us the likely financial strain for retiring Baby Boomers. According to the study, 24% of baby-boomers have no retirement savings—the lowest number since the study started in 2011. Only 55% of Baby Boomers have some retirement savings, and of those, 42% have less than $100,000. Thus, approximately half of retirees are living off of their social security benefits.

When I read that half of all retirees were going to be living off social security, my next question was, “How much is the average social security payment?” According to the Social Security Administration, in January 2017, the average payment is approximately $1,317.

So there is a wave of 80 million Baby Boomers that is cresting in 2017 and that will begin its peak retirement at staggering pace in the tens of thousands per day. But 74% of them are not financially ready to retire. Why? There is not a hard and fast answer to this question, but I believe it is a multitude of things. The 2008/2009 crash spooked many Boomers and had them selling stocks at the bottom of the market, resulting in them missing the resurgence of the market in the following 8 years. It could be that wages have been stagnant for 10 years; it could be that true inflation has been eating away at their savings and boosting their cost of living. Or maybe it's just that the savers had such terrible interest rates to save in for the past 10 years. Maybe it's all of these things combined. Maybe it was just mismanagement. It was probably a little bit of everything. Why it happened is less important than what needs to happen moving forward.

Related: How to Kick Your Business Up A Notch by Tapping Into “Baby Boomer Niche”

What Freddie Mac’s Survey of the 55+ Population Reveals

What will happen moving forward with the Baby Boomers? Well, fortunately, in July of 2016, Freddie Mac noticed the things I have mentioned above and conducted their first ever Freddie Mac 55+ survey of housing plans and perceptions to help answer that question.

Here are some key findings from that survey.

They plan to rent versus buy their next home.

Among those 55+ renters who plan to move again, 71 percent of respondents plan to rent their next home. For many, this may be a renter-by-choice decision, as 38 percent say they have enough extra money to go beyond each payday including for savings. Further, more than half (59 percent) think it makes financial sense for people their age to be renters. This view is held by 67 percent of multifamily renters.

Their top attractions are affordability and amenities.

Among the top “very important” factors influencing their next move, respondents picked affordability (60 percent), amenities needed for retirement (47 percent), living in a community where they are no longer responsible for caring for the property (44 percent), and being in a walkable community (43 percent).

They don’t want to move far.

Among those who plan to move again, 55+ renters would like to relocate to a different neighborhood in the same city (31 percent) or a different property in the same neighborhood (23 percent) compared to those who would like to move to a different city in the same state (18 percent) or move to a different state (24 percent).

As real estate investors chase the Millennials and cater to their lifestyle and renting desires, they are missing the opportunity to serve the massively underserved demand of the Baby Boomer generation.

The question is how does all this data translate into applicable real estate investing? This is where the common sense approach comes in. It’s pretty clear what this is showing us. There is and will continue to be a staggering amount of Baby Boomers entering in the renter market, and if you can meet their needs, demand will be so great that the probability for investment success will increase significantly. I believe those needs are catering to the senior lifestyle, while also remaining highly affordable, in areas that Baby Boomers already live. For our company, this means we look to purchase apartment communities with no steps, small unit floor plans, larger property footprints with more landscaping, and nearby grocery stores and medical offices.

Related: The 4 Social Networks You Need to Connect With Millennial Buyers & Renters

The trick is balancing these senior needs while also investing in a market where there is also growth in jobs and population. It is great if you can fill the needs of all the Baby Boomers for the next 10-20 years, but what happens when that ends? If you can satisfy the undeniable demand Baby Boomers have for the next 10-20 years, you will have one of the most predictably consistent renter demographics on the market. Do that in a market that also shows the fundamentals to maintain or grow past the Baby Boomer generation, and you are in line to make a terrific investment.

There is no doubt the Millennial generation is one to be watched closely, but the point of this article is to note that there is another massive trend in renter demand happening that is getting only a fraction of the attention it deserves. I would also argue that the Millennial generation is far more unpredictable than the Baby Boomers. We don’t know how they will behave. If we have one, two, or maybe three more years of strong economic growth and the Millennials begin to feel secure and have paid off some of their student loans, they may just decide renting isn’t for them anymore and decide it’s time to buy. I have no idea where that demographic is going to be in 5-10 years, but the Baby Boomers are more predictable—and when you are a long term buy and hold cash flow investor like us, predictability is very valuable.

[Editor’s Note: We are republishing this article to help out our newer readers.]

Does your real estate business cater to the Baby Boomer demographic? Why or why not?

Let me know your thoughts on renter trends below!

Jered Sturm is the co-founder of SNS Capital Group LLC. Starting in the industry 15 years ago as a maintenance technician for residential rental properties, Jered built on that experience to start a construction company that over a decade ago led him to begin purchasing investment property. Since his humble beginnings in the industry, Jered has quickly scaled his investments and now focuses on purchasing large apartment communities in the Cincinnati, Ohio market. While Jered's company has grown to own and manage over $30M in assets, they still focus on the core competency of buying, renovating, and maintaining investment rental property. Jered has been a featured guest on the BiggerPockets Podcast twice and has been contributing to the BiggerPockets blog since 2015. He looks forward to continuing to help others gain financial independence by sharing his experiences.
    Michael Waddington Real Estate Investor
    Replied about 3 years ago
    Enjoyed the article and agree with the findings! You know…NOT all of us Baby Boomers were blind at the need to prepare for older years and retirement! Being 65 and divorced at 41 years took a long time to right the ship after that! THEN….at 57 in 2008-9, lost close to ALL assets in personal/business Bankruptcy as a small RE construction builder! We hear endless talk about Collusion on the political front…BUT the REAL COLLUSION was the Federal Government and the Wall Street Banks! They were the ones that destroyed us and ruined my intended retirement! I will endure to finish strong but just know that NOT all of us approached later years without a Plan in place!
    Kevin Polite Flipper/Rehabber from Decatur Atlanta, GA
    Replied about 3 years ago
    Jared, great article. One thing to add is Universal design for the housing. Things like lever hardware, no ledge showers and wider doors are all design elements that appeal to all ages and are design forward.
    Rachel Speal from Long Beach, New York
    Replied about 3 years ago
    Jared, perhaps you can clarify for me, but the survey you linked to says 72% of those surveyed plan on owning a home, not renting. Only 27% plan on renting.
    H Julian from La Mesa, California
    Replied over 2 years ago
    Interesting article! During a recent document signing in San Diego area, our Notary told us that unfortunately, the majority of the signings she does as a Notary is for Reverse Mortgages. Of the retirees who own their own home and have adequate equity in it, this would allow for no more mortgage payments…just maintenance, property taxes and insurance….at least in our southern California area, this would allow for less monthly expenditure than renting. I know…Rich Dad portrays owning a primary residence as a negative thing, saying it is not an asset. That may be true to validate his point of the book, but look at the benefits provided to those who are able to stay in their own homes and perhaps even take cash out via a reverse mortgage. Of course, the numbers will work differently in various locations. It makes sense to me that many who own their own homes will opt to continue to live in their own homes or downsize into a smaller home that they still own, and/or move to a less expensive part of the country to own. It also makes sense to me that if one has rented for most of his/her life, renting will continue to be the case in most cases. BTW, I am not advocating reverse mortgage (I hope I never have to do that), but it would sure beat having to live in a small box.
    Jesse Hargrove Investor from Charlestown, New Hampshire
    Replied over 2 years ago
    Best article I have read in a while. I agree with your points. I am a baby boomer myself and dont plan on doing yard work or shoveling snow in my retirement. Keep up the good work. Jess
    LaStarr Heiliger
    Replied over 2 years ago
    Interesting approach to a niche market. However, living in an area where there are many senior renters ( middle income/ blue collar) there are some factors not addressed. If a senior moves in at retirement,67-70, they will probably maintain a home. However, as time, pfysical, mental issues raise their ugly heads there will be the increased maintance calls for middle to minor items. This will be more prevalent for single woman, who don’t have a husband to do the repairs, or can’t afford a handyman. Many times the mess left by seniors is far worse than younger inconsiderate renters. and many times, the kids aren’t helping, or are too far away to know. Someone else mentioned the unexpected expenses that would affect the ability to pay rent, not just for a month, but for many months, as the unexpected is far more expensive for seniors. I am not sure it is the “silver” lode, we might want to think it is.
    John Sharpe from Crestline, California
    Replied over 2 years ago
    The simplest step to take to be ready for this wave is invest in properties that don’t have stairs (if a SFR at least have one bedroom and bathroom on the ground floor). Being a pet-friendly landlord is also a big help.
    Moriah Lee Real Estate Agent from Nashville, Tennessee
    Replied over 2 years ago
    Hey All- such an informative post- thanks! Does anyone know of the gov’t subsidy process for rentals? Ex: If you were to build an assisted living type of rental property meeting the above criteria, do subsidies exist for renters? What do landlords/RE investors need to a) do to qualify, and b) know about these subsidies? Thanks BP Family!