Boomers are seeking oppotunities in the rental market. What's the buzz all about?
The rental market is attracting a larger share of baby boomer investors, who have learned that their home is not as safe an investment as they once believed.
Real estate has played a historic role in wealth creation, but recent surveys of baby boomer investors show that attitudes towards real estate have shifted as a result of the prolonged housing crisis. More than 60 percent of investors with a net worth of $5 million to $25 million (excluding primary residence) said the recession has taught them that their primary residence is not a stable financial asset, according to a Millionaire Corner study released in March.
Though these affluent investors have seen their home values decline, they also see opportunities created by depressed property values and record low interest rates. More than 16 percent of these high net worth individuals have purchased property in reaction to the current economic environment, but they are most likely investing in commercial real estate, including the rental market. The vast majority (87 percent) of real estate agents and brokers surveyed in October by Coldwell Banker Real Estate said they have baby boomer clients who already own or are looking to own an investment property.
Investment property can appreciate, offering a hedge against inflation, and the rental market can yield income. Properly structured real estate investments can provide tax efficiencies. Like all investments, real estate investment also carries risk and needs to be carefully considered as part of an overall investment plan.
Nearly all investors with a net worth of $5 million or more own their home and more than half (54 percent) own second home, according to Millionaire Corner survey of 665 investors conducted in April. A significant share has invested in the rental market (44 percent) or raw land (30 percent). More than 25 percent own commercial property and more than 9 percent have invested in overseas property.
Investors with a net worth of $1 million to $5 million (not including primary residence) also have significant real estate holdings, but are not as heavily invested as their more affluent peers. Six percent of those surveyed for our March study say they have purchased more real estate in reaction to recent economic events. Most of these investors (99 percent) own their primary residence, while 39 percent own a second home, 27 percent are invested in the rental market, 19 percent own raw land, 13 percent own commercial property and 4 percent have invested in overseas property.
Affluent investors with less than $1 million also invest in real estate, but to a lesser extent than millionaires. Three percent of investors with a net worth of $100,000 to $1 million (not including primary residence) say they have purchased more real estate. About 96 percent of these investors own their home, 26 percent, a second home, and 22 percent, rental property. More than 15 percent own raw land, more than 10 percent own commercial property and 8 percent own property overseas.