Is It A Good Time To Rent A Minneapolis Duplex? Or Buy?

Multi-ethnic GroupToday’s Wall Street Journal real estate blog post debated whether or not it’s a good time to sign a lease.

With higher vacancy rates due to unemployment, the article suggested rents will continue falling for the next few months. 

After all, landlords are offering incentives and slashed rents just to fill vacant units. Therefore, the article stated, it might be a good time to negotiate a better deal on a lease.

Of course, if you’re a prospective landlord, those words cause a sick feeling to start brewing in the pit of your stomach. Who would want to invest at a time when it will be so hard to fill vacant units?

As the article continued, however, there was a single line that nearly screamed out the fact that it is, in fact, a great time to buy.

It read, “Demographics favor landlords as the echo-boomers (the children of the baby boomers) will swell the ranks of apartment renters at a time when new supply is limited.”

Echo-boomers?

At a population of nearly 80 million, they are the largest generation since the 1960’s. In fact,  they represent nearly one-third of the entire U.S. population.

So?

Born between 1982 and 1995, this generation now ranges in age from 15 to 28. That’s usually a time in life when one rents; except, of course, when the economy is bad, they can’t find work and are forced to move back in with mom and dad.

And when the economy picks up?

Hey, would YOU want to live with your parents?

So why will they rent and not buy? According to the American Housing Survey (AHS), which is conducted in odd numbered years for the Department of Housing and Urban Development, the average age of a first time home buyer is 33.

Of course, the most recently published study was conducted in 2007; when unemployment rates were significantly lower.  Sadly,the demographic between ages 20 and 35 is also the group hit hardest by unemployment.

This will all change when the economy heats up. As more people go back to work, and the echo-boomers come of age, there will be more demand for rental units, pushing rents up.

Higher rents mean higher resale prices on duplexes and multi-family properties. In all likelihood, duplexes will once again sell for prices that prohibit them from cash flowing.

Which isn’t the case at all today.  Low real estate prices have caused many duplexes to actually offer double digit cash on cash returns.