If you invest in real estate but haven’t looked into horizontal property regimes (HPRs) yet, opportunity is knocking! Retirement-focused wealth builders, like you, have a great chance to increase the value of their investment portfolios and self-directed IRAs (Individual Retirement Accounts) by taking a look at what the millennials are up to.
So what are the millennials doing? They’re buying houses! In fact, millennials (people born between 1980–98) are the largest generation of home buyers at 37%—compared to gen z, gen x, boomers, and the silent generation.(1) Also, we believe HPR real estate is becoming more and more of a popular housing choice among millennials because of how it gives them a chance to quickly build their own wealth.
Could that make HPR real estate worth your investment? You’re about to find out!
So how exactly can investing in millennials benefit them and your portfolio? Well, compared to other generations, millennials have more disposable income for spending and saving thanks to technology. Nearly half (48%) of all millennials (ages 23–38) are creating additional streams of revenue through a side job. Of those millennials, 84% say they’re earning that money using technology.(2) Their tech-driven side gigs might include social influence like Facebook and Instagram ads, shared-lodging services like Airbnb and VRBO (Vacation Rental By Owner), and online freelancing opportunities.
So when it comes to entering the housing market, millennials aren't just seeing real estate as a place to live—but as an investment opportunity. As millennials work their chosen career, many of them are choosing to rent space out to roommates as a way to produce additional income and build wealth.
HPR real estate properties—also known as “tall and skinny” homes—are popping up in rapid-growth areas like Nashville, and are especially popular among millennial home buyers.(3) A horizontal property regime is part of a residential zoning policy that permits two new houses to be built on land that used to only have one house. The reason for a zoning change like this is because there is a high demand for hotspots near downtown neighborhoods, but not enough homes to handle new arrivals.
HPR real estate made it possible to increase how many people can live in those popular areas by replacing one house with two. With HPRs, many more millennials get to live near the city, skip extensive yard maintenance, and have a great view of the skyline from their private rooftop balconies.
But that’s not the only reason millennials are buying HPR real estate. They are typically buying HPRs as part of a wealth-building, investment plan. For instance, HPRs tend to have 3 or 4 master bedrooms. So many millennials are living in one master room and renting out the other rooms to friends, usually.
For context, the typical new homeowner HPR house in the Nashville area costs around $350,000–$420,000 and includes features like 3 bedrooms, 2–3 bathrooms, 3 stories, and a cool private roof deck.
By renting out the other rooms, the HPR housing style makes it easier to manage having two roommates on the other floors. HPRs also offer a unique advantage of having private sections so that only the kitchen and living room are shared spaces with the other tenants. The income generated by the HPR homeowner takes care of the monthly mortgage payments. It could even spit out a bit more to recapture the initial down payment!
Let’s take a closer look with an example. Suppose an HPR house costs $350,000. A financially-savvy millennial wants to buy it. She has a 20% down payment of $70,000 and takes out a loan for the rest. If she took out a 30-year fixed-rate conventional loan at a 4.5% interest rate, her mortgage payment would be about $1,900 per month (including HOA dues)—probably even less depending on the tax bill.
Let’s say the HPR house features three bedrooms. Our millennial decides to live in one and rent out the other two rooms for $1,250 each. That means, she adds $2,500 to her regular income each month! That completely takes care of her mortgage payments, without her having to pay a dime. It even leaves an extra $600 each month for her to use toward maintenance and repairs—or to help recoup her initial down payment. No wonder why so many millennials are taking advantage of HPR housing!
Okay, we can see why millennials are going after HPRs. But why should real estate investors care about them? Since HPRs allow two houses to be built on a lot that originally held one house, investors can immediately benefit from the economies of scale, which are cost advantages that come from being able to increase production at a lower cost. In other words, by creating construction projects that have higher earning potential than before, HPRs allow investors to target higher profits.
If you’re ready to take advantage of a new investment opportunity, we can help. Get a free consultation with one of our investing professionals to learn more. We’ll walk you through everything you need to know about the latest real estate investment trends and help you decide if investing in HPR real estate is the right move for your portfolio. Keep in mind that HPR builds are also great real estate investments for self-directed IRAs.
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