It’s no secret that the housing market in Washington, and in the Greater Seattle area to be specific, is one of the hottest markets in the country. With inventory in November dropping to 1.58 months and pending sales on the rise, supply looks to remain low for the foreseeable future. But does that mean real estate investing isn’t a savvy means of storing your money? No, not at all — it means adjusting your strategy to a buy and hold real estate investment strategy. Let’s take a look at some of the data that suggests the need for a strategy pivot.
According to a recent article by AXIOS, with data from the US Census Bureau, fewer than 10% of Americans moved to a new place last year. That’s the lowest rate in the past 70 years.
By the numbers: The share of Americans who moved in the past year is about half of the number in the 1950s, when about one-fifth of the population moved each year. That number is now 9.8%, the first time it’s dipped below 10%.
- Only 20% of people aged 20-24 moved this past year, down from 29% in the 2005-06 year.
- Of those in their late 60’s, only 4% moved in the past year.
- 19.7% of renter households (who tend to be more mobile than homeowners) moved, down from 30.2% in 2005-06.
According to William Frey of the Brookings Institution, this has been a long-term trend dating back to the 50’s. The population got older and simply didn’t move, and since the Recession, millenials are adopting the same approach to housing. In addition to the lack of desire for mobility, job availability is beginning to cluster into dense areas, a departure from the past when job availability was far more geographically spread out. Regions are becoming densely populated, and housing prices are being driven upward.
So, back to the question at hand: should you be concerned about investing in real estate? Absolutely not. The opportunities for large margins on quick flips are harder and harder to come by, and that trend is likely to continue, but the opportunities for real estate development are still there. A form of real estate investing that generates safe, ongoing income is the buy and hold model.
Flipping houses is obviously attractive for its possibility of large margins, but those margins come at a risk. Building a buy and hold portfolio of properties providing a regular stream of rental income mitigates nearly all of the risk involved with flipping houses. As evidence that earning rental income from a buy and hold real estate strategy should be considered, the same AXIOS article noted that individuals who were renting their homes are also now less likely to move. This could be due to increasing home prices in addition to the clustering of job opportunities, but whatever the cause, rental income from buy and hold properties should start working its way into your real estate investing strategy if it hasn’t already.
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