Talkin’ Bout My Generation

Millennials And Gen Zers Are Born Investors

By KATIE JENSEN, STAFF WRITER, MORTGAGE BANKER MAGAZINE

They’re tech savvy, pragmatic, progressive, and very attached to their smartphones, meaning they can gather vast amounts of information within seconds and stay up to date on the latest news. Millennials and Gen Zers are born investors, and it’s only a matter of time before they enter the real estate market.

Those pesky smartphones their parents told them to put away at the dinner table are now making some millennials and Gen Zers a fortune. They can more easily access the stock market and other investments than any previous generation. Almost 60% of Gen Z and millennial investors own cryptocurrency and/or stocks. In 2022, 40% of Gen Z and millennial investors held meme stocks. What makes these particular generations ripe to invest in real estate? Gen Z and millennial investors prioritize the potential for longterm gains when picking stocks and reaping the benefits of property assets is a long-term game.

RCN Capital Chief Financial Officer Justin Parker says he thinks one of the reasons why millennials and Gen Zers are interested in investing is because it’s such a prevalent topic on social media.

“There’s a lot of social media presence around a lot of very successful entrepreneurs that have built their wealth around real estate,” Parker says. “I think that has driven more interest because of the exposure kids get to that level of information that, historically, really wasn’t available.”

Although current price levels may have many cohorts of this generation feeling like homeownership is out of reach, the rapid increase in rents over the past two years is making them think twice.

“Gen Z is especially tuned into the idea that renting is ultimately a waste of money when compared to being able to build equity in your own property,” says Melanie Hanson, editor in chief of EDI Refinance.

Evidence shows millennials and Gen Zers love to invest their money, but at the same time, they’re noted for having the most financial anxiety compared to other generations. Looking at the major events that occurred through their lives, that actually makes sense. They have extraordinarily high levels of student debt, lower levels of wealth and personal income, and lived through the Great Recession. Some watched their parents lose their homes or their jobs because of it. At the end of the day, debt can be a friend or an enemy depending on how you use it. So when these kids go shopping for a mortgage, it’s safe to bet they’re going to have questions and they’re going to be careful about who they trust.

Truthfully, it’s tough for anyone to qualify for a mortgage right now, especially if they have poor credit, stu- dent debt, or don’t have the cash to afford a home. That’s why many have explored alternative ways to dip their feet in the real estate market, such as REITs, real estate mutual funds and companies with a real estate focus. A survey by GOBankingRates found that nearly one in four (24%) Gen Zers report being real estate investors.

RCN Capital has its fair share of Gen Zers and millennial clients.

“We see a tremendous amount of clients under the age of 30 and under 20 — call it younger, newer investors that have entered the marketplace,” Parker says. “They have their own different approaches to how they go about business.”

Bill Mervin, regional vice president of NJ Lenders Corp., has plenty of Gen Z and mil lennial clients and says the basis of his entire business is built on being a mortgage planner. As someone who began his real estate investing career at 21 years old, he’s the perfect authoritative figure to help young investors forge their path.

“We always frame it as a mortgage consultation, never just an application,” Mervin says. “We wanna usually sit down and spend a lot of time upfront building that trust.”

Listen To Teacher

Loan officers and brokers should be more than debt salespeople. Being somewhat of a financial advisor, educator, and working creatively to help the toughest of borrowers is what makes your business valuable. Otherwise, you’re a commodity.

“We’re not debt salespeople,” Mervin says. “When individuals think of you as transactional, they’re gonna kind of put you in a box, and then it only comes down to price.”

Hand-holding is absolutely necessary for younger, inexperienced investors.

“The biggest piece of advice that we give to each and every one of them is find people that you can partner with and trust,” Parker says. “That doesn’t necessarily mean go in on the deal with you, but what it means is find a lender that has a wealth of knowledge to where they can kind of guide you and talk you through those deals and what to expect and what not to expect and what to be on the lookout for.”

So when these kids come knocking on your door, be prepared for questions like “How does DSCR work?” or “Can I put down less than 20% on an investment property?” or “Is it okay to rent out my home on Airbnb?”

What young investors really want to know logistics, flexibilities, and functionalities they offer. This means knowing the ins and outs of all your products, including FHA, DSCR, Flip’n Fix, FHA 203(k), and whatever else is on the menu.

Typically, first-time investors and homebuyers will try to time the market for the “right time to buy,” but loan officers, brokers, and real estate agents know from experience that feeling is elusive.

“I was involved in real estate in Florida in 2004,” Mervin says. “A big major national builder bought a bunch of lots and stuff like that. And then six months later they’d marked them down 75% and I got swept up in that. At the end of the day, what I learned was these guys had all the money and all the smarts in the world to try to look at this stuff and they missed it.”

If Mervin had a client say this was a declining market or that now is not the time to buy, he’d likely tell them, “I just bought a duplex last week. I tell people I’m putting my money where my mouth is.”

Timing the market also isn’t necessary if the investor client plans on holding the property long term.

“Real estate, when stretched out over 5, 10, 15 years, there’s never been a period in history where that hasn’t produced tremendous returns,” Mervin says. “That’s why I’m not a real estate flipper. I mean, I’ve done like one of them in my lifetime, but I want to buy and hold everything that I can get my hands on.”

Market Outlook

Buying while rates are still high may be a good strategy, because it allows investors to get in before rates drop and the buying frenzy begins. Mortgage rates can be refinanced, but the price of the home is

So what are the best strategies and products for young investors looking to get into the market right

House hacking with an FHA loan is a great strategy for those young real estate investors who don’t have a lot of capital. They’ll use an FHA loan to buy a multi-family property and put down only 3.5% to 5%, depending on their credit scores.

“This is particularly good for the folks that don’t have children yet, and want to buy this as a way to start a real estate portfolio,” Mervin says. “They might also need a home to live in. Then one or two years down the road, they move out of that duplex or triplex and turn it into a full-on investment property.”

However, if a client doesn’t need a primary residence, the single-family rental market is probably their best bet. These small starter homes are manageable in terms of maintenance, and the investor and/or landlord only needs to find one tenant.

“I think a single family rental is a great way to dip your feet in the water,” Parker says. “If you find a rent-ready stabilized property where you just have to put a tenant in there that generates income to cover your mortgage payment, that’s pretty hands off.”

Another popular product for first-time investors are single-family fix-and-flip businesses, Parker says. They’ll need to find a home that is a little run down or distressed, get a decent price on it, and then throw a fresh coat of paint and do a light rehab. Later, they can sell it or refinance it into a rental loan.

There’s plenty of options to make real estate investing more affordable for young investors. Loan officers and real estate agents are the ones who can help these borrowers beat institutional investors that are pushing more and more people out of the market.

“You’re gonna have to execute violently and quickly when you see in this market,” Mervin says. “The key to being able to do that is to have all the information, to have all of your ducks in a row, and to have that planning done upfront so that when something checks those boxes, you can move on it quickly.”

It’s time to let your skills shine. Find resources for breaking through barriers like degree screens and stereotypes. It’s time to tear the paper ceiling limiting STARs: workers Skilled Through Alternative Routes rather than a bachelor’s degree.

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