When you are planning your real estate investing exit strategy, investors should consider the Demographic Shift!
What is the Demographic Shift as it relates to developing a real estate investing exit strategy? Some facts about families – the sizes of families have been shrinking over the years. In fact, the numbers of households with no families (people living alone or without another family member, some still take on a roommate) have increased 5 fold in the past 50 years. From 7.9 million in 1960 to 39.2 million in 2010 (Source: Census Bureau). Meanwhile the number of actual households has increased dramatically from 45.1 million Households to 77.5 million households.
The number of households occupied by Non Family units is now more than 50%. With the smaller family sizes and the increased cost to maintain the actual dwelling, people are looking for smaller homes. People have and still like to have their fair share of space, in fact home sizes have increased over the years reflecting this desire for space.
However, with the shrinking household size and the increased cost of utilities and maintenance, the smaller homes are becoming more and more desirable. 3 bedroom homes and less are becoming more and more sought after. 3 bedroom homes of average size represent the sweet spot for today’s real estate investors. When purchased correctly, they can be sold to empty nesters sizing down or the first time home buyer (2nd largest home buying segment). Most importantly, you can use this exit strategy to reach the largest segment of home buyers – the single female. Yes, the single female alone makes up for 20 percent of all home purchases.
As these groups of people represent the buying audience, a diligent investor may consider this when they have tenants that fit the ideal buyer’s description. Many times the tenant can become your buyer when it is time for you to liquidate. I personally have sold about 22% of my rental properties to my tenants. You can create win win situations for you and for them by structuring a deal that benefits you both – and who does not like a win win? Cash Flow for you while they are your tenants, Capitol Growth for you when you sell to them. Low liquidation costs to you when you sell to them. The tenant can acquire the property with low acquisition costs when you the investor thinks win win and structures the sale to help cover their acquisition costs.
Let’s talk more about that in the next Blog – “Structuring of a tenant purchase”.
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