Real estate predictions for 2029

Just gonna jump right into this:

Gen Z will have a harder time getting a house than the Millennials did.    They are the biggest generation ever.  They will be entering the real estate market at about the time Millennials are selling their starter homes.  Great news if you own a 1300 square foot house in Masterson.  Times will be tough for them, but they will keep the market going strong.  Every seller of a starter home needs a first time buyer so they can move up.  That first time buyer is the oil that lubricates the whole market.

The Millennials will be moving up to their 4 bedroom houses on a cul de sac in a good school district because that is just a natural progression once you start a family.  This is great news for Gen X sellers who will be downsizing to medium sized houses in upscale neighborhoods.

What makes me think all this?  It’s not really crystal ball as much as it is history.  Everything I just described happens with every generation.  You buy a smaller house you eventually outgrow, you move up at least once to the house you raise your family in, then you downsize.

So what does all this look like for Lexington?  More gentrification as it becomes expensive to live anywhere in Fayette County.  I know it sounds unheard of, but the neighborhoods that nobody wants to live in like Cardinal Valley and Winburn may become the budget choice as similar neighborhoods with better locations become too expensive.  I know it sounds crazy, but when I was in high school, people didn’t want to live in Kenwick and now those houses equal Chevy Chase for price per square foot……yesterday’s bad neighborhood can easily become a tomorrow’s good location.  Plus, it isn’t like we are ever going to see brand new starter homes ever again.  All that can be done is update/remodel existing houses.  The people that flip houses need some margin to do this so they will buy distressed houses in whatever neighborhoods are affordable, just like they are doing now in downtown, Melrose, The Meadows and all those streets that begin with D around Pasta Garage.

Before long, I don’t think there will be any new construction in Lexington.  We are already filling in every spot big enough to stick a short row of townhouses.   This means that being in Fayette County will be even more expensive, and people will go to surrounding towns like Nicholasville and Georgetown even more.  One day, people will discover that Winchester is only 15 minutes from Hamburg and the interstate passes right through it.  I’ve never understood why more people don’t move to Winchester?

Remodeling will be hot too.  With not much new construction, people will start remodeling existing houses more and more.

Sort of some majorly huge economic melt down, I think housing is going to be strong for quite some time.

 

How to pick your first rental house

The first thing to know is that you want an exit plan.  You want to buy something that will be fairly easy to sell when that time comes.  That is why I usually suggest a single family home in a decent neighborhood.  When you sell it, your buyer pool will be owner-occupant buyers who will happily pay a full retail price.

The second thing to know is that you pick your tenants through them picking your house.  You have a crappy worn out rental, guess what type of tenant is going to be willing to live there?  You make your house one of the nicest ones in it’s price range and you will attract the best qualified tenants out there.  Also, if you have one of the best houses they could ever afford, why would they move?

Here are some things that I think make a house a good pick:

1.  A ranch house.  Who doesn’t like one?  They are suitable for buyers/tenants in all stages of life.  They are easier to paint by yourself since there is no staircase.  You can clean out gutters with a step ladder.  They are just easier to work on period.

2.  A house on a slab.  When the wax ring around the toilet fails and when water gets splashed out of the tub, there is no wood to rot.  Also there is no water to collect under the house and grow mold.

3.  A smaller house.  Fewer people can live in a smaller house.  That means less wear and tear.  While a 2 bedroom house has a little more limited market when you sell, tenants usually don’t care if a house is 2 or 3 bedrooms.

4.  A simple roof line with not much of a pitch.   The fewer ridges and valleys the better.  Not only are they cheaper to replace, there are fewer places to get a leak.

Here are some things I try to avoid:

  1.  Basements.  They all have the potential to leak.
  2.  Sheds.  They are just one more thing to maintain and tenants usually leave you stuff they don’t want when they move out.
  3. Huge yards.  When they get out of control, it takes a lot of time to bring them back.
  4. Big garages.  I’m talking more than a regular two car garage.  Usually tenants who are attracted to a huge garage have a lot of stuff to store or hobbies that need the space.  Either one means you might need a dumpster when they move out.
  5. Fireplaces.  Do you really want somebody starting a fire in your house?

Now a lot of this is based on paying retail.  If you get a great deal on a house with a huge lot or a basement, take it.  A good deal can make up for potential future headaches.

My ideal house would be a smaller ranch on a slab built after 1960.  It would be 2-3 bedroom and have 1-2 baths.  A normal sized, flatter yard for good drainage.  On the lower end, no garage is okay.  If the house is worth more than about $150k, I would want a garage more for resale than to make a tenant happy.

 

 

LEXpert advice on buying rental property

I met with an old friend and former neighbor last night.  He is interested in buying rental property.  Thought some of what I told him might be a good post.

When I first meet with somebody wanting to buy rental property, I like to let them know what I think the pros and cons are of each type, so here we go:

1)  Commercial-Good return, a bit more volatile than others.  When you sell, your only market is another investor or a business owner.

2)  Multi-Family-Good return, a lot of work, and typically more turnover!  The only buyers for this property will be investors.  I have never seen an investor that was willing to pay top dollar.  Also, most investors only sell their properties when they have cash flowed them to death and they are in dire need of repairs/updates.

3)  Single Family Houses-Not a huge return, less turn over.  When you go to sell, you can market it to an investor or an owner occupant.  An investor wants a deal based on the numbers.  An owner occupant will pay retail.  I think this model is the best for most people.

Unless you find a super bargain, entry level single family homes are a better choice than more expensive ones.  The numbers just work out better.  If you ever need to part with one of these houses, you can sell it to a first time buyer in a good market, or somebody downsizing in a bad market.  There were a lot of people selling their bigger houses and buying smaller houses during the Great Recession.

My personal favorite is a simple, one story house on a slab.  One story because it makes it easier to repair or clean gutters and you don’t have windows up high.  A slab because you eliminate the risk of rotting wood and mold under a toilet or tub if there is a leak the tenant doesn’t tell you about.