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Baby Boomers and Real Estate
Baby boomers own the most real estate of any age group and have a higher rate of home ownership than the national average, according to a study conducted by the National Association of Realtors by Harris Interactive. One out of four own more than one property--either a second home or an investment property.
David Lereah, the NAR's chief economist, observes: "As a group, boomers are in their peak earning years and continue to wield great influence in the U. S. economy but they are not homogeneous--there are significant variances in needs, behavior, attitudes and resources. On one hand is an almost insatiable desire for real estate, with some owning multiple properties, and on the other, many have not adequately planned for retirement. What should not be overlooked are the discretionary spending interests of this generation, and their appreciation of housing as a great investment."
Nearly eight in ten boomers own their own homes, and nine out of ten owned a home at some point in their lives. 96 per cent believe owning a home is a good financial investment. For the portion of baby boomers who never owned a home, 85 per cent cited financial reasons, but 38 per cent simply didn't want the responsibility of home ownership.
The NAR studied revealed that a quarter of the respondents own one or more other kinds of real estate in addition to a primary residence" 13 per cent own land, 8 per cent own rental property, 7 per cent a vacation home or seasonally occupied property, 2 per cent commercial real estate and 3 per cent some other kind of real estate.
For the segment of boomers who own rental investment property, 34 percent own multiple properties: 14 percent own two rentals, 5 percent own three and a small number own four properties; however, 14 percent own five or more rental units.
Of the portion who own vacation homes or seasonally occupied property, 13 percent said they own two or more vacation or seasonal homes.
Four out often respondents who own a vacation home or seasonal property intend to eventually make that property a primary residence. Historically, other NAR survey data shows only one in five vacation-home buyers had such intentions when they first purchased the property.
Lereah said this has emerged as an investment strategy. "Some boomers will take advantage of generous capital gains exclusions from their taxes when they sell their primary residence, and then place themselves in the position of being able to convert a vacation home into their new primary residence which would later become eligible for the same tax treatment," he said. "Then, if their needs change in the future, they'll be able to take the capital gains tax break after they have lived in that home as their primary residence for two out the five previous years. It becomes a great way to build and protect a nest egg."
In the NAR's 2006 Profile of Second-Home Owners, the study found that the typical vacation home owner is 59 who makes about $120,600, while the median age of investment property owners is 55 who makes $98,600.
Ten percent of all boomers said they are likely to buy additional real estate in the next 12 months; two-thirds of those respondents said they were considering a primary residence but 26 percent were interested in land, 19 percent rental property, 15 percent a vacation or seasonal home and 14 commercial property.
Typical boomers have lived in their present home for a median of nine years, and plan to stay there for another five years. Two-thirds think it's important to payoff a mortgage quickly, but at the same time 58 percent are comfortable in purchasing with a small down payment.
In deciding whether to buy a primary residence in the future, nearly half of the respondents that were considering a purchase said having sufficient wealth or favorable mortgage financing were factors.
In terms of their current financial condition, 43 percent say they are financially comfortable but 37 percent say they have just enough to make ends meet. Only 4 percent said they were well-off, and 17 percent said they are having financial difficulty. "That clouds the retirement options for many baby boomers," Stevens said.
Nearly two-thirds say it costs too much today to truly retire and never work again and four out of ten expect they will pay for at least some college expenses or grandchildren; 38 percent said current financial needs mean they give little attention to financial planning for retirement. One in to baby boomer is already retired, while others plan to work sometimes and have leisure time off.
Interestingly, three out of five say their idea of the perfect location to retire is in a rural area or small town, with only 12 percent saying an urban or city setting, and nearly half would consider living in an age-restricted community; 38 percent want to be close to family. If money were no object, access to quality health care is important to more boomers than being on a golf course (38 percent vs. 4 percent). Ideally, they would like to live in a rural area with access to quality health care.
The Pros and Cons of Being a Real Estate Investor
Owning and managing real estate combines working to earn an income with the management of your investible assets
Pros:
Way to be actively involved in your investments
Better than stock market returns over time
Tax benefits
Cons:
Lack of liquidity
Need for leverage
7x24 property management
Tie to local economy and geography
Need for negotiation skills
How to Learn More About Real Estate Investing
Books
Courses - community college
Get a real estate license
Buy a small property Find a partner
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