Residential Real Estate Investing 2015

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Predicting trends is key to be successful in residential real estate investing. Once you know some methods for doing that, you can invest in areas that are likely to earn you a healthy return. The tips you'll learn here will help you add a safe (in the grand scheme of things) long-term wealth preservation tool to your portfolio.

Short-term vs. Long-term

There are two general types of residential real estate investing: short-term fixing and flipping and long-term buying and holding. The first method works better for people with limited capital. And channeling Johnny Carson's Carnac doesn't hurt, either. The second method works better if you have the capital. It can bring you passive income during retirement.

Here's some basics to keep in mind:

  • Buy where people are likely to buy
  • Buy in areas you know
  • Focus on areas with a healthy job market

Understand the Generations

Here's a way to help you predict what might be your best bet when investing in residential real estate. Understand age groupings and how they play into this. Here's a quick breakdown:

Baby Boomers — folks born between 1946 and 1964. People have criticized this group for being spenders, not savers. That could lead to a retirement train wreck unless the boomers change their habits. One area boomers have going for them is real estate. Many see their primary home's value increase. They then cash in and move to smaller towns with bigger opportunities.

Generation X — people born between 1965 and 1980. This group is an overlooked middle-child generation. It's sandwiched between the more striking boomers and millennials. Gen Xers have "suffered the steepest losses in household wealth," according to PewResearch. Many Gen Xers were victims of bad timing. They were the ones taking out mortgages just before the housing crash. This group worries about not having enough money during retirement. They also think they'll outlive their money.

The Millennials (Generation Y) — typically the children of boomers, born between 1981 and 1994. This is the first generation to grow up online. The millennials are a large group. They are about the same size or bigger than the baby boomer group. Millennials plan to buy a home, but they tend to put it off after first renting for a while.

Generation Z — the kids born between 1995 on. Most of this group is still living at home with Mom and Dad. But The Huffington Post reported that Gen Z kids plan to be homeowners someday. And this group knows its stats. Their estimates on what they will likely spend on a first home mirror the median price of a home today: $273,500.

The key for investors in 2015 who are boomers or Gen Xers is to focus on what the millennials are likely to do.

What Would a Millennial Do?

Millennials care less about popular brands than earlier generations did. This younger group trusts what their peers or like-minded people have to say though social media. The core real estate cities of San Francisco, Seattle, Boston and Manhattan don't really impress them too much. All those cities were beaten out for top choices in real estate for 2015 by less traditional choices.

People now favor Houston and Austin over San Francisco, according to Emerging Trends in Real Estate, a report authored by PricewaterhouseCoopers and Urban Land Institute. Charlotte, North Carolina, ranked higher than both Seattle and Boston. And people would rather live in Nashville now than in Manhattan. A wise investment decision is to watch these trends and invest in up-and-coming places instead of the old "brand names."

The 18-hour City

Millennials like cities with a vibrant downtown. They want to live within walking distance of where they eat, shop and work. Investors might want to think about buying in or close to areas called 18-hour cities. These places stay active with restaurants, entertainment and shopping beyond the traditional 9 to 5. But these cities are not the typical great 24-hour coastal cities.

Some 18-hour cities to keep an eye on, besides Houston, Austin, Charlotte and Nashville, are the following:

  • Charleston and Greenville, South Carolina
  • Raleigh-Durham and Charlotte, North Carolina
  • Denver, Colorado
  • Brooklyn, New York
  • Portland, Oregon
  • Atlanta, Georgia

It's best if you know the area in which you plan to invest. You ideally should live there yourself. That way, you understand which part of the city is most desirable. That type of distinction is best made from personal knowledge. A good real estate professional can advise you if you don't live in a good investment town and want to buy in one.

Consider Employment Rate

Places with low unemployment rates and good job potential are typically strong investment possibilities. The Bureau of Labor Statistics reported that the national unemployment rate for October 2014 was 5.5 percent. Bismarck, North Dakota, was way below that. It had a 2 percent unemployment rate. Minneapolis-St. Paul-Bloomington, Minnesota-Wisconsin received the lowest unemployment rate for a metro area. So this is another investment-worthy contender.

A Positive Outlook

There are great opportunities for you to get above-average rates of return through real estate. Once you have a plan, your odds of doing well for yourself increase.

Millennials are the biggest group for real estate investors to keep an eye on. Keep in mind that this group wants to buy a home. But many millennials have to first pay off hefty student loans. Many more are underemployed for the amount of schooling they have. Many millennials will be looking for houses to rent in desirable locations before they decide to buy.

And that should be music to a residential real estate investor's ears.

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