Why Young People Prefer Renting And How You Can Invest

Whether from a lack of affordable housing units nationwide, the fickleness of the market, or stagnating wages, young people often rent because it provides a safety net on both sides. Millennials and Gen Z especially seem determined to keep renting rather than purchasing a home. Affordability is certainly an obstacle for young people looking to break out on their own, but more people well below retirement age prefer renting to owning, citing greater freedom to move or to provide more financial flexibility. This also opens a valuable opportunity for investors, as the rental market dramatically increases yearly, providing stable growth for investment portfolios.

Owning a home was central to the American Dream for a long time. Yet, with each passing year, that becomes more of an accurate statement than initially intended: a dream. That does not negate the benefits that renters have identified for themselves. Owning a home comes with numerous unforeseen and paralyzing costs when starting independently. For one, renters do not have to contend with maintenance costs, as they are dealt with by the property manager or homeowner, not the renter. The flexibility of renting is a big plus for renters. Unlike mortgages with their traditional thirty-year-long commitments, rental contracts can last for as little as a month or as long as a year or more. If the cost of a current rental increases, it is possible not to renew a lease and seek out another rental. However, a mortgage can increase when the value of a home goes up without the ability to move from the home easily.

Comparable rental prices are increasing alongside the cost of purchasing a home, but renters are keenly aware of a critical difference. Purchasing a home requires more capital than most young people can afford to spare, let alone save. Despite a shortage of available units, comparing apartments and homes for rent makes it possible to find the price point that best meets their needs and budget. In contrast, purchasing a home depends on the housing market and interest rates, which can change wildly from year to year or even month to month. Comparing home prices from the height of the pandemic to 2024 put this into perspective for many young people when deciding to purchase a home or simply remain in a rental. When hidden costs come into the conversation, those who enjoy renting over purchasing feel secure in their choice.

The benefits far outweigh the cons in the minds of young renters who prefer to rent. From the freedom of movement and the ability to let the landlord or property manager deal with unexpected issues to finding the right place to fit their budget, renting is a golden parachute for younger generations.

Whether by participating in a REIT, a real estate investment fund, remote ownership, or crowdfunding, the housing rental market is a growing sector for retirement funds. Investors who dislike taking a firsthand approach to their investments find rentals to be a cash cow, which only requires a nominal amount of capital after the initial investment. The housing market fluctuates independently of the stock market, making it a relatively stable opportunity with growth potential. With each new generation choosing to rent instead of purchasing a home, that potential for growth increases year over year.