For millennials, the vacation home is the new starting home
Owning a home is the American dream, but what exactly type of home does this old adage refer to? For many millennials, it’s not a personal residence, as most would assume.
These days, instead of buying a single-family home to live in, some younger consumers are turning to vacation homes — often ones they plan to use only part of the time and rent out the rest.
In fact, according to short-term rental platform Vacasa, millennials currently make up 40% of vacation home buyers, the largest share of any generation. In 2019, they represented only 31%.
Traditionally, these would be considered “second homes” – properties purchased years after purchase and settling into a primary home. Today, it is often the first real estate purchase that a consumer makes.
As Nicole Bachaud, Economist at Zillow, puts it, “Millennials and Gen Z are already ready to start realizing the benefits of homeownership…but many aren’t necessarily ready to be full-time homeowners.” for the moment. »
‘The best of both worlds’
It may seem like putting the cart before the horse, but for these buyers, it’s a strategic win-win arrangement: they earn extra income, accumulate wealth, and have a property they can escape to when it suits them. seems to them.
Skye McIntyre-Bolen, 35, is one of the millennials taking this approach to real estate. She and her husband, Mark Bolen, 34, live in an apartment in Asheville, North Carolina, but just weeks ago the couple closed on 1.5 acres of land on Daufuskie Island, in South Carolina. They plan to build a small house there to use as a short-term rental property and as an occasional getaway.
“We vacationed there and immediately felt it was a hidden gem,” says McIntyre-Bolen, founder of Skye’s the Limit PR agency. After returning home, the pair researched and pulled the trigger on the plot — in full cash, nonetheless — a few months later.
“After seeing that we could afford to pay a lot in cash, we knew we could replicate the rental we were in – another tiny house,” says McIntyre-Bolen. “We knew what we were paying per night and saw – through Airbnb how often the tiny house was booked. This prompted us to do some quick math and confirm our suspicions that we would see a payback in a few years. »
It will be a while before the Bolens get their little rental house up and running – all the builders they’ve spoken to expect a two-year turnaround – but they’ll be laying the groundwork in the meantime. They also plan to buy a primary residence in Asheville (or wherever Mark’s work takes them).
“This approach gives us the best of both worlds,” says McIntyre-Bolen. “We are able to continue to grow our savings for a down payment while creating an investment property that will help pay our rent and eventually our mortgage.”
High townhouse prices and remote work
But it’s not just rental income; there are other factors at play in this trend. For one thing, remote work is becoming more common among young Americans. According to a recent survey by youth marketing research firm Ypulse, more than half of millennials are still working from home, either entirely or – in the case of 21%, at least part of the time.
With this flexibility, many young buyers are looking for a change of scenery – a place to work when proximity to the office doesn’t matter.
One example is Kathryn Bain. The 35-year-old owner of design and brand agency Georgette Creative has purchased an A-frame cabin in upstate Wurtsboro, New York. With the ability to work from home full-time, she plans to split her time between the new location and the Brooklyn loft she’s rented for 10 years.
“I searched for the perfect home for a long time and even joked with friends that there’s not a road upstate that I haven’t driven looking for. one,” Bain says. “When I nearly gave up – the competitive COVID market didn’t help my search – I finally found my home. I arrived and made an offer an hour later.
Bain originally considered buying a house in New York, but soaring prices made that nearly impossible. Once she pivoted, she was only able to spend a third of what she planned on in the city – and got triple the space, according to her agent.
“Buying upstate and renting in the city is definitely more profitable,” says Bain. She also expects to save on her daily expenses, at least the days she spends at the cottage.
Bain’s financially savvy approach is a smart move in today’s hot market, especially for those in big cities, where prices have risen dramatically over the past year.
In New York, home prices are up 24% since November 2020. In Austin, Texas, they are up 33%. (To be fair, increased vacation home purchases may also push up home prices. In Wurtsboro, for example, home prices are up 12% from December 2020, and in some markets, new arrivals have created affordability issues for full-time residents.)
Yet for renters in those higher-cost markets – like Bain – buying vacation property in a less-demanded area is often a way to avoid sky-high prices while investing in real estate (and the wealth it brings). can help build over time).
According to Zillow, the typical millennial vacation home buyer spent $285,000 on their purchase last year, well below the national median price of $386,000. For Gen Z holiday shoppers, it was just $195,000.
“Young homebuyers are extremely financially savvy,” says Christian Wallace, Real Estate Services Manager at Better. “Staying in their rentals, but at the same time taking advantage of historically low interest rates to buy a home and start building equity seems like the best of both worlds.”
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