Retirement Portfolio: Why Gen Z Is Using Real Estate More Than Other Generations
Although Gen Z has a long time before they reach the traditional retirement age, many are already saving for the future. A recent GOBankingRates survey found that, among Gen Z adults, 76% have started saving for retirement.
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The survey also shed light on where Gen Z is putting their money for the long term, and it turns out that nearly a third (31%) have real estate as part of their retirement portfolio — that’s more than millennials (20% of younger millennials and 16% of older millennials), Gen X (21%) and boomers (29%). Here’s a look at how and why this young generation is betting on real estate to carry them into a financially healthy retirement.
How Gen Z Is Investing in Real Estate
There are several ways for Gen Z to dip their toes into real estate investments, the first of which is the traditional way: buying property.
“There are programs and grants that can make homeownership more affordable to those who have a strong desire to buy,” said Christian Mills, head of financial advisor relations at Reverse Mortgage Funding.
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Others may choose to invest in real estate investment trusts (REITs), which are a good option for those who don’t yet have enough saved to buy a whole property on their own.
“With the rise of wealth tech platforms with accessible buy-in structures, there are more opportunities than ever to enter the market,” said Sachin Jhangiani, a former investment banker and co-founder of Elevate.Money. “Investing in a private REIT is a great option for those who may not have the available funds to purchase a property of their own yet but are ready to be invested in the market and start earning passive income.”
Yet another option for Gen Z are real estate-focused exchange-traded funds.
“Real estate-focused ETFs allow younger investors to maintain their relative liquidity,” said Andre Jean-Pierre, managing director at Aces Advisors Wealth Management.
The younger generation also can invest in real estate through crowdfunding, which often has a low barrier to entry.
“There’s crowdfunding now for commercial and residential [real estate] where for just $100 or even $50, you can start to invest,” said real estate investment expert Robert Shemin.
While these can be a good way to get started with real estate investing, Shemin said, “make sure you understand the deals, what they do and their rules.”
What Gen Z Should Look For in an Investment Property
For those Gen Z-ers going the traditional route of buying a real estate property, there are several factors they should take into account to determine whether it’s a good investment.
Reverse Mortgage Funding’s Mills said young investors should ask themselves the following questions before buying a property:
- How will the location evolve over the next 30 years?
- How has real estate value changed in this area over time?
- How do I want to use this property?
- What are my profit opportunities with this property?
- What is the expected appreciation rate versus the interest rate of the loan?
“Take a long-term view of how the area is expected to grow over your investment period and keep an eye out for potential developments that might diminish your property’s value,” Mills said. “Look for steady growth and observe any other trends that might be of concern.
“Think about how you might best utilize the property and how that might evolve over time. Consider different scenarios, including buying and using the property yourself, renting or leasing it, selling it in the short term and selling it in the long term. Think about how building equity in the property might best serve your long-term financial and retirement lifestyle goals as well.”
Why Real Estate Is a Smart Investment for Gen Z
Experts agree that the 31% of Gen Z who are investing in real estate are on the right track.
“If there’s one thing we know, real estate is a tried-and-true way to build long-term, generational wealth,” said Elevate.Money’s Jhangiani. “Real estate investment opportunities may be one way to start closing the retirement gap for young people. We’re seeing clear signs that the younger generations need to start diversifying their assets earlier and creatively to offset their lack of investments to make up for what their parents and grandparents were able to acquire.”
As a general rule, real estate tends to go up in value over time, so those with a long time horizon ahead of them can benefit from investing in this asset early.
“Investing in real estate is typically considered to be a stable investment opportunity with year-over-year returns, and is often viewed as a good hedge against inflation,” said Todd Parriott, founder and CEO of Connect Invest, an online platform that provides alternative real estate investment opportunities.
Methodology: GOBankingRates surveyed 997 Americans ages 18 and older from across the country between Aug. 9 and Aug. 11, 2022, asking 16 questions: (1) How much money do you currently have saved for retirement?; (2) How much money do you think you’ll need to retire?; (3) Realistically, at what age do you want to be retired?; (4) At what age did you start saving for retirement?; (5) What worries you financially about retirement? (Select all that apply.); (6) Do you plan to work in retirement?; (7) What assets do you have in your retirement portfolio? (Select all that apply.); (8) How has the current inflation impacted your retirement plans?; (9) How much of your retirement do you plan to fund with Social Security?; (10) How do you feel about the future of Social Security when you retire?; (11) What percentage of your salary are you currently investing for retirement?; (12) Are you planning to move after your retirement?; (13) Where is your ideal place to retire?; (14) What government programs do you plan to use for your retirement? (Select all that apply.); (15) Do you have a pension plan?; and (16) How much do you think the average American has saved at the time they retire? GOBankingRates used PureSpectrum’s survey platform to conduct the poll.
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