Get ready: Gen Z is coming for the housing market
Soli Cayetano finally had some time on her hands. The soon-to-be college graduate was stuck at home in the spring of 2020 and coasting through Zoom classes. Normally her part-time job leasing out office space kept her busy, but those services weren't exactly in high demand at the time.
Cayetano, a self-described "hustler" who got her first job at 14, wasn't one to stay idle. So after doing a bit of research and dipping into her savings, she flew from her home in the San Francisco Bay Area to Cincinnati to check out her big pandemic purchase: a two-bedroom house for which she paid just under $100,000. She was 22.
Cayetano had no plans to move to Ohio. Instead, she did what many real-estate investors do: She touched up the property and threw it on the rental market. After the home sat vacant for a couple of months, she fired her property manager and found a tenant by listing the property on Zillow and paying an investor friend in the area to do showings. Almost three years later, she not only manages that first property from her home in California but has built a mini real-estate empire of 36 units.
While many aspects of Cayetano's foray into real-estate investing followed a well-worn path, her methods — and mindset — were decidedly of a new generation. She's a member of Gen Z, the cohort born between 1997 and 2012. Unlike millennials before them, Gen Zers have grown up during a boom in home prices. As the older members of the generation embark on careers, a growing number are turning to the world of real-estate investing as an escape from the shackles of a desk. With technology and know-how that previous generations could have only dreamed of at their age, these Gen Zers are eager to get in on the real-estate action, and they're poised to reshape the housing market as they claim their slice of the pie.
The new American dream
There's a lot we still don't know about Gen Z when it comes to the housing market, since a large chunk of the generation is just starting out on their own. But compared with millennials, who came of age in the shadow of the Great Recession and the housing bust, Gen Zers have been lucky: They largely managed to avoid economic calamity when the pandemic struck, thanks to government support and a strong job market. They also don't bear the same battle scars from the housing market's collapse in 2008, since the oldest among them were just 11 or 12 when the wave of foreclosures began. The pandemic, which threw a wrench in many Gen Zers' postgrad plans, has also nudged more members of the generation toward alternative investments like real estate.
That could help explain why Gen Zers have a rosier view of real-estate investing than their immediate predecessors. In a 2020 survey by Gen Z Planet, a research and advisory firm, 87% of Gen Z respondents said they wanted to own a home in the future, while just 63% of millennial respondents said the same. The survey suggested that 68% of Gen Zers viewed homeownership as a way to build wealth, compared with 60% of millennials. Another 2021 survey by online lender RocketMortgage found that 86% of Gen Z respondents want to buy a home, and 45% wanted to buy within the next 5 years.
"We learned a lot from that recession" in 2008, Cayetano told me. "One of the things we learned is that real-estate values bounce back and keep going up."
Gen Zers haven't had the chance to do much with that knowledge yet, mostly owing to their youth. But the ranks of Gen Z homeowners will almost certainly grow in the coming years as they scale corporate ladders and amass savings. Millennials accounted for about 43% of all home purchases in the US in 2021, according to the National Association of Realtors. Gen Z made up just 2% of homebuyers that year, though the NAR counted only members of the generation who were born in 1999 or later. A separate study by LendingTree, which looked at Gen Zers who were born in 1997 or later and who used LendingTree's platform, found that these Gen Zers accounted for an average of 10% of homebuyers in the 50 largest US metros in 2021, up from nearly 6% in 2020.
We learned a lot from that recession. One of the things we learned is that real-estate values bounce back and keep going up.
Gen Zers have numerous sources of information at their disposal as they look to get started in the business. Before she graduated from college, Cayetano began listening to real-estate podcasts, reading books, and combing through online investing forums like BiggerPockets. She posted about real estate on Instagram, where she quickly found a like-minded community happy to exchange tips. She managed to stash away $20,000 for a down payment by working jobs throughout school. When the time came to select a property, she wasn't bound by the limited options in her high-priced region of California — she looked to Cincinnati, confident that a combination of FaceTime, local connections, and online listings would allow her to select the right home without visiting it in person. Cayetano manages the home remotely using landlord software, another departure from previous generations of mom-and-pop landlords who typically lived near their properties.
Cayetano parlayed that initial purchase into partial or full ownership of 36 units in Ohio and Georgia, including a small apartment building, a couple of duplexes, and single-family homes. She and her business partners have financed most of their purchases by raising debt from individual investors and hard-money lenders. And she continues to document her investments on Instagram, where she has more than 100,000 followers, as well as her website, Lattes & Leases, where she offers courses for other investors to follow in her footsteps.
"I think there's a really big disconnect between my parents' generation, who worked at the same job for 40 years, and people my age that want to go wherever they want," she told me. "They prioritize things differently in life."
Cayetano said she isn't alone in her search for financial independence through real estate, and added that the people jumping into the housing market are getting younger and younger. "I'm old now!" Cayetano said with a laugh as she described the 18- and 20-year-old investors she meets online.
A seismic change is underway in real estate: Individual investors now have the ability to purchase and manage properties from thousands of miles away. In the wake of the Great Recession, private-equity firms began scooping up thousands of distressed single-family homes at dirt-cheap prices. They needed technology to efficiently manage all those properties scattered around the country. Now the companies behind these tools are making them available to smaller investors.
Companies like Mynd and Roofstock cater to large institutional investors and the smallest buyers, enabling both groups to buy homes remotely and manage them as rentals without ever even stepping through the front door. Investors in high-priced markets like San Francisco, New York, or Seattle are now able to pour their money into cheaper areas with fast-growing populations, like the Sun Belt region in the southern and western US.
All this new technology and information is fueling the real-estate-mogul dreams of ambitious Gen Z investors. Mynd's CEO and cofounder, Doug Brien, told me he's seen a growing number of young investors seize on the opportunity to diversify their investments by living in one area and owning real estate in another. Kurt Carlton, the president and cofounder of New Western, a marketplace for investors to find properties across the US to purchase and rehab, had a similar assessment.
"What we see with Gen Zers that are buying is they generally have a high income but they live in an area where home prices are very high," Carlton told me. Instead of looking locally, many younger investors can make their money go further by buying properties in cheaper locales.
Ryan Lehman, a 25-year-old software engineer in Seattle, bought his first home there in October 2020, shortly after graduating from college. He used savings from internships, earnings from years of trading stocks, and the signing bonus from his job to cover the 5% down payment on the five-bedroom house, which he purchased for $620,000. Lehman said he decided to "house hack," meaning he rents out rooms in the house to make the mortgage payments. He said it was initially a struggle to find tenants, but once he'd found steady roommates to cover his expenses, Lehman began looking for properties in areas where the cost of entry was lower. He eventually settled on Columbus, Ohio, where he recently worked with New Western to purchase a duplex for $260,000.
"If something goes south, maybe I'll lose some money on it. But I want to at least try to take the risk," Lehman said of his mindset at the beginning. "Honestly, it's just about a ton of research. The more research I do, the less stress I have."
For those less willing to take on that kind of risk, or without the money to do so, crowdfunding companies like Fundrise or Crowdstreet allow them to own a stake in a real-estate portfolio — and reap all the associated tax benefits — for as little as $10. A spokesperson for Fundrise said it had more than 225,000 Gen Z users signed up on its platform, about 13% of verified accounts.
"Every generation is getting more economically screwed in some ways," Ben Miller, Fundrise's CEO, told me. "But they have way more knowledge and information than previous generations — way, way, way more. That's got to count for something."
And yet the road to homeownership isn't that simple for many Gen Zers. Older members of the generation are more likely to have student debt than millennials did at their age, which could severely limit their housing options. And some members of Gen Z are already discouraged by their housing prospects. In a Freddie Mac survey conducted last year, about 34% of Gen Zers indicated they didn't think they'd ever be able to afford to buy a house of their own, up from 27% who said the same in 2019. Respondents described their biggest hurdles as saving up for a down payment, lacking a credit history, and having unstable jobs.
The boom in home prices due to the housing shortage has carved out sharp divisions between those already building equity through homeownership and those still hoping to make their first purchase. Gen Zers could see that gap widen if developers and politicians don't respond to the demand for housing. Jessica Lautz, a deputy chief economist at the National Association of Realtors, told me that Gen Zers, like millennials before them, are more likely to depend on financial help from family and friends when buying a house. That trend could compound the disparities among prospective buyers. "It becomes a housing economy of haves and have-nots," Lautz said.
'An incredible opportunity'
Months before she was set to graduate from college in Iowa, in the spring of 2020, Grace Gudenkauf secured a job as an engineer at an aerospace firm in Carlsbad, California. But the move never came to fruition. She remained in her hometown of Cedar Rapids, Iowa, where she lived with her parents and worked remotely during the first few months of the pandemic.
"I'm selfishly really excited for this time in the market"
Gudenkauf's well-paying job allowed her to save up money, and she spent the bleak winter months learning more about how to capitalize on the relatively cheap real estate in her area. She began buying houses — first one for herself, then others she fixed up and held on to as rentals. After about a year, Gudenkauf quit her job to focus on managing the properties and growing her portfolio, which has swelled to 20 units.
Without the pandemic, Gudenkauf told me, "I think I would have found real estate later in life, in my 30s, and then probably taken five to 10 years to quit my job." She added, "I think I would have gotten golden handcuffs very quickly."
Gudenkauf's parents are also small-time landlords, but their strategy is "completely different" from hers, she told me. Their goal is to "get a couple houses, pay them off as soon as possible, and that's your retirement," Gudenkauf said. "Mine is cash flow right now and that retirement."
For Gen Zers who've spent years watching their predecessors profit off the housing market, it's finally time to take a turn.
"I'm selfishly really excited for this time in the market," Cayetano told me. "Everything has been going crazy, it's been extremely competitive, people have been overpaying for properties. And now's the time where it's shifted to a buyer's market. There's an incredible opportunity to build wealth."
James Rodriguez is a senior reporter for Insider.
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