Younger Buyers See Home Sharing, Renting as an Income Source

Young home buyers have a lot in common with older generations when it comes to enthusiasm for air conditioning and spare bedrooms, but they part ways when it comes to generating rental income from their homes.

A surprising share of buyers under age 40 are keen on the idea of renting out their homes, or at least space in them, for future rental income — or to help pay the mortgage.

Nearly half (48%) of Gen Z buyers and 40% of millennial buyers who purchased a home in the past year say the opportunity to rent out the entire home for future rental income is very or extremely important to them, according to the Zillow Group Consumer Housing Trends Report 2019.

A significant share of Gen Z, ages 18-24, and millennials, ages 25-39, also say they want the opportunity to rent part of their home while they live in it: 42% of Gen Z and 35% of millennials say the ability to do that is very or extremely important to them. 

That’s about the same level of importance these younger buyers place on hot tubs/pools and smart-home capabilities such as remotely controlled lighting, heating and electronic devices.

Interest in rental potential declines with age

Gen X buyers, who are more likely to live in the suburbs with children, seem rent-curious: 29% of those buyers, ages 40-54, say the potential to rent their entire home in the future is very or extremely important to them, while 25% place the same importance on being able to rent part of their home while still living there.

Older buyers, however, seem to have little interest in rental income. 

Only about 8% of baby boomers, ages 55-74, and 5% of silent generation buyers, age 75 and up say the ability to rent out their home now or in the future is very or extremely important to them.

There is some evidence, however, that older adults are warming to the idea of shared living. The Joint Center for Housing Studies at Harvard University reports that “the number and share of older adults living with unrelated roommates is small, but grew dramatically between 2006 and 2016.” The center cited growth in the aging population as one reason. It also cited a desire among older adults to share the costs and burdens of maintaining a home.

Younger buyers more accustomed to the sharing economy, roommates

The generational divide is likely to due to several factors:

• The obvious one is money. Older buyers tend to have higher incomes and equity from a previous home that allow them to cover the mortgage without outside help. Younger buyers, who gravitate to urban areas where homes are more expensive, tend to stretch more and make more sacrifices to afford their homes. An extra income stream could help ease financial pressure, pay for vacations or build savings.
• The sharing economy — where people maximize assets such as cars and homes by renting them out — also is a likely contributor to the rent-friendly attitudes of the  youngest buyers. For millennials especially, the sharing economy is the norm. The experience of staying in someone else’s home through a home-sharing app likely shortens the leap to hosting once they get their own home.
• As the generation newest to adulting, Gen Z is more likely to have recently shared the rent with a roommate, or perhaps paid rent to someone near their age who is a homeowner. According to the Zillow Group consumer report, Gen Z is more likely to say a roommate helps pay the rent (11% of Gen Z renters compared with 4% of Gen X). 

The interest in rental income tracks with findings from the Zillow Group Consumer Housing Trends Report, which found that 64% of homeowners are more likely to view their home as a financial investment than a reflection of their identity.

Given the rapid appreciation of home values in the past decade, the rising price of homes in urban areas where younger buyers tend to gravitate and transparency around home equity, it’s hardly surprising that most homeowners have come to see their homes primarily in financial terms.

Takeaways:

• Given the fairly significant interest in rental income among young buyers, be sure to ask if they’re thinking about the home’s potential as a rental either now or in the future. Talk about what that might look like for them in practical and financial terms.
• Once you have an idea of how a buyer would like to share space with a roommate or short-term guest, evaluate potential homes based on privacy, such as en suite bathrooms, separate entrances or space that can be easily separated from the main living areas.
• Develop a working knowledge of the rental market in your area. The Zillow Rent Index can provide you with a quick (and free) look at the typical estimated market rate according to housing type and location. For major markets, you can even drill down to the neighborhood level.
• For ideas on how extra space in a home can be used to generate rental income, grab some popcorn and tune in to one of the home remodeling programs.