Key Demographics That Impact The Real Estate Market

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Real estate investment can be a great way to generate passive income or build wealth over time. It is generally considered a stable, relatively low-risk investment market with a trend of historical profitability. That being said, it is still entirely possible to burn yourself in the market by making the wrong investments in properties that don’t see any demand or purchasing high in an area that is seeing a downturn. As such, we always recommend thorough market research before pulling the trigger on real estate property or seeking investment funding.

 

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At the very least, you should study the neighborhood your property is in and the current economic trends affecting the area. You might look at properties’ historical and trending pricing, the occupancy rates of similar properties in the area, the job market, how other businesses were doing, the crime rate, and different neighborhood demographics. The keyword is demographics.

 

Table Of Content:

  1. What Are Demographics?
  2. Demographic Categories That Influence Real Estate Investment Success

What Are Demographics?

Indeed.com defines demographics as the characteristics of a population that have been categorized by distinct criteria – such as age, gender, and income – to study a particular group’s attributes. Essentially we divide specific members of a population to study distinct traits common amongst members of that group. The information gathered on the demographic can be used in various ways by different groups. It could be used to create targeted marketing campaigns, develop government policies, understand disease spread, and more. Some examples of demographic categories are:

  • Age
  • Gender
  • Ethnicity
  • Geographic location
  • Death rate
  • Level of education
  • Employment status

There are so many different ways you could segment members of a population to help analyze trends and traits common to that demographic. The collection of demographic information has exploded in the last decade with the growth of technologies such as social media, big data, and AI. Consumers constantly give out data, sometimes unknowingly, every time they interact on social media or purchase online.

There are several points in modern technology, websites, and apps that request personal information that can then be used to place users into buckets of attributes. AI and Big Data can be used to sort these vast volumes of data never seen before. It can also exploit the same demographic information to identify trends, market relevant ads, and target users based on attributes at scale.

As such, understanding what trends motivate or divide members of a target audience, as a savvy investor, you can then plan your next investment to ensure demand for the real estate property immediately for rental income or in the long term for appreciation as well as securing the right type of real estate funding for your project. We’ve listed some of the essential demographic categories that can influence the success of a real estate venture to help guide you in your market research.

 

Demographic Categories That Influence Real Estate Investment Property Success

  1. Age

Your target audience’s age plays a big role in their interest and buying power. Age groups are generally bundled into “generations” with particular characteristics common to each generation.

  • Baby Boomers – born between 1946 – 1964. Many of them have built up wealth over the lifetime of their careers. They tend to see real estate property investment as a stable investment to build their portfolio and build passive income. As they start to retire from the workforce, more will tend to rely on passive income to bolster their retirement savings. Their spending days may be either entering their peak or just behind them as they look forward to retirement.

 

  • Millennials – born between 1981 – 1996. While this generation seems keen on real estate investment (with around 43% of all home buyers made up by this generation, as reported by MSN), they are held back by high student loan debt, rising housing costs, and stagnating salaries. They are more open to alternative forms of real estate investment like REITs.

 

  • Gen Z – born between 1997 – 2012. This generation is now buying around 2% of the homes on the market, according to Realtor.com. As many of them are just entering or early in their career, they are “carrying a slightly higher [financial] burden monthly because they’re putting down less than 20%,” said Realtor.com Senior Economist George Raitu. This means Gen Z relies more real estate funding to bridge the gap stemming from their lower down payment.  Gen Z is also more open to investing in crowdfunding platforms and less tangible markets like NFTs and digital real estate. With the NFT market crashing in late 2022, these alternative forms of investment may disappear before they have a chance to take off, however, with players like Meta banking billions of dollars in their online universe, the Metaverse, time will tell.

 

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  1. Employment Status & Income

An unemployed individual would not prioritize new investments, and rising unemployment in a specific area may lead to higher vacancies or delayed rental or mortgage payments. This can affect the businesses in that area as well. With less activity in the area and spending power, small businesses that depend on local footfall and traffic may struggle to remain open – further devaluing the surrounding area.

Income would also dictate the type of property and areas that may be attractive to investors or buyers. High-income earners may be more interested in high-end properties in desirable areas, such as vacation homes or luxury condos. Low-income earners may be more drawn towards up-and-coming areas and may invest in starter homes or smaller multi-family units to generate rental income. Both this points also impact what financing options can be made available for investors.

  1. Crime Rate

The local crime rate can directly impact the property’s value, with areas suffering a high rate being less desirable for investors or renters. As reported by Location Inc, a 10% reduction in crime can increase 1.7% to sales prices.

  1. Tenant VS Owner Ratio

The ratio of rental tenants to properties where the owners reside in their own properties is a key category to consider. In general, it would be harder to fix and flip a property in areas that are predominantly popular for rental properties. Conversely, areas with owners living in their properties may make it hard to find tenants to pay rent. While a generalization, depending on the neighborhood mix, you might find both renters and owners in a single area. However, it is a point to note when evaluating the market’s composition.

 

 

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  1. Ethnicity

At times, while it is important not to stereotype, it can be possible to see trends in investment behavior based on the buyer’s or investor’s ethnicity or culture. For example, Hispanic investors may be more likely to invest in multi-family properties, which are common in Latin America, or Asian investors may be keener on commercial properties. While it is challenging to attribute trends or predilections solely based on ethnicity, it can be used as a loose guideline when understanding the target audience

  1. Gender

As with ethnicity, it can be challenging to characterize the preferences of gender. However, if taking the traditional male and female genders, some research suggests that women are more likely to participate in house flipping than in commercial real estate as per Old National. Men are more involved in REITs than women. Generally, it can be said that women are more risk-averse than men; however, as with all items on this list, characteristics always boil down to individual preferences. These guidelines can be used, but don’t treat them as absolute.

 

Summary

The above six demographics are only some of the common categories than can influence the success of a property investment. When conducting the prerequisite market research before investing or seeking real estate loans, remember demographic data when studying the neighborhood you’re interested in. It can help you identify some commonalities or trends in the given area.

And should you find some great deals during your research, then your next stop should be reaching out to our team at REI News. Our specialist’s goals are to help match investors with qualified, affordable lenders so that they can pursue their real estate goals, leaving finding funding to our team. Talk to us today to find the best financing opportunities.

 

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