From Distressed to In-Demand – a Look at the Aged U.S. Housing Stock
Housing is among the essential commodities in any society, providing the bedrock for safe, stable, and long-lasting communities. However, not all available housing is equal. There's a big difference between a newer home designed with modern life in mind and an aging home no longer meeting today's owner or renter needs.
Across the U.S., there's a strong need for improvement in the housing stock. As housing ages, issues with efficiency and functionality come into play, threatening neighborhood stability and putting homeowners and renters in vulnerable positions. For real estate investors, acknowledging the state of aged U.S. housing stock can't be overlooked. Whether holding property for rental purposes or fixing and flipping for a profit, investors should pay close attention to the state of the aging U.S. housing stock and how it may or may not affect the investment ambitions in the years to come.
The State of U.S. Housing Stock
The housing stock in the U.S. is growing older with every passing year, and the Great Recession hasn't helped the state of the market. Per a 2019 American Community Survey from the U.S. Census Bureau, owner-occupied homes are a median age of 39 years old and are worth an estimated $25 trillion. Overall, this is a decline; in 2005, the median age was just 31 years old. What's more, this age has nearly doubled since 1985, when the median age was just 23 years1.
This marked change indicates a decline in residential construction despite technological and economic advances in other markets. In many ways, this translates to a growing remodeling market2, requiring owners – whether those living in a home or investing in the property – to make key upgrades to enjoy a modern standard of living.
An average construction date of 1983 puts the housing market behind countless other industries. Ask yourself, "How many other significant assets do Americans still actively use from 1983?" The answer is, of course, not many. Things like appliances and electronics from the 1980s and earlier are entirely obsolete. Besides serving as a fun statement item for the sake of decoration, these products are no longer owned or used.
The Challenges With Older Homes
Older houses often lack the features current buyers want and expect to see. Things like open floor plans, high ceilings, walk-in closets, and spacious bathrooms are likely missing from these properties, providing a living experience that many modern homeowners will find to be subpar. HVAC, electrical, and plumbing systems may also be outdated, creating a lacking experience.
While older homebuyers may not mind features that are now considered outdated, as these have been constants in prior properties, Millennial and first-time homebuyers are less likely to tolerate underwhelming properties. Further, many younger buyers may not have the money or skillset to make improvements to bring an older property up to snuff and thus won't consider older homes.
So, what does this all mean? In essence, without tearing down properties and rebuilding with modern consumers in mind, investors may need to buy, flip, or hold property with the needs of today's homebuyers in mind – not just buyers of the past few decades.
Investing and Aged Housing Stock
When investing in real estate, no matter your preferred method, keeping in mind the age of purchased property is essential. Older housing stock that doesn't reflect what Millennials and new buyers like to see is likely to command lower prices or stay on the market longer, which isn't a great sign for turning a profit. Today more than ever, homes need to be up to buyers' standards.
So, what does this mean for investors? On the one hand, it may mean a little more work in getting properties up to par. On the other, it opens the door for maximizing profit by making improvements homebuyers want to see. Real estate investors who understand what's lacking from a property and how to make tweaks that will entice buyers will be an essential part of the market moving forward.
With the proper planning, rehabbing older properties can be a great way to scale a business profitably – but that means knowing what to expect when getting started. Here are a few things to keep in mind:
- Layout: Most older homes have segmented layouts in opposition to more modern open floor plans. While some walls are load-bearing and will have to remain in place, many properties will have walls that can be eliminated, increasing options for a home's interior. This can be especially valuable in kitchen and dining spaces, where buyers are most likely to be turned off by cramped quarters.
- Curb Appeal: "You can't judge a book by its cover" doesn't apply to houses. A fresh coat of paint, updated features, or a little landscaping can go a long way.
- Staging Opportunities: While not all investors favor staging, it can be a benefit when listing an old home for rent or sale. Staging in a way that appeals to younger buyers, like highlighting where a home office for remote work may go, promoting eco-friendly solutions, and including technology, like smart thermostats and other automated technology.
Real estate investing is always an adventure, and the aged U.S. housing stock can be a crucial component of success. As the demand for move-in-ready homes continues to grow, capable residential investors have a significant opportunity to add value to this aged housing stock, deliver desirable homes to buyers, and reach their dreams of building wealth through real estate.
Speed to close. Power to scale.
Kiavi can provide funding for real estate investors looking to rehab America's aged homes. Whether you're looking to fix-and-flip or fix-and-hold, we have a lending option perfectly suited for today's REI. Find out more