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Owning a home is the American dream, but exactly what type of home is that old adage referring to? For many millennials, it’s not a personal residence, as most would assume.
These days, instead of purchasing a single-family home to live in, some younger consumers are setting their sights on vacation homes — often ones they plan to use only part of the time and rent out the rest.
In fact, according to short-term rental platform Vacasa, millennials currently account for 40% of vacation homebuyers, the largest share of any generation. In 2019, they made up just 31%.
Traditionally, these would be considered “second homes” — properties bought years after buying and settling into a primary house. Now, they’re often the first real estate purchase a consumer ever makes.
As Nicole Bachaud, an economist at Zillow, puts it, “Millennials and Gen Z are already ready to start realizing the benefits of homeownership … but many aren’t necessarily ready to be full-time homeowners just yet.”
‘The best of both worlds’
It might seem like putting the cart before the horse, but for these buyers, it’s a strategic, win-win arrangement: They earn extra income, build wealth and have a property they can escape to whenever they please.
Skye McIntyre-Bolen, 35, is one of the millennials taking this approach to real estate. She and her husband, Mark Bolen, 34, live in an Asheville, North Carolina apartment, but just weeks ago, the pair closed on 1.5 acres of land on Daufuskie Island, South Carolina. They plan to build a tiny house there to use as a short-term rental property and occasional getaway.
“We vacationed there and immediately felt it was a hidden gem,” says McIntyre-Bolen, founder of Skye’s the Limit PR agency. After returning home, the couple did some research and pulled the trigger on the plot — in all cash, nonetheless — just a few months later.
“After seeing that we could afford to pay cash for a lot, we knew we could replicate the rental we stayed in — another tiny house,” McIntyre-Bolen says. “We knew what we were paying per night and saw — via Airbnb, how frequently the tiny house was booked. That prompted us to do some quick math and confirm our suspicion that we'd see a return on the investment in a few years.”
It will be a while before the Bolens have their tiny home rental up and running — all the builders they’ve spoken to expect a two-year timeline — but they’ll be prepping the land in the meantime. They plan to buy a primary home in Asheville (or wherever Mark’s work takes them) down the line as well.
“This approach provides us with the best of both worlds,” McIntyre-Bolen says. “We're able to continue growing our savings for a down payment while establishing an investment property that will help pay our rent, and eventually, our mortgage.”
High urban home prices and remote work
It’s not all about rental income, though; there are other factors at play in this trend. For one, remote work is increasingly common among younger Americans. According to a recent survey from youth marketing research firm Ypulse, over half of millennials are still working from home, either fully or — in the case of 21%, at least some of the time.
With this flexibility, many young buyers are looking for a change of scenery — somewhere to work when proximity to the office doesn’t matter.
Kathryn Bain is one such example. The 35-year-old owner of design and branding agency Georgette Creative bought an A-frame cabin in upstate Wurtsboro, New York. With the ability to work from home full-time, she plans to split her time between the new place and the Brooklyn loft she’s rented for the last 10 years.
“I searched for a long time for the perfect house and even joked with friends that there isn’t a road upstate that I haven’t driven in pursuit of one,” Bain says. “When I almost gave up — the competitive COVID market didn’t help with my search — I finally found my house. I drove up and put in an offer an hour later.”
Originally, Bain considered buying a place in New York City, but surging prices made that all but impossible. Once she pivoted, she was able to spend just a third of what she’d budgeted for in the city — and got triple the space, according to her agent.
“Buying upstate and renting in the city definitely is more cost-effective,” Bain says. She also expects to save on her daily living expenses — at least on the days she spends at the cabin.
Bain’s financially-savvy approach is a smart one in today’s hot market — particularly for those in large cities, where prices have jumped considerably over the last year.
In New York, home prices have increased 24% since November 2020. Down in Austin, Texas, they rose a whopping 33%. (To be fair, increasing vacation home purchases can drive up home prices too. In Wurtsboro, for example, home prices are up 12% compared to December 2020, and in some markets, newcomers have created affordability problems for full-time residents.)
Still, for renters in these higher-cost markets — like Bain, buying a vacation property in a less in-demand area is often a way to steer clear of sky-high prices while still investing in real estate (and the wealth it can help build over time).
According to Zillow, the typical millennial vacation homebuyer spent $285,000 on their purchase last year — well below the nation’s median home price of $386,000. For Gen Z vacation buyers, it was a mere $195,000.
“Younger homebuyers are extremely savvy financially,” says Christian Wallace, head of real estate services at Better. “Staying in their rentals, but at the same taking advantage of historically low interest rates to purchase a home and begin building equity seems to be the best of both worlds.”