These Three Young Professionals are Charting their Own Paths to the American Dream
The idea of saving up to buy a home, settle down, and build up equity as you pay off the mortgage has been a pillar of the American Dream for generations. That one’s personal residence can and should be a person’s most valuable asset and the cornerstone of a stable and successful financial life has been taken almost as a given. Tree-lined neighborhood streets, white picket fences, 2.1 children, maybe a two-car garage: this vision is very much anchored in a post-World War II interpretation of the idealized American life.
But a funny thing happened on the way to the closing: not every Millennial and Gen Z-er is buying in.
The challenges and roadblocks younger people face in trying to buy a home are numerous. Homes are comparably more expensive than in previous times while incomes have lagged significantly when adjusted for inflation. Younger people today are also much more likely to be saddled with student loan debt than those in previous generations. As if that’s not enough, underwriting standards for home loans have gotten tighter since the 2008 financial crisis to the detriment of young borrowers with limited credit histories. Millennials and members of Gen Z are also more likely to get married later in life, switch jobs more frequently, and move around more often, all of which typically delay buying a home.
Amid these societal and cultural changes, some younger people are forgoing the notion that owning one’s primary residence is a necessary part of a healthy financial life. I talked to three young professionals this past week, each of whom owns multiple homes, just none of them being their personal residence.
Ownership with Income
Michelle Ferrie, who is a nurse, Gus Ofili, who is a real estate agent, and Zach Gilpin, who works for First National Bank, which in the interest of full disclosure is the same bank where I work, are all active real estate investors with multiple properties to each of their names. They also share two common characteristics: none of them owns a personal residence of their own yet and they all happen to be in their twenties and thirties.
How have they done this? For each of them, it has been a hard but rewarding process of saving up enough for the initial down payments, putting a lot of sweat equity into each property to improve it, and then actively managing tenants who generate the cash flow needed to pay the mortgage and other expenses. As they pay down their mortgages, it also frees up equity in their existing properties that they can potentially borrow against for future acquisitions. And yes, there is then some revenue left over for each of these property owners to put in the bank or leverage into their next purchase.
Michelle Ferrie got into rental properties several years ago. She told me earlier this week, “Owning a primary residence is not important to me at this time, but I had always been interested in owning real estate.” With this interest in mind, Michelle bought her first property three years ago, which was a foreclosure, and got to work:
I did most of the cosmetic work by myself and hired out for some of the bigger projects and it took about one month to get it turned around. I then rented to an out of state contractor for three times what my mortgage payment was. I was hooked. The rent paid for my mortgage, my rent, and returned the expenses I had put into it. If it had been my primary residence it would have all been expenses.
Now Michelle is able to build up equity in that property the same way she would if it were her primary residence, but she is using the rental income to do so rather than her wage income as a nurse, which she can then use for other things or save.
Gus Ofili became interested in rental properties as a way to develop his own financial freedom. He previously worked for a bank and one of his jobs was to take calls from people who were struggling to make their loan payments, which was often due to a job loss or an unexpected illness. Gus decided that he never wanted to be dependent on others for his income because things happen; the economy could collapse, the nature of a job could change, or an employer could just decide they didn’t want or need him around anymore. Gus said to me:
If you own a home and lose your income, there is a risk you might lose that home. That is why I am focusing for now on rental properties because no matter what happens with my job I’ll still have the rental income and no one can take that away from me.
Fueled and inspired by books like Rich Dad, Poor Dad and the Bigger Pockets series of podcasts and articles, Gus left his bank job to become a real estate agent. He is now licensed with ERA Dawson-Bradford in Bangor, and is regularly among their most high performing agents even though he is still relatively early on his career. Becoming a real estate agent was a strategic move in many ways, as Gus said to me, “When you work a 9 to 5 job, your income is basically going to be whatever your salary is. But when you work for yourself in a job like being a real estate agent, there is no limit to what you can earn because it is based on how hard you work.” He added, “When I got into real estate my #1 thing has been to work 24/7 to build up my assets so that when I went to the bank I could get approved for a rental property loan so that I can develop that new income stream and build up equity.” It has worked for Gus as he now owns multiple properties and is in the market for more.
One of Zach Gilpin’s primary motivations in acquiring rental properties, like Michelle and Gus, has been the desire to create new revenue streams for himself so that he can have a healthy and stable financial life. He has also been inspired by listening to interviews and case studies among the Bigger Pockets group and from talking to and learning from other local property owners. I asked Zach why he and some of these other young people like him were more interested in rental properties than possibly buying a personal residence for themselves. He noted that many young people today have some unique challenges that older people haven’t had to face either now or when they were young themselves:
A lot of people today graduate from college with a lot of debt and in that situation you simply cannot afford to take on more debt. Buying a rental property is different because you are going to have a mortgage on it but also income from the units. I have limited resources at this stage of my financial life so I am going to deploy those resources strategically to create new revenue streams for myself instead of just buying a place to live in.
Zach also pointed out that most people in their 20s and 30s are by definition in the early stages of their careers. Salaries for people who are just getting started out are typically lower compared to older workers just because older workers have had more time to grow their incomes through gained experience, promotions, and regular wage increases whereas young workers are usually starting on the lower end of the wage spectrum. Rental income, on the other hand, is age-neutral, says Zach. Rents are going to be whatever the market commands regardless of whether the property owner is twenty-five years old or seventy-five years old. But for the twenty-five year old, an extra $800/month of net income from a rental property, for example, is a lot more impactful to his or her life than an extra $800/month might be to someone who is making significantly more in wage income through their regular job. For Zach, this income is not only tangibly beneficial to him but it also inspires him to continue to try to grow his portfolio to further leverage this.
This is not to say that Michelle, Gus, and Zach would not be interested in buying a home for themselves at some point. Gus Ofili said to me, “Of course I want to eventually own my own house. I can’t wait to buy a house.” But he also pointed out that it is generally harder for a young person to get approved for a loan for a personal residence. It is often easier, on the other hand, to get approved for a commercial loan or an investment property loan for a rental. One reason for this is that residential lenders are usually very strict about seeing two years of stable wage income before approving someone for a home loan. For a lot of young people, who often switch jobs several times in the early stages of their careers, this one variable can prevent them from getting approved even if he or she has stable income, good credit, and limited debts.
Speaking from experience, when my wife and I were initially searching for our first home together in 2011, I would not have been approved for a loan on my own because I had just switched companies. I was still working in the same field of investment management and retirement planning, but because I had switched companies within the previous year, I was deemed by our mortgage underwriter to be a higher risk applicant. Together my wife and I were only able to get approved because of her comparatively more stable work at a local credit union, a job that she had held for just over two years.
Michelle Ferrie picked up on this topic in my conversation with her this past week too, noting that many people, young and old alike, pay rent on time for years to landlords, but when they approach a bank for a home loan there may be other variables like a poor credit score that prevent them from getting approved for a loan:
When I talk to some of my tenants about buying a home, there are usually two responses: they don’t know if this is where they want to live so they don’t want to buy or they don’t have a good credit score and can’t get a loan for a home. I think it’s ironic they can pay high rent prices on time every month over the course of several years yet a bank won’t give them a mortgage with a lesser monthly payment because of a weak or limited credit history.
Michelle suggested that banks and mortgage companies look at the history of rent payments as part of the formula for approving people for home loans as it speaks directly to a person’s ability and propensity to pay.
Zach Gilpin also noted to me that the real estate market is very hot right now, and people in their twenties like him have plenty of time to wait things out and maybe take advantage of any market pullbacks over the next few years.
For now, Michelle, Gus, and Zach are all content to live either in rental units themselves or with family members. They are all patient, and with each passing month these young investors will not only generate income from their properties but also build up more equity as they pay down their mortgages, which will make them more attractive to banks once they do apply for home loans.
Michelle, Gus, and Zach all offered some advice or perspective to other people thinking about investing in real estate:
Michelle: “The idea of owning real estate shouldn’t be about what you make right now, but more what it will give you in the long run. Even if you simply break even with your properties it is still an investment towards paying down your loan and building up equity in the property that you can sell someday if you want or need to.”
Gus: “If you buy something, you’ve got to be able to financially keep it. What if something changes and you lose your job? Buying a house is cool, but having rental income will help you hold onto it if something changes.”
Zach, “Getting started out it’s really important to understand that it’s okay to not know everything at the beginning. Having people you can trust and can lean on through the process is important when you’re just getting going. The first one or two properties you acquire are crucial and can jumpstart you in the right direction if they go well.”
For now, these young investors are more than content to continue to build their portfolios of rental properties. If the right situation comes around where it makes sense to buy a home, they are all interested in doing that. But there are a lot of different paths to the American Dream, and Michelle, Gus, and Zach are all showing that the traditional advice of saving up to buy a home for yourself and revolving your financial life around that one asset is not necessarily relevant for everyone. And that’s perfectly fine.
Ben Sprague lives and works in Bangor, Maine as a V.P./Commercial Lending Officer for Damariscotta-based First National Bank. He can be reached professionally at ben.sprague@thefirst.com or personally at bsprague1@gmail.com. Follow Ben on Twitter, Facebook, or Instagram and subscribe to his weekly newsletter by clicking below.
Sunday Morning Community
Author’s Note: welcome to all of the new subscribers of The Sunday Morning Post! I plan to post an article each Sunday morning about economics and finance. If you would like to receive this free newsletter in your inbox each Sunday morning, just click on the “Subscribe” button below. Your email address will not be shared or sold and you will never see any ads: just straightforward content meant to educate, inform, or entertain. Thanks for reading! -Ben
Thank you for all the great feedback and responses to last week’s article about the Saturday Evening Post visiting Bangor in 1951! Here are some of the top comments:
Gregory Clancey: “There's a Bangor connection to the Saturday Evening Post. The publisher who built the modern magazine, Charles Curtis, was from Portland, but his second wife, Kate Cutter Pillsbury Curtis, was born in Bangor. They'd both died twenty years before this story though, and it was part of a series, so it doesn't represent any favoritism. The line complementing Bangor for being beyond the range of television broadcasting in 1951 is interesting. Great posting.”
I heard from my very own dad, Jonathan Sprague, who reminded me that his father (my grandfather) actually worked for Curtis Publishing! Small world.
Neil McDonald: “This is all so enjoyable. We always had the Saturday Evening Post and Life in our house growing up in Hampden. Great memories you are rekindling here. Thanks for your effort.”
As noted in the introduction of last week’s article, I am giving away two original copies of the March 10, 1951 issue of The Saturday Evening Post that featured Bangor, Maine. One copy is going to someone who was already subscribed to the newsletter and one copy is going to a new subscriber from the last seven days. To be unbiased, I downloaded the subscriber list to Microsoft Excel, made separate columns for previous subscribers and new subscribers, and then used a random number generator tool to select a row number from each category. The two winners are Irv Krupke and Tyne Kenney! I will be in touch with you both to mail or deliver your copies!
Weekly Round-Up
Here were some things that caught my eye this week and some further reading about today’s topic:
Business Insider had an article about the changing home-buying patterns of Millenials, as did the Urban Institute, which did a bit of a deep dive on the topic in 2018.
Maine is noted as the #3 “best and safest” state in the country to visit by Yahoo, which only further confirms my thoughts from several weeks ago when I noted that Maine is 15,000 workers short for what could be a chaotic tourism season.
Lori Valigra of the Bangor Daily News reports on the reasons why some people are not returning to restaurant jobs.
Nate Silver observed that people are coming back to restaurants:
Susan Stephenson, the owner of Pepinos Mexican Restaurant in Bangor, Maine, posted earlier this week on Facebook to say, “Friendly reminder that just about every business in America is hiring. A great time to teach kids (and adults) that although dream jobs may not be available, good pay + lots of hours + responsibilities + resume builders are!!!” Well said!
The City of Bangor is doing COVID-relief grants for businesses with five or fewer employees. Click below for more info:
Have a great week, everybody. Thanks for reading. Check back next Sunday for another edition of The Sunday Morning Post!