Saturday, July 24, 2010

The American Middle Class is Shrinking and so is the Market for Your Rental Properties

The statistics overwhelmingly prove that the American middle class is shrinking.

Wages have fallen.  Debt has risen.  Equity has collapsed.  What happened to all that real estate equity, all those 401(k)s, and even the income off bonds?

The rich have gotten richer.  The poor have gotten richer too.  But the middle class, that huge bulge of people in the middle that propels the entire U.S. economy, has gotten smaller and is slowly disintegrating.

This simple fact has profound implications for the future of the United States.  And for any real estate development venture or project based on selling to the middle class.

Suburban middle class development is dying.  The old school idea of building subdivisions in within an hour's drive a major city is becoming an anachronism.  It just does not work any longer.  The "Drive Until You Qualify" homebuyer is overburdened in so many ways they are becoming an endangered species.

I meet many real estate investors all the time who are basing their retirement plans on the ownership of "bread and butter" middle class housing, especially single family homes.  I'll rent them out and let the tenants pay off the mortgages, or so the thinking goes.  Then I'll refinance or sell them at age 65.

All I ask is who will buy them in 2020, 2025, 2030?  How will they buy them?  And why?

Ignoring the macroeconomic trend that your target market is disappearing is inviting disaster.

Robert J. Abalos, Esq.