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MultiGenerational Rental Property

December 13, 2020

Multigenerational Home Demand Grows

The pandemic continues to accelerate trends that were already happening in the rental housing markets.

The multigenerational home market has never drawn much interest from property investors however lately, larger houses with separate living spaces is attracting many more buyers. The prices of these properties are rising fastest in Hawaii, California, Texas or Florida and most other US states.

40 years ago, only about 1/10th of the population lived in multigeneration households. Today that number is above 20%. Let’s take a closer look all that’s driving this growth and the types of multigeneration rental properties you might invest in.

PEW Research and NAR Report Growth

In 2016, 64 million people lived with multiple generations under one roof, according to Pew Research Center analysis of census data. A Report from the National Association of Realtors in November said buyers who purchased after April 2020, were more likely to purchase a multi-generational home: 15% versus 11% who purchased before April.

People Living in Multigeneration Timeline. Screenshot courtesy of Realtor.magazine.

Buyers sought housing with more rooms, more square footage and more yard space, as they may have desired a home office or home gym,” she added. “They also shopped for larger homes because extra space would allow households to better accommodate older adult relatives or young adults that are now living within the residence.” — from NAR press release.

Multigenerational homes are sometimes in the form of separate mini houses (Accessory Dwelling Units) located on the same property. These guesthouses, grannie flats, casitas, in-law suites are used by college kids, grandparents and other types of guests. They can be rented out too and often become airbnb rentals.

Twelve percent of home buyers purchased a multi-generational home to take care of aging parents, because children over the age of 18 were moving back, and for cost savings. Eighteen percent of buyers aged 74 to 94 purchased a multi-generational home. Buyers 55 to 64 years comprised the second largest share at 16 percent” — form NAR Home Buyer and Seller Generational Trend Report.


Above: NAR Report. Multigeneration homes sales.

Plenty of Ways to Fill a Multigenerational Home

These are all just different ways of creating more housing on one property.  Local housing laws may restrict “tiny houses” or other ADU’s and some don’t even allow them. Splitting a house into 2 units, or levels might be the only option left for those who must create a multigenerational home.

Some multigenerational homes have minimally defined spaces for inhabitants and they mingle freely. This has actually been a significant problem with respect to spreading Covid 19 in many communities.

Rising Price of ADU Homes

Accessory dwelling units (ADUs) detached from the main home, as they’re formally called, are hot properties now.

The prices of multigenerational homes and rent prices for these houses have increased much faster than any other type of home. It’s a trend worth understanding as it may persist beyond 2021.

In a recent Forbes report, the median listing price was quoted as $567,000. That’s up 14.5% year-over-year, higher than the overall price growth rate for homes at 12.7%. It’s likely that rent yields for multigenerational homes, or even those with a granny house in the backyard.

What’s Creating Demand for Multigenerational Homes & Properties?

A number of factors are creating more demand to buy or rent homes that can house several families. Formally, that makes them multifamily properties but most landlords would consider them part of their rental house portfolio. Are these types of properties among the best rental properties to buy as we head into 2023?

In fact, adults are not placing their parents in senior care facilities and more elderly parents are not getting surgeries or requiring convalescence. Adults with kids look to grandparents look to their parents to take care of those kids. There are functional and economic reasons for multigenerational homes.

Immigrants in particular, commonly have multigenerational situations, sometimes with as many as 4 generations in one big house. According to the PEW research reports 25% of Asian Americans, 23% of African Americans, and 22% of Hispanics live in multigenerational homes, in contrast with 13% of Caucasians.

Will Demand for Multigenerational Persist?

Demand for multigenerational housing and ADUs will likely persist for these reasons:

  1. it’s affordable
  2. offers a maintenance and repair free lifestyle
  3. adults with kids need babysitters
  4. work from home parents want/need homes with more room
  5. seniors can’t afford to live on their own
  6. seniors want to save money for travel
  7. adults taking senior parents out of nursing homes due to Covid 19 danger
  8. younger millennial-aged kids moving back with parents after being unemployed or their business went bankrupt
  9. college kids coming back home due to pandemic
  10. financially stressed homeowners need extra income
  11. greater rental income opportunity for landlords

Are Large Houses or Multigenerational Properties a Better Choice?

If you’re researching the best rental properties to buy, these larger houses with multigeneration properties do have some attractive features, while other times, they’re just big, plain houses.  There’s opportunity to add value and charge more for multigenerational rentals.

DR Horton is building brand new multigenerational houses in Las Vegas, within a 290 home development. Take a look inside one of the houses.

Youtuber Shelly Church introduces prefab granny flats that can be placed on your rental property to help attract multigenerational renters and allow you to raise your rent prices.

Local laws in cities vary and most will have restrictions on ADU’s and occupancy, but for extended families living in a large house, there might be few challenges.

Multigenerational and ADU housing arrangements have significant and fast-growing demand. Baby boomers are selling their homes and might find such an arrangement timely.

Your challenge is where to find multigenerational houses or properties where you might build one.


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