2nd Tier Cities Attracting Techie Value Hunters

Written by Alan Findlay on . Posted in Investor Insight

 

I’ve been noticing a long-term trend of couples waiting a longer time before buying their own homes.

This is having a marked effect on the rental market across the US (and, indeed similarly in the UK as people are priced out of the market for longer). Demand for single family home rentals in cities like Buffalo is at an all time high, as families remain in rental accommodation for longer periods of time.

However, the bigger demographic trends are also changing the market – millennial couples are keeping it flexible – delaying having a family, delaying buying a family home, and keeping an eye on the budget. The result? An increase in long-term demand for smaller rental units.

Typically 1-2 bedroom units in multi-family homes would have much more tenant turnover than single units (in our business, one of these would turnover every 1-2 years, as opposed to a 3+ year turnover for a single unit). With smaller families closing this gap, it may well bring the entry point of the sweet spot between the quality and yield down to more affordable levels.

However, an interesting spin-off from this, according to Bloomberg, is that couples who currently rent in the uber-expensive first tier cities (like LA, New York, Silicon Valley…) and realize that they can’t afford to buy in the city they live in, instead of following the trend of just renting, are instead beginning to bargain hunt in 2nd and 3rd tier cities. Techies in the age of remote working, are often flexible in terms of having to physically be in a particular location, and now that the cat’s out the bag about places like Cleveland and Buffalo actually ticking the boxes on a) decent restaurants, b) quality of life and c) value for money, then the numbers can only increase as prices make value for money little more than a joke in the tech dormitories of Pan Alto.

This house was listed for $1.8m in Palo Alto:

A quarter of that money buys this in Buffalo:

I hear the more negative locals complaining here about where all the people are going to come from to fill all these new upscale condo’s being built in Buffalo. And now we have the answer. People are moving to Rust belt, picking up a bargain, while still working in Silicon Valley.

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