Guest post by David Shaffer
The term $30,000 millionaire describes a young professional who spends his or her disposable income on items that represent a more expensive lifestyle than what would be expected based on the paycheck. Think of the college graduate who wears designer suits, frequents five-star restaurants, and lives in a swanky high rise; or the young professional who enjoys fine dining and hanging out at the most prestigious clubs nearly every night. They spend money freely on fun, feeling and looking good, with long term growth investments about as far from their brain as a Volvo station wagon.
The $30,000 millionaire mentality is about looking good and staying mobile — and let me tell you, this lifestyle choice has been a positive driver for the multifamily sector in DFW. The young professional is hoping that he or she becomes a HENRY (high earner not rich yet) soon, and so on …
Commercial Real Estate Value Appreciation
But the $30,000 millionaire might actually be focusing on the right things. Many in this group are entrepreneurs, and sales people focused on the here and now, rather than the longer term. This demographic isn’t interested in spending their paychecks on a new home; instead, they focus on purchases related to looking good and feeling good, without a long-term financial commitment, for example: rent, designer clothes, and car leases. These are the “fake it until you make it” things that actually contribute to our local consumption economy. I must confess, there is a lot to marketing and creating an image of success for these folks that can possibly lead to bigger success down the road. Plus, $30,000 millionaires are still young, nubile in their careers, and don’t have children (at least they hope!), so it makes more sense for them to rent rather than buy a home. This creates strong demand for an apartment market, which leads to high rent growth and occupancy—and a nice return for many investors.
So yes, the $30,000 millionaires are responsible for our commercial apartment boom.
In the Dallas metro, there are 1.2 million apartment residents and 560,001 apartment homes. Nationally, 17 percent of the population occupies apartments for a total of 37.8 million renters. What these stats tell us is that the apartment market here is solid and strong. In fact, the multifamily sector has been on an upward trajectory for years, with a speed of growth that we really haven’t seen before, except perhaps in certain metros during the 1980s. Almost every report you’ll read about the apartment market talks about the fact that demand outpaces supply, and while the peak months have slowed, we are nowhere near market saturation. This means that there are still plenty of people who want to rent — and there are still plenty of owners and investors who will see returns.
There are some who fear that rents will climb so high, young professionals will be priced out of the market. In reality, there are only a few markets that fit this description, and they are the same markets where all real estate is uber expensive. While rental rates increased nationally by 2.8 percent from April 2015 to April 2016, and by 5 percent in Dallas, the vacancy rates in Big D are so low that we can assume the increases are manageable. When we look at Dallas area rental trends, rates in areas like Highland Park and Uptown have increased — but so have rates everywhere else. Renters expect to pay more year over year, just as they expect their incomes to increase. This is the nature of business.
The $30,000 millionaire mantras are to fake it until you make it, and spend to look good. For the apartment industry, that philosophy suits us just fine.
Commercial Real Estate expert David Shaffer brings sixteen years of experience in investment sales, project leasing, property management, and asset management to Wellington Realty. In 2006 David started his own company, David Shaffer Realty Advisory Company, which became Wellington Realty in 2008.