A new twist to an old conversation…

I had a meeting with some friends and clients this past week… a young couple who bought their first house a few years ago, and are now looking to make their first “move up.” We had a good conversation, one I’ve had countless times with clients who are both buyers AND sellers. This time, though, with an interesting component. One I believe is gaining traction across our market.

I started in real estate in January 2006. Back then (according to census data), the population of Lynchburg was 70,530. Liberty University’s on-campus undergraduate enrollment was 9,990, and the school had yet to launch Liberty University Online. (And for what it’s worth… Airbnb didn’t exist yet either.)

Fast forward to today. Based on the most recent census data, estimates put the population of Lynchburg City at 80,995. That’s a nearly 15% increase over those 12 years. The on-campus student population at LU is now over 15,000—and by some estimates there are now more than 100,000 additional online students. That means more faculty and staff, more students, more visitors, more graduates, more residents… and, of course, more money.

We’re not going to delve into the economic impact of LU on the Lynchburg economy over the past decade. Folks much smarter than I have researched and reported on that topic, and certainly will continue to do so. So why bring it up? Well, what I remember about those early years in real estate is that when most folks bought a new house, they sold their old one. That’s just how it worked. Sure, there were exceptions… but by and large, if you wanted to buy a new house, first you had to sell.

What I do NOT recall is having conversations with couples in their mid-20s who wanted to explore buying a new home while keeping their existing one. That is new. That’s the conversation I had with my clients earlier this week. They bought a great home, which they have maintained nicely and would make an excellent rental. Or an amazing Airbnb (which launched in 2008, by the way).

Not only that, they easily qualify for the new place. And on top of THAT, their current mortgage has an interest rate in the mid 3% range, which I doubt we’ll ever see again! All of these factors combine to make being a landlord not only possible, but maybe even preferable.

Maybe they won’t do it. Maybe we’ll sell their house, they’ll cash out their equity and put it into their next house. There is an upside to that option—putting more money down is always wise. Only owning one home affects their debt to income, so they would get a better interest rate than if they had two houses. It would probably put them into a higher price point, and no one hates that.

Plus, there are downsides to owning a rental. As I told them, you will probably go for months at a time with no issues whatsoever. But then your tenants will go home for Christmas break and a brass fitting on the washer will crack and spray a fine mist of water all over the laundry room for a week or two before anyone notices (was that too specific?). Or the heat pump will need to be replaced. Or the roof. Or you’ll have to get the place painted when your tenants move out. You get the idea. The bottom line: it’s not all “mailbox money.” Whatever you make in profit you’re just as likely to spend in upkeep along the way.

Here’s the real bottom line: this wasn’t a conversation I had with buyers and sellers 10 years ago. As far as I can recall, it wasn’t an option. Or better said—it wasn’t an option for nearly as many homeowners then as it is now. Something has changed. There’s been a shift—and the result is that more homeowners have the option of becoming investors. More folks can take the leap into owning rental property. It’s reachable for a greater number of folks now than it was even 10 years ago.

Why is that? Does it have something to do with the growth of Liberty University? With the launch of Airbnb? With Lynchburg’s property values, income levels and overall economic stability? I believe it’s probably all of the above. A rare blend of factors that, when combined, have created the climate we currently enjoy.

Hopefully that gives you something to talk about over coffee and dessert…