Real Estate

Tiny Houses, Tiny Wallets

By Charles Sizemore  |  July 2, 2018

My buddy Ari was a self-made millionaire by his early 30s. But he didn’t earn his nest egg the way you might expect.
It seems like most of the young and well-to-do hit the jackpot by writing a popular app or creating a viral YouTube video.
That’s not Ari. For a young guy, he made his money in a surprisingly old-fashioned manner: building an empire of mini-storage units, strip malls and other steady income-producing properties.

(Ari looks old fashioned too, by the way. Despite being a Millennial in his mid-30s, he wears a three-piece suit and wingtips to the office every day. Give him a fedora, and he’d look like my grandfather circa 1940.)

Ari is my go-to “real estate guy,” the person who can reliably give me a boots-on-the-ground account of what’s happening in the property market. So I asked him the other day about the health of the Dallas apartment market. Everywhere you turn, there are cranes and construction crews throwing up towers full of luxury apartments.

“It’s a joke,” Ari deadpanned. “Most barely break even. They’re just looking to sell to a private equity fund and take the money and run.”

That might sound like a flippant answer, but Ari was just getting started.

“This property market is a house of cards, bro. Look at the trend of microapartments. Do you think anyone actually wants to live in one of those? They do it because they can’t afford anything bigger.”

Ari’s phone rang, and that was the end of the conversation. But he left me with some good food for thought.

In case you’re not familiar with them, “microapartments” are tiny one-room apartments of 50 to 350 square feet. Your toilet doubles as living room chair. They’re that small. (I’m only slightly exaggerating.)

Microapartments are billed as a great option for the young and trendy. They are tiny and thus ecofriendly. You’re not cooling or heating a lot of unused space. They tend to be located in urban areas close to public transportation and close to bars and other entertainment options.

All of that sounds great. But again, your toilet is doubling as a living room chair.

And living within walking distance to your job and to your local Starbucks matters a lot less when you can actually afford a car.

I think Ari was on to something.

So much of what is viewed as eclectic Millennial behavior – microapartments, not owning a car, the “sharing economy,” no immediate plans to marry or start families, etc. – has a lot less to do with the fickle preferences of the young and a lot more to do with them struggling to stay afloat financially.

Let’s look at the broader housing market.

Since 2000, the Case-Shiller 20-City Composite Home Price Index is up 111%, and this includes the major collapse in home prices starting in 2006. In most markets, home prices are at new all-time highs.

Average wages, in contrast, have risen a little over 50% in that same period (neither data series is indexed for inflation).
You don’t have to be a math whiz to see that it’s a real problem when housing prices have more than doubled while wages of the would-be buyers of those houses have risen by barely half.

Given this, it’s not surprising that something as ridiculous as a 50-square-foot apartment is now fairly common.
Most of our readers tend to be professionals that are well advanced into their careers, so if you’re reading this it’s pretty unlikely that you’re living in a microapartment and taking the bus to work.

But if you also want to save your children and grandchildren from that fate, teach them to save and invest early. They don’t have to swing for the fences. Regular, disciplined investment into a portfolio yielding 6% to 10% will grow a nest egg quickly, at any age, really.

Investing just $200 per month will grow to a nest egg of well over $30,000 in 10 years if invested at 6%. That number jumps to nearly $40,000 if invested at a 10% annual return.

If you can convince your child or grandchild to start saving like that at age 20, they’ll have plenty of cash on hand to make a nice down payment on a proper house.

I can’t make your kid save. But in Peak Income I can help them (and you) grow their savings steadily and conservatively through some of my favorite long-term income producers.

Charles Sizemore

Charles Lewis Sizemore, CFA specializes in finding value opportunities outside of the mainstream stock market. He is a frequent guest on CNBC, Bloomberg TV, Fox Business News and Straight Talk Money Radio, and has been quoted in Barron’s Magazine, The Wall Street Journal, and The Washington Post.Full Bio