Based on person observations and ten years of investment experience, I’ve come to the conclusion that (1) with some exceptions, most people prefer to live in a single family home, and (2) most people will progress through five housing type stages. These housing type stages include: parent’s home, dorm, apartment, duplex or town home, and finally a single family home.

With some exceptions, most people prefer to live in a single family home because it is the most preferred housing type to raise a family. Generally people who have children prefer a home in a safe, quiet neighborhood with sufficient bedrooms and bathrooms and a large front and backyard for kids to play. Yesterday, I met with a contact who recently had a child. While discussing the housing stages, he mentioned, “I have always dreamed of living in a property where could go out into the back yard and plant my own tree”. Who wouldn’t want that?

Exceptions

Not every person desires to live in a single family home and will progress through these housing states, but most will. Exceptions exist for mainly for economic and development reasons.

For example a frequently traveling executive may prefer to rent condominiums in several large cities than own a single family home. This is because a single family home generally requires more upkeep and time is generally more scarce than money for executives.

Another example might be a university student studying a highly lucrative field. He might find that upon graduation, he obtains a job providing him sufficient income to afford renting a single family home. This would effectively enable him to never experience living in multifamily apartment or duplex and go straight to living in a single-family home. Others are not that fortunate. For example, an average single family home in San Francisco with three bedrooms rents for $4,000 a month. To afford this, the family would have to be making over $144,000 a year ($4,000 x 3 x 12). The average cost of a single family home is well over one million dollars. The high cost of living in a single family home in markets such as San Francisco or New York effectively forces people to either cram a greater number of individuals into each home to afford to pay rent or forgo ever living in a single family home at all.

Another exception has to do with the real estate market and the availability of housing types. There are markets, like Austin, where developers built many duplexes and fourplexes, but less town homes and other types of starter homes. Other smaller markets may not have apartments at all, and people may go straight from living in university dorms to renting a single family home because they can rent a single family home in a neighborhood that is affordable.

How Understanding Life Stages Helps Investors

Understand The Service You’re Providing

Understanding the housing stages of life helps you provide the correct property type for the resident you are focusing on. For example, we focus on providing housing to new families with 1 to 3 children. We know what type of housing structure, age, location, quality they demand and we focus on exclusively providing that type of housing for them.

Tenant Screening

Typically age and family size is linked to a particular housing type, so being able to determine whether or not a given applicant is ideally suited to rent your property will help ensure long-term tenancy. An example of this is that roommates that are friends and are renting together without kids generally are not ideally suited to large single family homes in the outskirts of town. My experience with these types of tenants is that they will typically rent for a short time then move to a condo or apartment building closer to the city center where ideally suited for the single lifestyle.

Increasing Privacy May Increase Profitability

If you can increase the level of privacy your rental property provides, you can usually obtain higher rental rates. Examples might include adding fencing, adding trees or shrubs, or adding separate amenities for each unit in a duplex.

There is a reason why living in a single family home is the American Dream. Not only does owning a single family home serve as a representation that you’ve progressed successfully through all of life’s phases, but it is arguably the most ideal housing structure in which to develop a family.

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Alegria Capital Management is a real estate investment management company that manages funds invested in quality residential real estate in high-growth markets nationwide.