Forget Facebook: This Is How I'm Profiting From Millennials

Nathan Slaughter's picture

Monday, April 18, 2016 - 10:30am

by Nathan Slaughter

There were 4 million children born in 1991, which was squarely in the middle of a surge in birth rates that began in the early 1980s and continued clear through the Y2K era.

Of course, we refer to the offspring of this era as "millennials". Those children are now turning age 25 at the rate of 4 million per year, or about 77,000 per week. This is the prime age for settling into a career and beginning a family.

​Millennials aren't often portrayed in the media as hardworking and industrious -- more like starry-eyed dreamers at a Bernie Sanders campaign rally. But make no mistake: it's only a matter of time before millennials control most of the nation's wealth.

Within the next seven years, this generation will comprise more than half of the U.S. workforce. And by the time my son reaches age 25 in 2028, tens of millions of millennials will have reached their peak earning years. At that point, they will be taking home a projected $8 trillion in annual net income, according to Merrill Lynch.

Where will they be spending all that cash? Discover the answer to that question, and you will already be a step ahead of most investors.

Millennials Are Becoming A Powerful Spending Force
For the most part, millennials are the progeny of either Baby Boomers (those born between 1946 and 1964) or Generation X'ers (1965 to 1981). Economists agree that they will soon overtake their parents and become the biggest consumer spending force in history.

There are 80 million millennials living in the United States. According to a comprehensive study by consulting firm Accenture, this segment of the population currently controls $600 billion in annual buying power. And remember, the younger half of this generation is still in school.

But another four million come of age every year -- most of whom will find productive employment.

By 2020, millennials will be spending $1.4 trillion a year and account for nearly a third of the nation's total retail sales. Naturally, marketing and consulting groups are intensely studying the habits of Millennials to determine the best way to engage them and earn their loyalty.

Millennials have already permanently changed many industries, bringing both challenges and opportunities for investors.

There is upheaval in the cable television business because Millennials are unplugging in favor of online video streaming. The social media revolution that gave rise to Facebook (Nasdaq: FB), Groupon (Nasdaq: GRPN) and YouTube was created by Millennials. And the disruptive "sharing economy" favored by Millennials has turned obscure businesses like Uber and Airbnb into global empires worth tens of billions.

Shopping malls and small-business loans are out. mCommerce (mobile commerce) and crowdfunding are in. Millennials have spawned evolution in many places -- and they are just getting started. Billions in future stock market capitalization will be created (and destroyed) by the preferences, values and collective buying power of this generation.

Personally, I'm not interested in wagering where this group will like to shop. I'll let somebody else roll the dice on which fashion trends emerge next or which music streaming site becomes most popular.

That's because I think there's a bigger beneficiary of this demographic tidal wave. And it has nothing to do with discretionary spending.

Multi-Family Housing Is The Best Play On The Millennial Generation
Consider the following two facts:

-- Millennials are forming 1.7 million new households per year, and newly-married couples will all need a place to live.

-- Two-thirds of millennials prefer to rent versus buy.

At the most basic level, the 40 million millennials that will reach age 25 over the next decade will need a roof over their head. Some will "boomerang" back home with Mom and Dad, but the overwhelming majority will want a place of their own.

Most of these young couples (especially those without kids) will favor flexible apartment living over a fixed mortgage. And that's particularly true in big cities.

Even if a new hire moving to New York or San Francisco, for example, wanted to buy a home (and many don't), there are financial obstacles in the way. Home prices in large urban markets are usually out of the price range for younger workers, and mortgage lending has tightened since the financial crisis.

Aside from the cold realities of mathematics, many millennials simply prefer renting. Nielsen group, which does extensive polling, concluded that "millennials prefer to live in dense, diverse urban villages where social interaction is just outside their front doors."

The pool of renters is growing faster than the supply of new units. That explains why occupancy rates are high -- and why rates continue to creep upward each year. A nice apartment unit runs about $1,500 per month in Denver, $2,100 in San Diego, and $2,200 in Washington DC. Multiply that by thousands of units, and you start to see the earnings potential of well-positioned apartment owners.

All of these gusty tailwinds are blowing in the same direction -- apartment REITs. If you're not familiar, REITs (or real estate investment trusts) own groups of income-producing assets like retail shopping space or multi-family apartments. Thanks to their unique structure, they are required to pass along at least 90% of earnings to shareholders in the form of dividends.

I've been a fan of these special income investments for years. And given the trends I just mentioned, I recently recommended one of the top apartment REITs in the country to readers of my premium newsletter, High-Yield Investing.

This upscale apartment landlord owns tens of thousands of apartment units concentrated in the nation's biggest cities. On average, each generates about $2,600 in monthly rental income. And as the portfolio continues to grow, so do cash flows and dividends.

And there is a special bonus on the way -- an upcoming special distribution that will reward investors with a 6% or better yield over the next 12 months.

Unfortunately, I can't reveal the name of this REIT to you today. But for investors looking for income from one of the biggest long-term catalysts at work in the market today, apartment REITs are a good place to start.

P.S. Speaking of REITs, I recently found another one that dividend-loving investors are going to fawn over. It leases out office buildings to some of the biggest government agencies in the country -- and right now it's sporting a 9.6% dividend yield. Owning a income producing powerhouse like this can set you up for life... And I'll give you its name in this free "cash cow" report. Click here to claim your copy now.

Nathan Slaughter does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.