Why would people pay exorbitant rents rather than just buy a house?

5 Replies

I am starting with REI so pardon my stupid question.

Investing in Real Estate, for the most part, has got to do with the confidence that there is an abundant number of people who are willing to rent a place (instead of buying a house themselves).

But does it follow that if someone can afford an expensive rent, they should also be able to afford buying a house?

I do know some obvious reasons (e.g. they are not going to stay there for long)... but what would be the other reasons, especially for long-term tenants? I just like to know a bit of psychology behind it.

Or for BP members who have a lot of tenants, would you be able to share their reasons for renting?

Lots of reasons people rent instead of buying. Some are legitimate, some are rationalizing.

In a big city, rents could be FAR below what a home would cost. 

Some people have credit issues that prevent them from buying, but they can still find someone to rent to them. 

Then there are some people who are just scared. It's a new process, and complacency is hard to beat. 

Some people know they will be moving soon. 

There is a lot of financial advice given to the average consumer that buying isn't always better than renting. This is true in some regards, and sometimes the person just uses this as justification for not pulling the trigger. 

Fact is, there will ALWAYS be renters. 

Not being "tied" down to an area. Not having to worry about a foreclosure if they lose their job. Not having to handle repairs. 

Mainly: Not having the money for a down payment. Or the credit to hold the loan.

  • Mobility.
  • Credit history.
  • Lack of savings.
  • Do not want to be responsible for repairs.
  • Fear of home ownership.

@Ava G.

  depends on the area of the US... some areas home ownership is of paramount importance and many strive to achieve it... in other parts of the US.. homeownership is not a driving force and there is no rush to buy one.

the idea being.

places that have high prices generally see appreciation come into play and folks want to get in on that appreciation. 

in other parts of the country were values are stagnant or do not move up virtually at all and can in fact drop... Renting could be better as your not subject to the downward market movement. NO responsibility to the home etc.

There are more SFR homes in the US than there are people with good enough credit to qualify for a STandard mortgage in todays environment of lending. Sub prime is gone that wiped out a huge swath of potential home owners.

Although we would be surprised to know how many folks own their homes free and clear its a much bigger number than one would suspect

I rented before I bought my current home because I knew I will be moving to another city within two years of renting.

One of my high-income colleague also rented when he moved from another city to start his current job because he was not sure if he wouldl stay on his job.  Decided to stay, so he bought his own home after one year of renting.

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