Why are you renting?

Question

Over my years of Real Estate experience I've come to know that so many renters have a very big misunderstanding when it comes to renting over purchasing.  Let's have some feedback and see where we can get with this.

Jessica Swingle · Answer

As a "millennial," I hear a lot about our generation and lack of desire to purchase.

I think it comes down to several factors (there is no one-size fits all here):

1. Financials: Student loan debt, higher cost of living, lower wages/job availability. Those things impact a potential buyer's ability to afford a home. Secondarily, even if they can afford a mortgage payment - many (most) do not have the cash to put down.

2. Lifestyle: Yes, urban living is popular. Convenience and access to shops, bars, food ~ all those benefits are appealing to millennials (and increasingly to baby boomers, actually). People are waiting longer to marry and start families - they don't need/want the added expense of owning and maintaining a home.

That said, millennials ARE starting families and let's face it ~ when that happens, having extra space for kids/pets becomes more of a priority. Nothing quite replaces the advantage of having a "yard." I think we'll continue to see the transition of young families to the suburbs for this reason (among many).

Which is why single family rental housing in great neighborhoods/school districts is in high demand. For those who can't buy, they're still looking for the feel of living in a "home" in neighborhoods similar to where/how they grew up.

3. Preference: If you own, you can paint the walls whatever color you want, change the carpet, renovate to your hearts desire. But - you have to pay to replace your own AC and call your own plumber. As someone who has rented and purchased several homes, I understand both points of view - and depending on what you want, there is no "right" option. This is a personal decision.

4. Investment Opportunity: Unless you are house-hacking or living in a market that is appreciating (A LOT), you should never view your home as a true "investment." We could debate for hours on this one but the reality is, there is a cost to ownership (whether it's the cost of funds to purchase, maintenance, repairs/improvements, or cost to sell). If you make money when you sell, awesome. But in terms of "net" equity...it's usually less than people think.

Dawn Anastasi · Answer

@Sunny Dutta there are some professionals who aren't sure where they want to live so they rent to find out more about an area before making a purchase.

Matt R. · Answer

Something that seems to drive this here in Kansas City is that even though living downtown or near downtown is fashionable again, the KC, MO schools are not real great.  Younger people get out of college and rent an apartment in the city, close to the bars, restaurants, concert venues, etc.  They may even stay in that apartment when the first kid is born, but by the time the kid is school age, they have to move out to the suburbs for better schools - unless their income is so good that they can afford private school.  I suspect there is a similar pattern in many other cities.

Jessica Swingle · Answer

Moving for schools...100%!

Now that we have kids, I understand this consideration on a personal level.

How did miss that?

Thanks, @Matt R..

Billy Maloney · Answer

I'm in Los Angeles. All my work is in the Los Angeles area. I cant get myself to move to the outskirts of LA (still paying 400k and up) because the quality of life just isn't great when you have to spend 2-3 hrs a day in traffic.  I could buy a 700k 2bd 875sq foot house with no yard (real sale in my neighborhood), clear out my saving, raise my expenses, pay a ton on taxes and have to work even harder to keep up with that my mortgage OR I can rent and use my savings to invest in real estate until I have enough passive income to cover that high mortgage payment when i do buy and have less pressure to work more.  Don't want to be a slave to my mortgage and taxes.

Chris Mason · Answer

I have a client that owns six investment properties, that is himself a renter.

He lives in a rent controlled apartment in San Francisco, and has lived there for about 15 years. His rent is ballpark fixed relative to inflation based on rents 15 years ago, at the expense of his personal landlord.

His investment properties are all in cities that do NOT have rent control. His rental income as a landlord is continually exploding all over the place, in a good way.

His debt-to-income ratio gets lower and lower each year that passes (& with each property he purchases), while his landlord's DTI presumably goes up and up each year thanks to him.

Where would you folks say he is on the "evil genius" scale of 1-10? Eight or nine?

Sam Valme · Answer

I think that there are some situational reasons renting would make sense over buying. @Dawn Anastasi mentioned, professionals who haven't settled down yet. Coming from a military family I can say the constant re-stationing is another reason.

One of the biggest reasons I feel my peers (22-26 year olds) rent is because they haven't been taught the value of owning real estate. Also, in northern VA with real estate as expensive as it is. The idea of saving up 5% (let alone 20%) for a down payment is a daunting task.

Couple that with not being settled into a career or having a family. The argument to just rent gets easier and easier in those scenarios.

Account Closed · Answer

I've heard that many of today's younger folks saw the effects of the last crash on their parents and that's made them gun-shy of buying.

As well, divorce comes to mind as a reason for renting.

Mike D'Arrigo · Answer

The Memphis invest folks did a great survey a couple of years back that showed lifestyle choice was the primary reason for renting. Credit and being able to get a mortgage ranked 3rd.

Mike D'Arrigo · Answer

I think @Matt R. is spot on.

Why are you renting?

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