Do People Really Pay 1000+/month to rent a home?

Member since 2019 · 3 posts · 2 votes

I'm looking into real estate investing and the first question that comes to my mind is, "what could I potentially rent out a home for?" So I drive around town (Houston) looking at For Rent homes and call a few of them to ask wha rent is. Pretty much everyone is $1000 + . Then I see some posts on here where people are renting their property for some almost $2000. And then I ask "is that real?" That's just totally nuts to me that people would rent for this much instead of buying a home.

So to me, it seems too good to be true if this is what property is being rented for. But on the flip side, can anyone explain why someone would pay that much to rent? I'm sure I have a lot to learn, but I need to try to understand that side of it.

thanks

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Russell BrazilBusiness Member

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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes

I have multiple tenants paying $3,000 a month.

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Amy KendallBusiness Member
Real Estate Broker · Lehi, UT · Member since 2016 · 397 posts · 318 votes
7y
@Patrick Jenkins It is surprising, my investment area has expensive rent as well. All of my single family rentals go for between $1450-$1750, which blows my mind as well but that is the market rate around here. I actually like that range in rent, because I get really good tenants who take good care of the property and pay on time. Get familiar with the types of rentals in your area and how much they rent for. I look at websites like renter.com or cozy.com for my area and that will get you a pretty good idea of what you could get for rent on a property you are looking to invest in. Good luck!
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Nathan GesnerBusiness Member
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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
7y
They will pay that much because that's what the market demands. If you have more demand than supply, it drives up the prices. If you have more supply than demand, the prices will drop.
In 2014 the demand for single-family homes was high in my area. Everything rented quickly and for more than the cost of a mortgage. Today, I am struggling to fill single-family homes and the rent rates are significantly lower than it would cost to purchase a home.
Demand and supply.
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Eric B.
Birmingham, MI · Member since 2019 · 1 post · 4 votes
7y
@Patrick Jenkins From a renter’s perspective, it’s easier to get into a rental than a mortgage, and less expensive up front. And renting allows flexibility: if the renter needs to move out they can just give proper notice and go once their lease is up.
Some people don’t mind paying $1k or more per month for those benefits. I’m in that category myself for the time being.
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Marcus Auerbach
Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes
7y
You are asking very good questions Patrick. Most rental markets are shaped like a bell curve, with the bulk of the volume around the medium rents and then it flattens out to both ends. In Milwaukee (I can't speak for Houston) the medium is probably between $800 and $1,200 between apartments, town homes and SFRs.
There is a sizeable market below that (affordable housing) and it fizzles out below $500. On the top end we have a volume (life-style) segement between $1,200 and $2,000, a luxury segment from $2,000 to $3,000 (for example in trendy lake front areas like the Third Ward and in the suburbs, like Mequon, Menomonee Falls, Brookfield etc. And then you have the ultra luxury segement, large SF's and penthouse suites, mostly $3,000 to $6,000 - occasionally we see something above that, typically listed on MLS by a broker.
You can study rents on Zillow and on the websites of larger appartment complexes. These guys spend a lot of time monitoring fair market rents and are quick to adjust, if they have more vacancies than they want.
Your deeper question was why would anyone pay that much in rent? There is not good logical explaination that makes financial sense. When I ask my tenants (we average around $1500 in rent) they will mention flexibility, not ready yet, avoiding the cost, saving up for down payment etc - most of them could qualify for at least an FHA mortgage. So it is really a lifestyle choice. They will often also drive a brand new leased car. Most residents who tell me they intend to buy a house next year, never actually get around to do that.
I am a real estate agent and I even encourage them to buy... what can I say?
4 Reply
Katie Day
Member since 2019 · 1 post · 1 vote
7y
Hey Patrick - great question. Rents are generally over $1,000 - it is very tough for a rental client to find a good, clean, and well maintained rental for <$1K in the Greater Houston area.
1 Reply
Kevin Sobilo
Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
7y
I have single family rentals and if a tenant bought any of them with an FHA loan and minimum down payment their monthly payment to OWN the home would be less than their current rent. In addition my rental rates are at or slightly below market (to attract good tenants).
I have even brought this attention to my tenants attention and reviewed a closing cost estimate with some when signing the lease just to educate them on what is possible for them.
So, yes it is probably common for people to pay more to rent in many areas.
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Dillon Jalbert
Hartford, CT Area · Member since 2016 · 6 posts · 9 votes
7y
@Patrick Jenkins I paid $950/month in rent for a basement over the summer. Granted it was in Fairfield County, CT, but my landlord lived in the house and owned it free and clear. People need housing, so when they don’t have enough for a 20-30% down payment on a home, they’re only option is to rent a unit.
USA.com/rank can give you the median rent per city/town if you’d like to see what Houston is.
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Judson Thornton Tucker JR
Houston, TX · Member since 2015 · 13 posts · 6 votes
7y
You should also consider that property taxes on a 950 sq ft home inside the loop of Houston has around $12,000 in property taxes a year. Generally speaking, houses are also very old as well. Fixing and maintaining these homes can be a 30-40k adventure. Additionally, those same houses would sell for around $400,000 for under 1k sq ft. If you get in the 2k sq ft range you are buying a $500-$600,000 home that was built in the 20's, could need 10's of thousands of dollars of work, and owes $22,000 in property taxes a year.
The rent is absurd, but the capital to own is equally absurd.
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Alvin Sylvain
Los Angeles · Member since 2018 · 464 posts · 471 votes
7y
@Patrick Jenkins Renting means you don't need as large a down payment, and often your credit doesn't need to be as good. We've had about 3 tenants in our SFR over a period of about 12 to 15 years, rent from $1000 (crazy low for the market, but we were starting out and didn't know any better) to $1600 (still low for the market). In each case, the tenant saved up their money, cleaned up their credit, and eventualy bought their own house. One was making tons of money in their own business, but their credit was ... less than stellar. Once they cleaned up their credit, they were gone.
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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
7y
I have multiple tenants paying $3,000 a month.
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Nicole Heasley Beitenman
Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes
7y
Many also assume they can't afford to buy without researching their options. They don't know about programs like FHA. Student loans are also a large factor; young professionals struggle to save for a down payment because their student loan payments cost as much as a mortgage.
2 Reply
Randy Janoe
Lender · Asheville, NC · Member since 2019 · 60 posts · 50 votes
7y
As a homeowner myself, owning is not simply a mortgage payment. When the furnace takes a dive or you need to do roofing repairs, a few hundred dollars premium per month over mortgage doesn't sound so bad when it is someone else's liability.
4 Reply
Clifford Paul
Rental Property Investor · Member since 2018 · 483 posts · 956 votes
7y
I have a tenant that pays $1895 a month 3/2 1976 sq ft B+ neighborhood. Her income is $280,000 a month... that's not a joke. She prefers renting over owning a home. Not everyone wants to own a house.
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William E.
Investor · Pearland, TX · Member since 2016 · 246 posts · 136 votes
7y
- many of my renters are college students (where their parents cosign) and only plan on being around for a year or so.
- i also have one that has a trust that will pay rent, so he can pick up and leave and anytime.
- one renter was out of a divorce and didn't have the credit to get a good mortgage
all of these people are willing to pay between $1600-$2500 to rent my houses.
It also helps that they don't have to fix anything that goes wrong with the house.
1 Reply
Patrick M.
WI · Member since 2018 · 123 posts · 69 votes
7y
Through my limited research but from being both a renter and now a home owner, renting offers a ton of flexibility for a fixed amount. My personal water heater just went out. $900. Need a new snow blower 500-$1000. Remodeled a living room with fireplace $3000. Redid plumbing main line $2000. A renter doesn't need to worry about any of these costs.
Compared to a friend of mine that rents an apartment who is going on a road trip this weekend. He pays his rent and goes about his day. I don't envy him as I knew my ownership costs up front and am good with personal finance. I am obviously working towards owning rental. But that's the difference. He's not worried about a snow blower, water heater, etc. He pays his $1200-1500 a month and is happy.
On the flip side you find that $1000/month in rent crazy as did I. And it's becuase we value a dollar differently. I refused to pay more than $600/month in rent because I didn't care about swanky granite and pools and downtown views. (I was also single no kids) I knew if I had a reasonable roof over my head, close to work, I could save the difference to purchase a property for the cost most people rent at.
Now that I'm married I can especially see families looking for an updated comfortable space for reasonable rent. They get the appearance of owning a home, the stability of a home, without the financial responsibility. It takes a lot of time and sacrifice to save financial resources to buy and for some it's not worth it.
Remember they could pay $500 a month to bank the other $500. So for a $7,000 down payment it would be 14 months of saving $500 no touching it. They would also be shopping the $200k range that doesn't offer much for updated homes in my area. 1600 sq ft ranch but usually 60s era outdated.
Now to save that $500 they would live in a less desirable location or place. they would end up doing laundry at a laundry mat. or need roommates. or live too far from work/school etc. So the trade off becomes a really lousy place for $500 only to upgrade to a non updated house that you own. or just pay $1000 upfront and get an updated place in a nice location.
1 Reply
Johann Jells
Rental Property Investor · Jersey City, NJ · Member since 2011 · 1k+ posts · 876 votes
7y
In NYC rents in excess of $10k are not uncommon. In some markets where property has skyrocketed but not the rents proportionally, the ratio of rent to purchase (GRM) is so high it actually makes more sense to rent. Around the best areas here, condos rent at significant negative cashflow. Everything has to be taken in context.
2 Reply
Paul Choi
Rental Property Investor · San Ramon, CA · Member since 2017 · 350 posts · 611 votes
7y
As many have said here, renting offers many positives than owning SFH. Where I live in the San Francisco Bay Area, you can imagine how expensive things can be here. I can rent a million dollar property, 4 bedroom 4 bathroom, in the nice suburbs of the Bay Area for around $3500. To buy that property, PITI would be $5000 a month not including repairs and capex. Plus I would need 25% down ($250k). Sure I can put less down but my monthly payment would go up. when renting, I can take that $250k and invest in real estate (multifamily apartments and commercial properties) to generate cash flow. Essentially, some or all of that cash flow pays for my rent. Plus I save money monthly when compared to owning.
Some people may argue that I would be losing out on appreciation if I were to own my SFH but I get appreciation with my commercial and MF properties. Some may say I am making my landlord wealthy. That's fine. Good for him/her. I value flexibility and freedom to move into the house I want, in the nice school districts that we like, scale up or down as needed, etc much easier than owning. I don't want to live in the same house for 30 years. We like to travel, live in various locations a few months out of the year (Hawaii, Asia, etc.) I may buy when a correction occurs and when good houses can be bought for great deals. Until then, will be pushing more of my money into MF and building up the real estate portfolio of cash flowing and appreciating properties.
IMO, for the regular Dick and Jane homebuyer, SFH is their best bet to creating forced saving in a good asset class. For the more sophisticated investor, it may not be the best first move if they plan on using a finite capital source to build up a investment property portfolio.
4 Reply
Jennifer T.Pro Member
Investor · New Orleans, LA · Member since 2014 · 1k+ posts · 944 votes
7y
As other people have outlined, there are a lot of benefits to renting instead of owning.
Also, many people don't have the financial discipline to save up for a house, much less be able to maintain it. Living paycheck to paycheck means anything outside one's normal bills is a calamity. And a lot of people live that way. They don't like to admit it, but living paycheck to paycheck is often, though not always, a choice and a mindset. I've known high earners who live paycheck to paycheck. I've seen friends get a big raise and are so excited they'll finally get ahead financially. Give it 6 months, some income creep, and they're right back to being broke all the time.
3 Reply
Gene Bonham
Member since 2018 · 20 posts · 3 votes
7y
Houston is a dynamic high profile and economically diverse city. I have renters in a home I manage now paying $3000/month. Higher prices are common. I have seen up to $10,000/month. Check out Craig's List each day and save driving around. I primarily buy and sell vacant land but occasionally rent a house.
0 Reply
Brett Goldsmith
Investor · Los Angeles, CA · Member since 2012 · 1k+ posts · 500 votes
7y
Some people rent for $10,000+. Owning a house as a primary residence isn't necessarily the best investment always and renting can be cheaper in many circumstances.
0 Reply
Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
7y
Consider that the majority of people seem to live pay check to pay check and it is easy to understand why people choose to pay high rents rather than change their life style and save to buy a home. Live for today, never plan for tomorrow.
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Michael T.
Los Angeles, CA · Member since 2018 · 326 posts · 279 votes
7y
@Patrick Jenkins yes people pay a lot to rent a home! It doesn't matter what city, state or country people have to rent for multiple reasons and that is why it's critical that we have investors and experts here on BiggerPockets.
@Marcus Auerbach explains it well in his post.
If someone asks me whether they should rent or buy here in Los Angeles I always encourage them to rent as long as they plan on staying at least two years which most people do stay in one city for at least two years.
Listen, while interests rates are at 4%, 5%, 6% or even higher interest on a rental as a renter is always 100%. If you don't own your own home and pay rent when you can afford to buy I encourage you to buy. If you're a renter I'm sure someone on BiggerPockets can help you find a rental. :) If you want to become an investor and make money this is the place to be.
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Alex Vidal
Real Estate Broker · San Francisco, CA · Member since 2013 · 51 posts · 48 votes
7y
@Patrick Jenkins if you want your mind to be really blown, check out the prestigious CA markets - La Jolla, Beverly Hills, Newport Beach, Laguna Beach, Atherton, Belvedere etc. there are many houses that rent for $50K+ per month. In the Bay Area in the nice suburbs $5K+ per month is standard for a 3/2 normal 2K SF house.
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Eric Carr
Real Estate Broker · Los Angeles, CA · Member since 2017 · 655 posts · 293 votes
7y
In LA people pay several thousands to rent a house. Anywhere from $4k - $50K+ a month.
People will pay because they can, they need a place to live, and because they will pay the same amount for all other rentals homes in the area.
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Loren Clive
Residential Real Estate Broker · Paia, HI · Member since 2016 · 479 posts · 311 votes
7y
God bless renters! They have paid my mortgage for years.
Here in Hawaii it is not unusual to pay upwards of $3k for a condo. Nationwide there's a housing shortage, so the rental market should remain strong for years to come.
Now go buy a house and let someone else pay your mortgage, Patrick
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