Motivation for renting Class A property?

Question

This is going to sound like a silly question, but I don't really understand why the people who can afford to rent a Class A SFH rent instead of buying. I suspect that I am confused because I've never known anyone who rented such a property. I come from a working-class background, so the only model I've ever seen is that renters are either young and trying to build up enough money for a down payment on a house, or are down on their luck. Either way, the renters I know in my own life only rent Class C, maybe B, untill they either get back on their feet or mature enough for a down payment. I've lived in Pittsburgh for 15 years now, and I don't know anyone who rents who doesn't have to.

This is more than a philosophical question, as I'll need to understand my customers' needs when I get into REI more seriously.

Thanks for your insight!
Trina

This is more than a philosophical question, as I'll need to understand my customers' needs when I get into REI more seriously.

Thanks for your insight!
Trina

Michael D. · Answer

The houses where I want to live all have very low cap rates - and are therefore not very appealing from a BP-like investment perspective.

So I rent a house where I want to live while I buy real estate where I think the investments are good. Works for me.

Account Closed · Answer

There are many places in the country where Class A rents won't buy you anything.  $2500-$3000 is average rent for a nice 2BDR in my town and there isn't a lot to choose from.  The cheapest thing you can buy is a $500K 1 BDR condo.  The cheapest 2BDR in neighborhoods lots of people don't prefer to live in would be a total fixer for $650K.  A ready to go 3/2 in a good school district is $900K+.  The quality of life is very high and many people choose weather and culture and beauty over home ownership.

My daughter lives in Berkeley, CA, with rents and home prices even more out of whack than here.  The difference there is that Berkeley is in a metropolitan area.  So people can go farther out to buy.  Oakland isn't Berkeley and it's not SF.  But is the "Bay Area". There are many places in the US where there's really limited choices. Beach towns, mountain towns, areas where there is limited or no new construction.  People want to live there more than they want to own something.  I love cities and I think Pittsburgh is great, but it's not one of those places.

T Brown · Answer

Thanks to all for your thoughtful responses!  That really helps.

Joe Bertolino · Answer

Some people want to live in a nice area without long term commitments.  My grandmother passed away in 2009 and we have kept her house in a class A area as a rental until the market heated back up... you would be shocked at the caliber or people that are wanting to rent.  Our current tenant sold a paid off home in the Bay Area for $990K and wanted to move near her daughter and grandkids.  She thought she might miss her friends and life back in the bay so she signed a 1 year lease originally but has been there for 3 years.

Robert Steele · Answer

One of my tenants wanted to focus on their small business so they sold their house and applied the equity to their business. They rented with me for about 2-3 years and then bought a bigger place by the lake.

Another one has no interest in buying ever. They have rented their whole lives. I think they like the fact that they can relocate whenever they want and that they don't have to spend money on repairs.

A couple of others just moved into the state and wanted to look around first before buying. So they rented for a couple of years.

Robert Steele · Answer

But that is $2K you will get every month and when they move out you won't have to spend $$K more in repairs because some scumbag tenant trashed your place.

John M. · Answer

I've wondered the same thing.
Seems like you're going after a special case of someone 'wanting' something instead of the usual rental case of someone 'needing' a place to rent.
Not to mention, the math never seems to work. A $300,000 house that rents for $2,000? No thanks.

Lynn McGeein · Answer

The friends I have that rent Class A do so because they want the neighborhood, square footage, lifestyle, but are self-employed and find it very hard to qualify for what they want.  They've lived in the same home for over 7 years, and say they will buy someday but probably for cash, no loan, but right now they'd rather invest it in their business.  Plus, they love no maintenance (even lawn and garden is done for them), known cost (rental payment only), and really felt great when market crashed and they were not underwater, the homeowner was.

Motivation for renting Class A property?

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